Thank you for standing by and welcome to the Northern Star December 2020 quarter results conference call. All participants are in a listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Bill Beament, Executive Chair. Please go ahead.
Thanks, and happy New Year, everyone. Good morning, and welcome to Northern Star's December quarterly results, and my last delivery of quarter results as an executive of Northern Star. I wish to thank my employees, management team, board, business partners, all stakeholders, and longstanding shareholders for your huge and enormous support backing myself and the company over the last 11 or so years. Joining me on the call today are our Chief Executive Officer, Stuart Tonkin, our Chief Financial Officer, Ryan Gurner, and our Chief Geological Officer, Mike Mulroney. Today's results from Northern Star, and those you have already seen this morning from Saracen, are more proof of the world-class company that we are about to establish. Northern Star's December quarterly performance shows our assets are performing great and are well within our group guidance.
At the operational level, the financial level, and the corporate level, our plan is coming together just as we had outlined. In simple terms, we're delivering on every element of the script we gave to the market when we unveiled the merger strategy last October. This means we're on track to seize one of the greatest opportunities ever seen in the Australian gold sector. In fact, I'll go as far as to say that is one of the greatest opportunities currently on offer in our industry globally. Today's results further support what we have been saying since October, which is that we are creating a gold mining company that will be growing at a time when most of our peers are staying still or shrinking.
Growth at a time when your peers have none of it, that's the sort of growth is special, and it is particularly special when it is organic growth. As we've shown over the years, that sort of growth, which delivers strong financial returns. I can assure you that the merged group will retain our commitment to maximizing returns for all stakeholders. Our strategy to deliver our sort of growth will be assisted by the vast synergies which will flow from this merger. The flexibility which comes from having multiple production hubs around Western Australia, and the firepower to unlock the enormous exploration upside at our assets. I'm excited to show more on this exploration opportunity, which will be released in the June quarter.
With the merger with Saracen now just awaiting final court approval, we are very well advanced on getting into the detail of our strategy for the merged group. We're not going to delve into the details today. As you'll appreciate, there is plenty of work to be done to ensure we maximize these huge opportunities we have. I will now hand over to Stuart Tonkin, who will provide some insight into the quarter's results.
Thanks, Bill. This morning, we are pleased to report our December quarter gold sales of over 252,000 oz at the upper end of our quarterly guidance, which is quarter-on-quarter growth to a full year production of between 940,000 oz and 1,060,000 oz. We remain on track for group guidance with a strong half two forecast. We also remain well-positioned for planned organic growth with capital expenditure underway to deliver a 30% production increase over the coming two years. Our planning for merge integration and delivery of combination synergies is underway for the inclusion of Saracen and Northern Star's outstanding teams and assets. Ryan will talk shortly to our strong balance sheet to support this growth. To Pogo Operation in Alaska, we continued with an improved performance at 54,000 oz sold at an all-in sustaining cost of $1,365 an ounce, despite the constraints imposed due to the impact of COVID there.
Restricted activity has meant prioritizing development and stoping zones to three main areas of Liese, South Pogo, and Fun Zone. The diamond drilling is continuing with eight rigs underground, including North Zone and East Deep, with exciting results achieved across the mine. I thank the Pogo team immensely to maintain all control measures to ensure the health of employees and the community whilst maintaining business continuity throughout trying times with over 100 COVID cases managed during the quarter. Long hole stoping at Pogo continued, and contributed 77% of the ore feed during the quarter, with total ore mined of 202,000 tonnes at 9 g/t . We are mining at about 60%-80% of capacity due to the disruptions, and we continually reallocate resources to prioritize mining programs.
Pogo milling matched mining volumes of 203,000 tonnes at 9 g/t to produce over 53,000 oz at the upper end of our guidance range. Our mill expansion activity is continuing to enable the 1.3 million tonne per annum capacity by mid this year, mining volumes will be needed to increase to meet this capacity. To our Yandal operations, we continue on track with that 68,000 oz sold at an all-in sustaining cost of AUD 1,203/ oz. Underground development is set to increase with an additional development jumbo to make the fleet now six. We are also continuing significant exploration and definition drilling with 15 underground diamond drill rigs active, drilling in mine and near mine targets. At Ramone, the open pit, final open pit ore was mined in preparation for a future underground are progressing.
Ramone stockpile supplements for Jundee mill feed, which processed 664,000 tonnes in the quarter, which is a 2.7 million tonne per annum run rate. Future open pit sources from Julius and Orelia progressed with drilling and planning activity continuing. The milling studies will be concluded in the current March quarter to determine the ideal expanded capacity between Jundee, Bronzewing, or Thunderbox plants. At the quarter end, Jundee had 81,000 oz of gold contained in stockpiles and gold in circuit. To our Kalgoorlie operations. We sold 72,000 oz, albeit at an elevated all-in sustaining cost of AUD 1,968/oz . Our Kalgoorlie mines remain our highest cost operations, but do benefit from the synergies realized through the sharing of resources in the goldfields. Financial half two will be stronger as we build back stockpiles and run processing plants at optimum throughputs, including increased roasting.
We were able to increase concentrate treatment to reduce inventories during the quarter, which closed at 44,000 oz of gold in stock and circuits at the end of the quarter. We will continue to draw this down throughout the financial year. Kalgoorlie Operations continue to generate good cash flows as all-in costs are close to the all-in sustaining costs. We also have significant leverage to gold price across our resource base there and continue to have exciting prospectivity through in-mine and regional exploration activity. Now to KCGM, where with our JV partner, we delivered a strong quarter with our 50% contribution at 58,500 oz sold at an all-in sustaining cost of AUD 1,359 /oz . The current performance at KCGM and the significant potential of this operation highlights the principle rationale for the merging of two great companies and single ownership of this asset.
Improvements across the pit activity has seen total material movement increase quarter-on-quarter by 22% to an annualized rate of movement of 60 million tonnes per annum. With new fleet planned and improved working phases across Morrison, Oroya Brownhill, and Golden Pike zones, this will grow to 80 million tonnes per annum rate over the forward plan. The underground production was maintained from Mount Charlotte and Hidden Secret, and rehabilitation works commenced to access the historic lower mine to enable further exploration, extension, and drilling there. We are looking forward to combining the exciting growth plans established by Northern Star and Saracen on our tier 1 assets to deliver a portfolio of 1.6 million oz per annum, growing to 2 million oz per annum whilst realizing the identified synergies that make this merger of equals such a compelling transaction.
I would now like to hand to Ryan to discuss the finances for the quarter.
Yeah. Thanks, Stu. Good morning, all. I'm pleased to be able to present to you some of the key financial aspects of the company's 2020 December quarterly results. We'll start with the cash flow waterfall charts as we normally do on page five, which provide an overview of cash, bullion, and investment movements for the December quarter and the generation of AUD 325 million in operating cash flow and AUD 93 million of underlying free cash flow, which adjust for working capital movements and movements in the company's equity investments. Some of the key one-off cash flow items this quarter included a total of AUD 45 million paid in stamp duty in respect of both the Echo Resources and KCGM transactions. A AUD 10 million balancing payment for the finalization of the FY 2020 tax year and repayment of AUD 125 million of bank debt.
At 31 December, cash, bullion, and investments stand at AUD 372 million, and corporate bank debt at AUD 375 million. As illustrated by the top chart, the company invested a total of AUD 105 million in capital during the quarter, which comprises approximately AUD 68 million in sustaining capital and AUD 37 million invested in growth capital. The AUD 37 million of growth capital spend comprises AUD 9 million at KCGM, which is net of the revenues realized from ounces recovered at Morrison and OBH mining areas. Both of these areas now are in commercial production. Other major components of growth capital investment during the quarter included the Pogo plant expansion and underground development at Jundee. Approximately AUD 27 million was invested in exploration during the quarter across all operations, with the majority of spend at Kalgoorlie, Jundee, and Pogo.
Turning to the site operations, where during the December quarter, the Australian ops sold 199,000 oz at an all-in sustaining cost per ounce of AUD 1,526, which takes the half year to 375,000 oz sold at AUD 1,534/ oz . The December quarter for Yandal ops was broadly consistent with Q1, with 71,000 oz produced and 68,000 oz sold at a cash cost per ounce of AUD 883 and an all-in sustaining cost per ounce of AUD 1,203. At the end of the quarter, Jundee had 81,000 oz in stockpiles and GIC. An improved quarter was recorded at Kalgoorlie Operations, with mine grade across all sites lifting in the December quarter, with 72,000 oz mined and sold at a cash cost per ounce of AUD 1,452 and all-in sustaining cost per ounce sold of AUD 1,968.
Higher non-cash stock movement costs were realized with the drawdown of gold inventory held up from the September quarter at Kanowna Belle. All-in sustaining costs at Kalgoorlie operations are expected to continue to trend lower for the remainder of the financial year. KCGM had another solid quarter with pre-tax free cash flow contribution of AUD 42 million for the December quarter. The operation continues to see cost reductions and productivity across the board. A total of 59,000 oz were sold at an all-in sustaining cost per ounce of AUD 1,359. With the Morrison and Brownhill mining areas now in commercial production, which means costs from these operations are now reflected in all-in sustaining costs.
Now to Pogo, where the operations performance continues to excel even with COVID restrictions, with sales of 54,000 oz at a cash cost of $954/oz sold and all-in sustaining costs of $1,365 recorded for the December quarter. Prioritized decline and lateral advancement during the quarter resulted in additional capital investments, which sets up future quarters at the operation. Pogo's total site costs, excluding exploration investment, the plant expansion, and the corporate allocation average $24 million per month over the December quarter. Pogo is continuing to incur some additional operational costs from COVID-19, mostly relating to personal transport, accommodation, freight, and additional cleaning. These costs are reflected in all-in sustaining metrics at the operation. Finally, during the quarter, the company delivered 48% of the total sold ounces into hedge contracts.
No additional commitments were added during the quarter, and at 31 December, the company's hedge book stands at 350,000 oz at AUD 2,128/oz . This approximates just 10% of our annualized production over the next three years. I'll now hand back to Melanie for questions.
Thank you. If you wish to answer a question. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Nick Herbert from Credit Suisse. Please go ahead.
Thank you. Hi, Bill and team. A few questions from me, please. Might start on Mount Charlotte. I am just wondering if you could talk to the program of exploration works you have got planned there this year. What are the operating development rates you are targeting? Noticed the drop-off in the December quarter. Just a comment there, whether that was just purely due to the rehab slowing things down, really interested in what your expectation is for rates going forward.
Thanks, Nick. It's Stuart. Look, we lifted already the production, so there's a 1.5 million tonnes per annum from that underground. You're pulling some from primary stopes, but also some from the cave material. What we're doing across the board, obviously 1.5 million-1.7 million is where we're operating at. We've seen instantaneous rates up towards 2 million tonnes. That's really because of the extra draw on the cave. Where we're targeting really from an exploration and mine life perspective, there's 1.9 million oz of resource there, Bill, that's able to be reviewed, drilled, and potentially converted into reserves. The exploration drilling will target that large resource. The beauty is you've got multiple zones in and around the main Mount Charlotte ore body, so you can actually have multiple production horizons.
The work that started at the bottom of the mine is really just rehabilitating declines and accessing the lower levels to get the diamond drills in. There's a long lead on that, we see the extension of the main Charlotte ore body as a good potential. It's really not been looked at for years. It's also some of these higher, more shallow zones that are parallel to the main ore body. The extra development is going into the rehabilitation to access for diamond drilling, and those mining rates will be more reflective of around that 1.5 million tonnes per annum. A couple of things we'll be doing going forward, to test the synergies part of the treatment of Mount Charlotte ore, we will be moving material between mills, between Kanowna, Carosue, and the Fimiston plants.
Simon spoke to this briefly on the Saracen call earlier. There's some huge opportunities there to get benefits out of Charlotte ore body because there is free milling non-refractory material underground there. At this stage, there's a new fleet being put into Mount Charlotte, so underground productivities, we see mine life extending there.
Okay, great. Thanks, Stuart. On Pogo, just interested if you have any thoughts around the vaccine rollout in the U.S., when you think that may have, I guess, implications for your workforce, their productivity or whether that's second half of this year, or you do have any thoughts around that?
Yeah. The rolling of vaccines out is going to first responders in Alaska, and it has to be really probably focused on Alaskan residents. Look, nearly 50% of our team over there has, at some point, had COVID and recovered. Look, it's a management thing at the moment. Very hard to predict where it's going. We currently have zero active cases. We've taken that into account in our guidance this year, and it's pleasing that despite those interruptions, we're still tracking at the top end of that guidance. Look, we're absolutely pleased with how the team's coping, managing, dealing with it, as well as obviously got the expansion teams on the processing facility. That'll be commissioned, as well as slowly increasing the exploration activity. We've got the eight underground rigs. We've also got three rigs on the surface drilling out Goodpaster.
It's difficult to forecast, but what's been proven, they have relentlessly managed this for nearly 12 months now. You can see the performance, processing at nine grams per ton, albeit it's at 68% of the volumes that we will forecast over the next couple of years.
Okay. Thank you. Final one, just a clarification, Stuart. I think you mentioned, but I didn't quite catch it, the studies around the refurbishment and the optimization of the Yandal sort of milling. Did you say that that was due to be completed this quarter?
Yeah. We've completed studies regarding the refurbishment of Bronzewing and/or Jundee expansion, and we've put the CapEx associated with that in the Northern Star guidance plan. What I said on the previous quarter was we are now evaluating the expansion of Thunderbox in that equation, and the works in regard to that are underway at the moment. Saracen already had a sort of stage 2 expansion, secondary crushing going in to take that sort of to 3.5 million tonnes per annum at Thunderbox. We're looking at a much bigger Thunderbox version, and we're still going through the details of that. This quarter, we'll have all of those side by side. We'll go through the CapEx and the benefits for longer term, the plan for the greater Yandal 600,000 oz setter, and we'll be putting that through approvals through our systems.
This quarter's a fair bit of the desktop work, and ideally next quarter we'll be able to explain which one we're moving forward with.
Okay, great. Thanks.
Your next question comes from Sophie Spartalis from Bank of America. Please go ahead.
Good morning, team. Happy New Year. Just a few questions from me. Firstly, just around Kalgoorlie, those costs were still quite high. Understand and appreciate that the production in the second half is expected to be higher, but can you just talk through the plan to deliver within the all-in sustaining cost guidance range of AUD 1,650-AUD 1,750, just given that at the year to date, you're at over AUD 2,000? Is that realistic to still land within the guidance range? Thanks.
Look, Sophie, thank you. We've got plans to deliver that. There's still risk associated with meeting that top end of the cost guidance. At the moment, we've got plans that's really volume driven. Grades and recoveries have been good at our Kalgoorlie Operations. It's really a volume play. We're milling at that sort of 2.9 million tonnes per annum, between Kanowna and South Kalgoorlie, and we really need to be sort of 3.2 million. It's really a volume play. We have the added option of utilizing third-party toll mills as well as the increased merged portfolio, including Carosue Dam. There's plans there to build in that. I'm confident we will meet the group guidance, whether individual assets move within that. What we've put out there is, yeah, very confident that we're on track as a group to meet the guidance.
Yeah, sure. Just in terms of then the fact that you're running at 2.9 million, you need to be at 3 million, 3.2 million. What's inhibiting that?
Look, it's the mining.
Be needing to the guidance?
It's literally mining activity at Kanowna. You see the sort of wave. That's why we also put back ends or weighted guidance throughout a financial year as we're growing things, because you need the development at the front end. You've seen development at Kanowna Belle be increased to access more of the stoping front. It is a front-loaded, get it developed, get those stopes online, and then you can be very efficient in the production side of that. That's just how our cycles go in the underground side of EKJV, the Millennium area, as well as Kanowna.
Okay. Were there issues around getting that development far enough ahead? Is that what we're trying to resolve there?
Look, we put quarter on quarter guidance showing that growth. We explained right at the start, it wasn't just Pogo related. It was across our assets. You saw us end quarter four very strongly, last financial year. When we had our mine plans, you saw that build. We moved from sort of 22% up to 28% of that guidance weighted from quarter one to quarter four. The good thing is we keep that trajectory growing into FY 2022, 2023. It's absolutely why we put that annualized guidance out there. We're above that guidance in quarter one and in quarter two. It's to plan above that. Our half two is forecast to be much stronger than half one.
Okay. What about in terms of labor cost pressures? Are they starting to bite just given closure of borders around the Kalgoorlie area?
Look, they're not there yet because people have jobs here and it's more pressure on nickel, copper, lithium, those sort of things if they start to put pressure on it. At the moment, we've already got, as does Saracen, sort of rewarding sliding scales on productivities and on gold price mechanisms that reward our staff and retain our staff related to that. That's already embedded and self-funding. I do anticipate that over the next couple of years, put some pressure on labor costs. It's not end of the day something we've just got to manage and deal with.
Yeah. Okay. What about consumables? Any issues around getting them into the state? Any offshore stuff that's got to come in?
We've never had issues in relation to COVID and this is including Alaska. We've never had issues in regard to materials, plant and materials. It's really the movement of labor. We're not dependent on FIFO interstate labor. Our Alaskan team as well has managed through all that. We haven't seen any pressure on lack of stock or lack of materials. It hasn't been an issue for us.
Okay. No, that's great. Just in terms of the integration planning, can you maybe just provide some color on how much integration planning has been done and ready to, I guess, put in place and execute once the merger is approved?
Look, a lot of this work was done prior to the announcement of the merger because it was truthed up and proved up to be seen and the team actually sat together to understand what it could look like. That work was set, prior to announcement back in October. Those plans or those tangible actions were already mapped out there. In recent months, both companies are basically running their businesses. You've seen the performance Saracen announced earlier today, great quarter, great half, as is Northern Star. From that regard, both teams are respectful to the result of the vote last Friday. In many ways, in a couple of weeks, action will start and both companies have got great growth plans. It's really just gluing them together.
Yes. Just, Bill, just to add to that is something I mentioned earlier in my spiel is we're well advanced on putting the teams together. Yes, we had to be respectful of a vote, but the initial feedback and the feedback until the official vote on Friday last week was very positive. We didn't sit idle as a combined management team. Raleigh put his name on the office next to me pretty quick. The team have been pretty much working hand in glove consistently because we don't want to lose time on the opportunities that we can create on the merged company. I can assure shareholders that we're well advanced on that. As I said earlier on, is we'll put more color out in the coming quarters on how that looks.
Yeah, no. That's great. Just in terms of then the synergies, when can we expect the first sort of raft to come through?
Yeah, look, we're gonna catch up, as an executive in February, together and then a wider management group in March to really develop the future group strategy, which includes all our organic growth, which we're well advanced on both management teams, implementing those plans. It is what the merged entity then goes on and does beyond that. We'll put all that together this quarter and we'll start giving a lot more color mid-year this year.
Okay. That's awesome. Thank you. I'll leave it there. Great.
Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from Stuart McKinnon from The West Australian. Please go ahead.
Good day, guys. This one's a little bit off-topic, and it's probably one for Bill, given his affiliations with WASM. There was a story in the Oz today. I'm not sure if you noticed, Bill, but South32 COO, Jason Economidis, was speaking at the company's Cannington mine in Queensland. One of the comments he made, was that, some of the mining course students or some of the students who are doing mining courses, involved with South32 were apparently being heckled at by co-students at uni because they're doing mining courses. He was concerned that the sector could be losing the public relations battle, with the sort of young people coming through and, also expressing concerns about, as a consequence of that, there not being enough graduates for the sector going forward. Were you aware of those comments and, if not, do they sound alarm bells to you?
Are you confident that it won't be an issue in terms of getting graduates and that public relations situation?
Yeah, look, I saw those comments today like you did in The Australian, which is probably an eastern state-based paper. Look, when you look at it, universities over in the eastern states, mining is a very small proportion of their intake. You've seen my comments, a week or so ago is, unfortunately, the economies over there really don't see the connection to the resource industry, even though it's powering the Australian economy right now and obviously keeping the nation afloat during a very interesting and difficult time of COVID. In Western Australia, I think what's very, very evident is our public understand the importance and the great connection to the resource industry, which, like 75% of the resource industry is based in Western Australia. I wouldn't expect to see heckling in Western Australian unis.
When you look at some of the developing sectors like lithium and the battery metals, like how can anyone heckle on the EV revolution? We're gonna need those skill sets to develop those resources to create those products for the futures of societies around the world. I can't see heckling in Western Australia. I can definitely understand some elements over the East Coast because they, again, re-emphasizing they don't understand the importance of resources. I don't know what they'd live in or what they'd drive around if they didn't have the resources that come out of states like Western Australia and elements of Queensland and New South Wales. All keep the lights on mining.
Great. Thanks, Bill.
That does conclude your question and answer session. I'll now hand back to Mr. Beament for closing remarks.
Thanks, Melanie. Today's results, and those you've seen from Saracen, show our two companies are about to embark on a unique journey from positions of great strength. Our enlarged company is set to travel a path which we have no doubt is lined with opportunity. Opportunities for growth, opportunities to reduce costs, opportunities to unlock further value from our tier one assets, and fantastic opportunities for our employees and business partners to continue with our growth and their own careers. We will also have the opportunity to attract the biggest investment houses in the world to our share register because we will offer them growth in a flat or shrinking industry, and we have genuine scale moving forward. Others can offer one or the other, but both? That's the Northern Star point of difference moving forward. Thanks for joining us today.
That does conclude your conference for today. Thank you for participating. You may now disconnect.