Thank you all for standing by, and welcome to the Northern Star's September 2020 Quarterly Results. All participants are in listen only mode. There will be a presentation followed by a question and answer session. Would now like to hand the conference over to Mr. Bill Biermint, Executive Chair.
Bill, please go ahead.
Good morning, and thanks for joining us. On the call with me today is our Chief Executive Officer, Stuart Tonkin our CFO, Ryan Gurner and Chief Geological Officer, Mike Maroney. It has been a very good quarter for Northern Star on all levels. Our operational performance was strong with production at the upper end of our quarterly guidance. The results at Jundee were outstanding and Pogo is really starting to perform well and generate excellent free cash flow.
As we always knew it would once our changes were in place and better down. These numbers show the Pogo plant is delivering. The Kalgoorlie operations had a couple of challenges, but much of that was related to mine sequencing and a planned roaster shutdown, so it was not unexpected. Given the reasons for the lower production and its subsequent impact on costs, we expect the results to greatly improve over the course of the financial year. The strength of our operations is reflected in our underlying free cash flow of $132,000,000 for the quarter, which came after investing $42,000,000 in growth CapEx and exploration and an unordered NPAT of $100,000,000 As we foreshadowed in our annual guidance, the September was budgeted to be lower on a proportional basis at around 22% of the year's forecast output.
So we are comfortably on track to achieve our full year guidance. In addition to the strong operating performance, one of the major highlights of the quarter was the doubling of reserves to 10,800,000 ounces, while resources grew 67% to 31,800,000 ounces. This was an outstanding result for two reasons. First, it shows we are growing our inventory against the global trend of declining inventories. And second, it will underpin further growth in our production profile, again, when many of our peers have fallen or flat production.
In simple terms, our story is one of growing inventories, growing production and growing free cash flow with a low capital intensity. Our production is set to increase 40% over the next three years, while costs will fall 10%. This is a very similar theme to that outlined by Saracen when it announced its strong quarterly results last week. Putting these two very strong growth stories together and generating synergies of up to $2,000,000,000 in the process is a huge opportunity for all our stakeholders. A gold mining company is only good as its assets, and the merged company will have a collection of Tier one assets in Tier one locations with an enviable growth outlook.
I will now hand over to Sue.
Thanks, Bill. Yes, this morning, we are pleased to report our September quarterly gold sales of 227,000
ounces at the upper range of our quarterly guidance, which has quarter on quarter growth to a full year production of nine and forty thousand to one million sixty thousand one million sixty thousand ounces. This growth trend continues on a year on year basis to organically lift group production to 1,250,000 ounces, driven from our highly profitable Yandel and Pogo operations, which in turn lowers all in sustaining costs by 10%. Bill mentioned some financial highlights. And in addition to these, our balance sheet now stands at $470,000,000 of cash fully net investments with $500,000,000 of bank debt. And this is after repaying $200,000,000 of debt and $200,000,000 of fully franked dividends in the September.
We continue to reduce hedges with 28% of production sold into hedge commitments in the quarter. We have now approximately 13% of production hedged over the next three years and will enjoy increased exposure to higher spot prices. Our highlight for the quarter is the continued improved performance demonstrated at Pogo operations in Alaska, with 51,000 ounces sold at US1199 dollars an ounce all in sustaining cost, and that's despite the constraints imposed due to the impact of COVID there. Pogo is continuing to climb the leaderboard, and we see the quality of the operation through improved grades and recoveries with mined volumes reflective of the present restrictions due to COVID. We maintain development rates at 1,200 meters per month, focusing on the Lisey, South Pogo And Fun Zone, and we intend to lift to 1,500 meters a month to establish five minuteing zones as the staffing restrictions ease.
Long haul stoping contributed 61% of the ore feed during the quarter, and we milled 209,000 tonnes at an impressive 8.9 grams per tonne to produce over 53,000 ounces at the upper end of our guidance range. Our present COVID measures remain in place given the increased community cases in the state, and I praise the Pogo team to maintain these control measures to ensure the health of employees and community and maintain business continuity there. The Yandel operations, we started the financial year strong with 73,000 ounces sold at AUD $12.00 9 all in sustaining cost, with a strong contribution from a Ramone open pit ore source and continued investment in Dundee underground development across multiple production horizons. The expanded mill achieved 708,000 tonnes processed for the quarter at annualized rate of 2,830,000 tonnes per annum, and we will continue to optimize the plant for improved recovery and throughput given growth plans in the region. In the Southern Yandel region, we advanced activity to establish the Julius And Aurelia Open Pits as future production centers with a dedicated team established to lead this growth.
Our mill studies of bronze wing refurbishment or an expanded Jundee plant have now included the Thunderbox expansion study as part of the proposed merger with Saracen. This would contribute substantial synergies to the combined companies through lower unit cost for haulage and processing. At the end of the quarter, Jundee had 92,000 ounces of gold contained in stockpiles and gold in circuit. Now to our Kalgoorlie operations. We delivered a weaker production quarter of 49,000 ounces sold with planned maintenance on the Kananabell mill and roaster, lifting costs and reducing gold produced.
And as a result, we increased the concentrate inventory, which will be processed over subsequent quarters. The overall reduced mill tonnage in Kalgoorlie operations also reflects the cessation of utilizing third party toll milling. And at the end of the quarter, Kalgoorlie operations gold inventory in stockpiles and circuits nearly doubled to over 51,000 ounces. We maintain our stated annual guidance for production and costs at Kalgoorlie with mine sequencing weighted to the second half of the financial year and production growth and processing catch up of inventory. Kalgoorlie operations continue to generate good cash flow as the all in sustaining costs are very close to the all in costs, and this region has significant leverage to gold price that we are experiencing at present.
Now to KCGM, where we continue to make improvements through the combined efforts with our partner, Saracen, and the KCGM team. Open pit mining physicals lifted by 28% with mined ore increasing by 42% from the previous quarter via mining activity in three zones of Golden Pike, Morrison and the Arroyo Brownhill. Underground mining physicals were further improved by 25% from previous quarter, utilizing the lower grade sublevel cave material as well as primary sources from Hidden Secret Zone. Northern Star's attributable production totaled 54,000 ounces sold at AUD in sustaining cost of AUD1461 an ounce. And we are continuing a raft of measures to reduce costs and drive productivities across the operation, which has been adopted and driven by the KCGM team.
In recent announcements, we have mapped out the production growth of this long life asset to a plus 675,000 ounce per annum producer at 100% by FY 'twenty eight, and this is underpinned by an impressive 9,700,000 ounce reserve and significant exploration potential on a world class geological system. I would now like to hand to Mike Moraney to discuss progress on our $100,000,000 exploration program for FY 'twenty one.
Thanks, Stuart, and good morning, everyone. Northern Star's exploration and development activity continued its momentum across the Australian operations, and drilling activity at Pogo steadily increasing across the quarter. Beginning at Jundee, the expanded underground surface drilling fleet was strongly focused on exploration programs. Within the mine area, exploration drilling on the large Invicta Gap area continues to generate encouraging results on multiple fronts, while further north, drilling has highlighted multiple mineralized structures beneath the Griffin and Cook mining areas. Further south, drilling has also intersected new zones of mineralization in the footwall of the main Barton system, extensions to the Fisher And Mengeys Trench and depth extensions to the main Barton Nimmering Gateway systems.
Moving to the Kalgoorlie region. At Kananabell, underground drilling in the upper levels of the mine continues to expand in the high grade Sims and Troy systems. And in addition, recent drilling also significantly extended the velvet mineralization by up and down plunge. Across the Kundana, underground drilling into the extensions of the Pope John and Christmas deposits continues to return results in line with expectations, while further south of the EK JV, the drilling has successfully extended the strike extent of the Poet System north from the Pegasus Mine and defined new mineralized services within the hanging wall at Hornet. Underground drilling at South Kalgoorlie was particularly successful, extending the NOS trend some 160 meters down plunge and identifying new high grade parallel trend, while surface drilling into the Muguru area has also exceeded expectations, expanding the mineralization above the main NOS mining area.
During the quarter at KCGM, KCGM successfully transitioned to a new underground drilling contractor at Mount Charlotte. Resource definition drilling at Belgravia and Cal East produced results in line with expectation, while exploration drilling into the Unit 6 stock work and Duke prospects intersected significant mineralization in all holes. Elsewhere, surface RC and diamond drilling across the FIM South area continued to define additional unmodeled mineralization, both within the in Pit Saddle area and areas adjacent to the planned pit shell. At Pogo, underground drilling activity has steadily increased across the quarter with improved productivities. Production and reserve definition drilling across all the major production areas have produced strong results with excellent intersections from numerous unmodeled structures, particularly in the Lisi-two and South Pogo areas.
In addition, a substantial surface drilling program has commenced at the eastern end of the Goodpaster trend to define potential resource areas for further evaluation. Regionally, exploration activity steadily resumed across the quarter in line with changes to regulatory and internal COVID-nineteen protocols. Surface exploration within the broader Yandel tenure resumed with RC and diamond drilling at Corvois. Early results indicated significant growth potential for the area with broad new intersections recorded within multiple drill holes across a wide area. The Corvois trend has now been traced for over 15 to 20 kilometers with many areas remaining completely untested.
Within the Kalgoorlie area, surface RC drilling at the Golden Hind prospect within the East Kundana joint venture returned multiple shallow intersections within the Streslecki structure south of the Raleigh mine. Further RC drilling is in progress to define a potential new open pit resource. At South Kalgoorlie, regional exploration in the Tindals area near Kilgardy recorded significant new intersections at the Golden Eagle and Tindals anticline areas, while sampling of historic drill cores revealed extensions to the main load and hanging wall systems across the historic Barbara mining complex. Elsewhere, further exploration in the Carbine area continues to demonstrate the growth potential of this area. Infill surface definition of drilling at Paradigm successfully consolidated geological model with excellent assay results.
Surface drilling at Phantom and Antill prospects continue to expand the mineralization trends, while the first hole in the diamond drilling program beneath the Carbine mining area has successfully intersected multiple mineralization zones with visible gold exceeding all initial expectations. I'll now return the call to the moderator for questions.
The first question for today comes from Sophie Spartalis of Bank of America. Sophie, your line is now open.
Good morning, Bill, Stuart and team. I just wanted to get some further comments around Kalgoorlie. I understand that you had that mill shutdown and the ROSA shutdown. But just can you talk through the pathway ahead for the remaining of this year and into 'twenty two, please?
Yes. Thanks, Sophie. So obviously, last year, we did 317,000 ounces. This year, we guided 270,000 to 300 And coming off a strong quarter four, we understood that we had that planned maintenance in the plant. And you'll see GICs lifted significantly.
And we hold in stockpiles in GIC 51,000 ounces in Kalgoorlie due to that delayed processing of that material. So we'll catch that back up as we get that further roaster and refined into gold sales. So we're still maintaining that full year guidance for production and costs. And our intention long term is Kalgoorlie is a significant 300,000 ounce producer. We've mapped that out.
It's really the balance of the milling capacity. And obviously, there's proposed merger on the front with combined milling infrastructure that can help liberate some of that material that's there. So we've probably mapped out those options on using toll mills, expanding our current mills or using combined mills going forward.
Okay. So yes, that was my follow-up question is in regards to once the merger is consummated, milling, mining constraint balance. So can you just talk to that in a little bit more detail then? Because given that you haven't used third party tolling this quarter that seems to have the safe. Is that for the rest of the year that you won't be using third party given that you've got the Saracen mill coming in?
Look, we still got options there. And look, the time for the procedures to come in place is still over the next six to nine months in evaluation on that. And obviously, that's still going to get accepted through Sarahson shareholders. So in that regard but I'm not going to give away cash margin on top milling material at the moment. And the quarter impact was largely driven by that roaster shut.
So we've got spring capacity in that plant. We can catch that back up. The concentrates are sitting there. So it's derisked. And there's 20,000 ounces sitting in GIC and 51,000 in stockpiles and GIC.
So it's sitting there ready to bank.
Okay. So, Drew, maybe I can answer that different question. Just in terms of this whole trading, is that more of an ad hoc decision then that's going to be made for the remaining part of the year? Or how much lead time do you plan that out, whether you use it or not?
You're right. It's ad hoc, and it's always subject to that margin, Sophie. So with ore going into lots of those mills around the district, we want to make sure we're not giving away margin, giving away cash flows. So South Kalgoorlie reflecting South Kalgoorlie to also take that feed. So it's we're trying to match our mining to our milling volumes.
Okay. No, that's clear. And then just quickly across to Pogo, it seems very much subject to the broader Alaskan COVID cases, but certainly seems to be in a pretty good position to bounce back once they are alleviated. Just in terms of the expected timing, can you just maybe provide some color around the broader COVID issues in Alaska and the impact on timing on when you think you can open up those the increased front, please?
Yes. So look, it's a really difficult one to answer. We can't predict the way it's going. But look, what's prevalent is across the state, cases have increased. We still have all the same protocols and management systems in place and are dealing with it very, very well and some credits to the team there how they're managing through that without it materially impacting through to the project.
But we still see our physicals down sort of 20 plus because of the restricted crews on-site. We've still got the construction crews expanding the processing facility up to 1.3. And Mike is trying to increase his diamond rigs as well, drilling out Goodpaster. So it's just managing those team sizes working on that. But what we are doing, we're obviously concentrating in the three main zones, Yulisi, Yufan zone.
And basically, we will put the development of focus there. And you can see some really impressive development grades, 10 gram per tonne. That's above what model is, but they're showing you good signs of where the long haul stoping grades are leading to. So all of those ounces at the moment, the 51,000 sold, the 53,000 produced is around about two thirds of the volumes that we intend to get So it is that equation as we lift volumes. It's a very clear mapped out pathway to 300.
The timing, of course, we're getting better and better at managing it. But the timing at the moment, we've obviously mapped out over the next two years.
The
next speaker is Levi Spry from JPMorgan.
Good day, guys. Thanks for the call. First question just on grades underground at Sun Dee and maybe at Kalgoorlie as well. Can you just talk through the mine sequencing? Is that so how much of it into the end of the year is driven by volume and how much of it's driven by grades and maybe what are the risks around the grades going forward?
Yes, Levi, it's Stuart again. Just look, definitely that we give full year guidance given the conversations on previous quarters. We also gave quarterly percentage proportion and that's recognizing our mine plan. So you typically see us in a new budget year, put our development in place, open up the new areas, destoping follows that. So that is typical of where we cycle our budgets and cycle our investments as we approve growth CapEx and open up those new fronts.
But end of the day, we maintain our full year guidance and they're reflective of the mining sequence in front of us.
Yes. Okay. And just a different sort of question. I've noticed that you include all in costs now, and I think somebody else did that today. Think maybe it's first time I've noticed, is this sort of a bit of a trend?
Can you maybe talk us through why you're doing that? What you think it means? Should the industry be using that as a metric?
Yes. Look, I guess, there's been commentary along the journey of all in sustaining costs, and everyone's tried to use that normalized number across the group. I guess what we're trying to differentiate is we've got very cheap capital growth, low capital intensity for our organic growth over the next few years. And it's really demonstrating that, that takes place from growth capital that sits on top of your all in sustaining costs to get to the all in cost, and it's less than $200 an ounce. So it's very cheap capital to grow.
So the majors are reporting this way. That's a new peer group for us. It's really important that we show that all in cost for people.
The next question comes from Rahul Anand from Morgan Stanley. Rahul, your line is now open.
Look, I've just got a couple on Pogo, Firstly, I'll start with the grade profile there. So to get to that 300,000 ounces level, you basically just need a grade of about eight grams a ton at the expanded mill rate. Yet,
if
we look at this quarter, you're running at about 8.9% and you're also mentioning how the long haul stoping side is seeing good grades come through. How should we be thinking about your long term forecast or your medium term forecast rather for that profile and how this should shape going forward? That's the first one. Yes.
So it's probably important to focus on the reserve grade of eight grams per tonne. And really, what we've modeled out our plan to get to 300,000 ounces is that expanded mill of 1,300,000 tonnes at that reserve grade of eight grams, 90% recoveries get you there. There are certainly opportunities. You can see some spectacular drill hits in the sets across that ore body. So we will have peak moments in high grade stopes that from time to time will contribute to that sort of uplift.
But I just expect that continued growth in volumes and the extra grades are a good kicker. But our base plan is designed around reserve grade. At the moment, we're in the three main stoping zones, intend to get the North Sea and East Deeps online as well as we are allowed to get that development up to sort of 1,500 meters a month. But at this stage, I think it's around that eight plus grams, and it's very pleasing to see 10 gram development grades coming through. But it's early days.
We've got a lot of investment in diamond drilling, getting more confidence in the model. We're introducing new mining techniques there. We've got smooth ball blasting in the development that reduces dilution. All these things is an upside to the current base plan, which is fairly conservative.
Yes. And just to add, Rob, it's Bill here, is like what should we've been articulating for a number of quarters now. As we start opening up these new mining areas, the grade is not changing. We're getting into new areas and we're introducing long haul stoping. It doesn't mean our grades are going to decline.
You look at the development grade as Steve said earlier on, that is a good leading indicator of where things are going. But as we said, as we open up these new areas, we're getting to fresh ore sources. They're all great grades, but it doesn't mean we're going to have a lower grade mine in the future because we're going into bulk mining. We're just mining into new areas, we articulated are going to get better in the mine plan.
Okay. So just as a follow-up then. I mean, guess to put it simply, how is the reconciliation going so far? And secondly, how should we think about the grade profile for the rest of the three quarters this year?
Yes. Look, we've given our guidance out there, but what I'll say is we've got a lot of the drilling obviously suffered last year because of COVID, we only got 62% of our budgeted drilling in. But we're now back up to 8.5, nine diamond drill rigs into the mine. And so that is giving us very, very good definition for the mining crews and geological crews. So we expect stronger performance.
We've already started this quarter, right, we've already poured 20,000 ounces for this month alone. The team at Pogo have done an exceptional job with the restrictions they've got, but we're tracking really there. But I will come back to have a look at the cost of Pogo. They've dropped 15% from the last financial year in all in sustaining costs. We're making great free cash flow generation there, it's only going to get better.
Okay. And then the second question and perhaps an easier one. The 1,300,000.0 tonne per annum run rate expansion, how far progressed are we? Is that nearly done now? Or what are some of the key things left?
Yes. So we I guess we mentioned we're sort of over 60 odd percent. We basically will have that in place by mid calendar year. So June '1, we'll have that commissioned. Whether we'll have the mining volumes to that yet at that point is the question.
That's why we've mapped out two years to get the 300,000 ounces. But it seems that the civils are all on places. The temperature is dropping. I think it's minus 10 degrees there at the moment. We made sure we have all that.
It's locked up. And then over the winter, they'll fit out the internals. But that will be commissioned by mid calendar year next year. And we're obviously also looking at that 1,500,000 tonne expanded capacity. So as we're building volumes, there's a bit of flex there in what we're doing.
But that allows us to drop the teams off-site, construction teams off-site, add rooms with mining crews and then obviously focus on all the mining volumes of the five zones instead of the three we're concentrating on at the moment.
Okay. Okay. That's very helpful. Thank you, gentlemen. I'll pass it on.
Thank you, Rahul. The next question comes from Matthew Friedman at Goldman Sachs. Matthew, your line is open. Please go ahead.
Sure. Thanks. Good morning, Bill and team. Just a quick one for me, I guess, on CapEx. And thanks very much, as Levi mentioned, for providing that all in cost number as it is an important one.
But just trying to, I guess, do the math on the growth CapEx that you guys spent during the quarter. You called out in the text there, I think that you spent $42,000,000 on growth and exploration. And then in the waterfall there, you've got $24,000,000 for exploration. So if I back that out, your number for growth CapEx in the quarter is $18,000,000 If I'm not mistaken, your guidance for the year is closer to $200,000,000 on growth CapEx. So can you talk through, I guess, that a timing of CapEx?
Is there any projects there that are, I guess, back end weighted during the year that are driving that $200,000,000 growth CapEx number? Or how should we think about the timing of growth CapEx over the remainder of the year? Yes.
Matt, Ryan here, mate. Thanks for the question. Look, you're right, timing, yes. We're obviously going through that, particularly at Casey's Gym, the OVH area and Morrison's. And so we're getting some revenue out of that, which is essentially crediting the cost.
So once that comes into commercial production and once we open up and do more development there over the next three quarters, which is what we've guided around that $99,000,000 we certainly think that that will be the run rate. Broadly, yes, it's timing. And the CapEx this quarter was mainly at Pogo with that expansion plan and then some development at Jundee. So yes, it is timing. So we still expect the guidance that we've given, which is at 199,000,000 we expect.
Yes, sure. Thanks, Ryan. You raised a good point there, I guess, the capitalization of preproduction ounces. Is the 198 figure, I assume that's gross of any preproduction revenues. Then if that's the case sorry, that's are you saying that's net of the preproduction revenues?
Yes. Yes. So the 99,000,000 at Cash Gens net, yes.
Yes, sure. Okay. And so is it worth providing a bit of a breakdown of how much of that revenue has been capitalized during the quarter? Or will we get that disclosure over Yes.
Mean, Pat, if you I mean, the preproduction ounces are there. So I think if you essentially
times that 14,000
ounces roughly times the average sale price, 24.93, that will give you revenue. And look, happy to give the number. The CapEx, I think is about $33,000,000 $32,000,000 that essentially was incurred and then the revenue comes over the top of that basically while we're in that preproduction phase.
Yes. No, that's pretty clear. Thanks, Ron. I did miss that preproduction salt line there. So, no, that's very clear.
Thanks.
Thank you, Matt. As there are no further questions at this time, I would like to hand back to Bill Bierman for closing remarks.
Thanks. We've made a strong start to the new financial year, and our results are set to get stronger as the year progresses. Our operations are performing well, and they are underpinned by long mine life. We have a strong growth outlook, and that growth is capital light. This means we can maximize free cash flow and overall financial returns.
When you look at these results and those from Saracen last week, they are a clear reminder of what a great Australian mining company we stand to form from our merger. Thank you.