Thank you all for standing by, and welcome to the Northern Star's September 2020 quarterly results. There will be a presentation followed by a question and answer session. I would now like to hand the conference over to Mr. Bill Beament, 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 Mulroney. 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. 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 bedded down. These numbers show the Pogo plan is delivering. The Kalgoorlie operations had a couple of challenges. Much of that was related to mine sequencing and a planned roaster shutdown. 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 AUD 132 million for the quarter, which came after investing AUD 42 million in growth CapEx and exploration, and an underlying NPAT of AUD 100 million. As we foreshadowed in our annual guidance, the September quarter was budgeted to be the lower on a proportional basis at around 22% of the year's forecast output. We are comfortably on track to achieve our full-year guidance. In addition to the strong operating performance, one of the major highlights for the quarter was the doubling of reserves to 10.8 million oz, while resources grew 67% to 31.8 million ounces. This was an outstanding result for two reasons.
First, it shows we are growing our inventory against a global trend of declining inventories. Second, it will underpin further growth in our production profile again when many of our peers have falling 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 AUD 2 billion in the process is a huge opportunity for all our stakeholders.
A gold mining company is only as 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 Stu.
Thanks, Bill. This morning we are pleased to report our September quarterly gold sales was 227,000 oz at the upper range of our quarterly guidance, which has quarter-on-quarter growth to a full-year production of 940,000 to 1,000,060 oz. This growth trend continues on a year-on-year basis to organically lift group production to 1.25 million ounces, driven from our highly profitable Yandal and Pogo operations, which in turn lowers all-in sustaining costs by 10%. Bill mentioned some financial highlights. In addition to these, our balance sheet now stands at AUD 470 million of cash, fully net investments, with AUD 500 million of bank debt. This is after repaying AUD 200 million of debt and AUD 200 million of fully franked dividends in the September quarter. 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 oz sold at $1,199 an ounce all-in sustaining cost. 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 of 1,200 m per month, focusing on the Liese, South Pogo and Fun Zone, and we intend to lift to 1,500 m a month to establish five mining zones as the staffing restrictions ease.
Long hole stoping contributed 61% of the ore feed during the quarter. We milled 209,000 tonnes at an impressive 8.9 g per tonne to produce over 53,000 oz at the upper end of our guidance range. Our present COVID measures remain in place given the increased community cases in the state, I praise the Pogo team to maintain these control measures to ensure the health of employees and community and maintain business continuity there. To Yandal operations, we started the financial year strong with 73,000 oz sold at AUD 1,209 all-in sustaining cost with a strong contribution from Ramone Open Pit ore source and continued investment in Jundee underground development across multiple production horizons. The expanded mill achieved 708,000 tons processed for the quarter, an annualized rate of 2.83 million tons per annum.
We will continue to optimize the plant for improved recovery and throughput, given growth plans in the region. In the southern Yandal region, we advanced activity to establish the Julius and Orelia open pits as future production centers, with a dedicated team established to lead this growth. Our mill studies of Bronzewing 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 a lower unit cost for haulage and processing. At the end of the quarter, Jundee had 92,000 oz of gold contained in stockpiles and gold in circuit. To our Kalgoorlie operations. We delivered a weaker production quarter of 49,000 oz sold, with planned maintenance on the Kanowna Belle Mill and Roaster, lifting costs and reducing gold produced.
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 and stockpiles and circuits nearly doubled to over 51,000 oz. 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 Oroya 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 Australian all-in sustaining cost of AUD 1,461 an ounce. 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 2028. This is underpinned by an impressive 9.7 million ounce reserve and significant exploration potential on a world-class geological system.
I would now like to hand to Mike Mulroney to discuss progress on our AUD 100 million exploration program for FY 2021.
Thanks, Stuart. Good morning, everyone. Northern Star's exploration and development activity continued its momentum across the Australian operations, with 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 Menzies trends, and depth extensions to the main Barton, Nimary and Gateway systems. Moving to the Kalgoorlie region, at Kanowna, underground drilling in the upper levels of the mine continues to expand the high-grade Sims and Troy systems.
In addition, recent drilling also significantly extended the Velvet mineralization, both 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. Further south at EKJV, the drilling has successfully extended the strike extent of the Pode system north from the Pegasus mine and defined new mineralized surfaces within the hanging wall at Hornet. Underground drilling at South Kalgoorlie was particularly successful, extending the NOZ trend some 160 m down plunge and identifying a new high-grade parallel trend, while surface drilling into the Mutooroo area has also exceeded expectations, expanding the mineralization above the main NOZ mining area. During the quarter at KCGM successfully transitioned to a new underground drilling contractor at Mount Charlotte.
Resource definition drilling at Belgravia and Kal East produced results in line with expectation, while exploration drilling into the Unit Six Stockwork 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 Liese 2 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-19 protocols. Surface exploration within the broader Yandal tenure resumed with RC and diamond drilling at Corboys . Early results indicate a significant growth potential for the area, with broad new intersections recorded within multiple drill holes across a wide area.
The Corboys trend has now been traced for over 15-20 km, 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 Strzelecki 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 Coolgardie recorded significant new intersections at the Golden Eagle and Tindals Anticline areas, while sampling of historic drill core has revealed extensions to the main lode 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 the geological model with excellent assay results.
Surface drilling at Phantom and Anthill 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.
Thank you, Michael. The first question for today comes from Sophie Spartalis of Bank of America. Sophie, your line is now open.
Good morning, Bill, Stu, and team. I just wanted to get some further comments around Kalgoorlie. I understand that you had that mill shutdown and the roaster shut down. Just can you talk through the pathway ahead for the remaining of this year and into 2022, please?
Yeah, thanks, Sophie. Obviously, last year, we produced 317,000 oz. This year, we guided 270 to 300. Coming off a strong quarter four, we understood that we had that planned maintenance in the plant. You'll see our GIC has lifted significantly. We hold in stockpiles and GIC nearly 51,000 oz in Kalgoorlie due to that delayed processing of that material. We'll catch that back up as we get that through the roaster and refined into gold sales. We're still maintaining that full year guidance for production and costs. Our intention long term is Kalgoorlie is a significant, 300,000 oz producer. We've mapped that out. It's really the balance of the milling capacity. Obviously, there's proposed merger on the front with combined milling infrastructure that can help liberate some of that material that's there.
We've probably mapped out those options on using toll mills, expanding our current mills or using combined mills going forward.
Okay. Yeah, that was my follow-up question is in regards to once the merger is consummated, the milling mining constraint balance. 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 subsided. 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?
Oh, look, we've still got options there. Look, the time for the synergies to come in place is still over the next six to nine months for valuation on that. Obviously, that's still got to get accepted through Saracen shareholders. In that regard, but I'm not going to give away cash margin on toll milling material at the moment. The quarter impact was largely driven by that roaster shut. We've got sprint capacity in that plant. We can catch that back up. The concentrates are sitting there, so it's de-risked. There's 20,000 oz sitting in GIC and 51,000 in stockpiles in GIC. It's sitting there ready to bank.
Okay. Stu, maybe I can ask a different question just in terms of the toll treatment. Is that more of an ad hoc decision then that's going to be made for the remaining part of the year? 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. 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 flow.
Yeah.
South Kalgoorlie, reflecting South Kalgoorlie, to also take that feed. We're trying to match our mining to our milling volumes.
Okay. No, that's clear. Thank you. 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 impacts on timing on when you think you can open up the increased fronts, please?
Yeah. Look, it's a really difficult one to answer. We can't predict the way it's going. 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. It's a credit to the team there, how they're managing through that without it materially impacting through to the project. We still see our physicals down to the 20%+ because of the restricted crews on site. We've still got the construction crews expanding the processing facility up to 1.3. Mike's trying to increase his diamond rigs as well, drilling our Goodpaster. It's just managing those team sizes and working on that.
What we are doing, we're obviously concentrating in the three main zones, Liese, Fun Zone, and basically, we'll put the development of focus there. You can see some really impressive development grades, 10 gram per ton. That's above what model is, but that's showing you good signs of where the long hole stoping grades are leading to. All of those ounces at the moment, the 51,000 sold, the 53,000 produced is around about two-thirds the volumes that we intend to get there. It is that equation, as you 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.
Okay. That's great. Thanks, Stuart. I'll leave it there.
Thank you, Sophie. The next speaker is Levi Spry from JP Morgan. Levi, your line is now open. Please go ahead.
Hi. Good day, guys. Thanks for the call. First question, just on grades underground at Jundee and maybe at Kalgoorlie as well. Can you just talk through the mine sequencing? How much of it into the end of the year is driven by volume, and how much of it is driven by grades? Maybe what are the risks around the grades going forward?
Yeah, Levi, 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. You typically see us in a new budget year, put our development in place, open up the new areas, the stoping follows that. That is typical of where we cycle our budgets and cycle our investments, as we approve growth CapEx and open up those new fronts. End of the day, we maintain our full year guidance, and they're reflective of the mining sequences in front of us.
Yeah. Okay. Thank you. Just a different sort of question. I've noticed that you include all-in costs now, and I think somebody else did that today. I think maybe it's the 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 the metric?
Look, I guess there's been commentary along the journey of all-in sustaining cost, and everyone's tried to use that as the 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 the expression of growth capital that sits on top of your sustaining cost, to get to your all-in cost, and it's less than AUD 200 an ounce. It's very cheap capital to grow. The majors are reporting this way. That's a new peer group for us. It's really important that we show that all-in costs for people.
Yep. Thanks, mate.
Thank you, Levi. Just a quick reminder, if you do wish to ask a question, please press star or asterisk followed by two on your telephone keypad. The next question comes from Rahul Anand from Morgan Stanley. Rahul, your line is now open.
Hi, Bill and team. Thanks for the opportunity. I've just got a couple on Pogo, please. Firstly, I'll start with the grade profile there. To get to that 300,000 oz level, you basically just need a grade of about 8 g a ton at the expanded mill rate. If we look at this quarter, you're running at about 8.9 and you're also mentioning how the long hole 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 grade profile and how this should shape going forward? That's the first one. Thanks.
Yeah. It's probably important to focus on the reserve grade of 8 g per ton. Really what we've modeled our plan to get to 300,000 oz is that expanded mill at 1.3 million tons at that reserve grade of eight grams, 90% recoveries gets you there. There are certainly opportunities. You can see some spectacular drill hits, intercepts across that ore body. We will have peak moments and high-grade states that from time to time will contribute to that, those sort of uplift. I just expect that continual growth in volumes and the extra grades are a good kicker. Our base plan is designed around reserve grade. At the moment, we're in the three main stoping zones. Intend to get the North Zone and East Deeps online as well, as we are allowed to get that development up to 1,500 m a month.
At this stage, I think it's around that 8+ g. It's very pleasing to see 10 g development grades coming through. It's early days. We've got a lot of investment in diamond drilling, getting more confidence around the model. We're introducing new mining techniques there. We've got smooth wall blasting in the development that reduces dilution. All these things is an upside to the current base plan, which is fairly conservative.
Yeah. Just to add, Rahul. Bill here is like, what we've been articulating for a number of quarters now. As we start opening up these new mining areas, the grade's not changing, or we're getting into new areas and we're introducing long hole stoping. It doesn't mean our grades are going to decline. You look at the development grade, as Stu said earlier on, that is a good leading indicator of where things are going. As we said, as we open up these new areas, we get into 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 which we articulated are going to get better in the mine plan.
Okay. Just as a follow-up then, I guess to put it simply, how's the reconciliation going so far? Secondly, how should we think about the grade profile for the rest of the three quarters this year?
We've given our guidance out there, what I'll say is the drilling obviously suffered last year because of COVID. We only got 62% of our budget of drilling in. We're now back up to 8.5, nine diamond drill rigs into the mine. That is giving us very good definition for the mining crews and geological crews. We expect stronger performance. We've already started this quarter great. We've already pulled 20,000 ouz for this month alone. The team at Pogo done an exceptional job with the restrictions they've got, we're tracking really there. I will come back to have a look at the cost of Pogo. They've dropped nearly 15% from last financial year on all-in sustaining costs. We're making great free cash flow generation there, it's only going to get better.
Okay. The second question, perhaps an easier one. The 1.3 million tons per annum run rate expansion, how far progressed are we? Is that nearly done now? What are some of the key things left?
I guess we mentioned we're sort of over 60 odd percent. We basically will have that in place by mid-calendar year. June 2021, 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 to 300,000 oz. The teams, the civils are all on place as the temperature's dropping. I think it's - 10 degrees there at the moment. We made sure we have all that this lock up, over the winter, they'll fit out the internals. That'll be commissioned by mid-calendar year next year. Look, we're obviously also looking at that 1.5 million ton expanded capacity. As we're building volumes, there's a bit of flex there in what we're doing.
That allows us to drop the teams offsite, construction teams offsite, 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. That's very helpful. Thank you, gentlemen. I'll pass it on.
Thank you, Rahul. The next question comes from Matthew Frydman at Goldman Sachs. Matthew, your line's open. Please go ahead.
Sure. Thanks. Morning, Bill and team. Just a quick one from me, I guess, on CapEx. Thanks very much, as Levi mentioned, for providing that all-in cost number as it is an important one. Just trying to, I guess, do the maths on the growth CapEx that you guys spent during the quarter. You call out in the text there, I think that you spent AUD 42 million on growth and exploration. In the waterfall there, you've got AUD 24 million for exploration. If I back that out, your number for growth CapEx in the quarter is AUD 18 million. If I'm not mistaken, your guidance for the year is closer to AUD 200 million, on growth CapEx. Can you talk through, I guess, is that a timing of CapEx?
Is there any projects there that are, I guess, back end weighted during the year that are driving that AUD 200 million growth CapEx number? How should we think about the timing of growth CapEx over the remainder of the year? Thanks.
Yeah, Matt, Ryan here, mate. Thanks for the question. Look, you're right. Timing, yes. We're obviously going through that, particularly at KCGM, the OBH area and Morrison. We're getting some revenue out of that, which is essentially crediting the cost. 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 AUD 99 million, we certainly think that that'll be the run rate. Broadly, yeah, it's timing. The CapEx this quarter was mainly at Pogo with that expansion plan and then some development at Jundee. Yeah, it is timing. We still expect the guidance that we've given, which is that AUD 199, we expect.
Yeah, sure. Thanks, Ryan. You raise a good point there, I guess, on the capitalization of pre-production ounces. Is the 198 figure, I assume that's gross of any pre-production revenues? Sorry, are you saying that's net of the pre-production revenues?
Yeah. The 99 at KCGM is net. Yep.
Yeah, sure. Okay. 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 time?
Well, yeah, I mean, Matt, the pre-production ounces are there. I think if you essentially times that.
That's true.
14,000 oz roughly times the average sale price, AUD 2,493, that'll give you your revenue. Look, happy to give the number. The CapEx, I think, is about AUD 33 mil, AUD 30 mil, AUD 32 mil that essentially was incurred. Then the revenue comes over the top of that basically while we're in that pre-production phase.
Yeah. No, that's pretty clear. Thanks, Ryan. I did miss that pre-production sold line there. 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 Beament 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 lives. 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.