I would now like to hand the conference over to Mr. Stuart Tonkin, Managing Director and CEO. Please go ahead.
Good morning, and thank you for joining us today. With me on the call is Chief Financial Officer Ryan Gurner and Chief Operating Officer Simon Jessop. As previously announced in the December quarter, gold sold totaled 348,000 ounces at an all-in sustaining cost of $2,937 per ounce. A number of one-off operational events across our assets resulted in this softer performance and required us to revise FY26 production and cost guidance. With these events behind us, our team remains firmly focused on driving productivity improvements and strengthening cost discipline to deliver a stronger second half for our shareholders. Our FY26 outlook provides revised guidance of 1.6-1.7 million ounces of gold sold at an all-in sustaining cost of $2,600-$2,800 an ounce. Today, we also provide further detail for production and AISC guidance by production center. In addition, we have updated our capital expenditure forecasts across the portfolio.
Operational growth capital guidance remains unchanged at $1.14 billion-$1.2 billion. KCGM's growth capital expenditure in FY26 consists of several projects designed to prepare the operation for commissioning of the newly expanded mill from FY27. The two aspects which I'd like to highlight are the KCGM Mill Expansion Project. FY26 capital expenditure is now expected to be in the range of $640-$660 million, and this reflects targeted increases in labor to ensure the commissioning in early FY27. Also, the KCGM tailings dam activity is ahead of schedule, with FY26 spend now expected to be $240-$260 million, while FY27 forecast spend is lighter at $100-$120 million, which represents approximately 10% reduced cost for the overall tailings dam project, and at Hemi, forecast spend is $165-$175 million, reflecting more optimization of engineering and design works there.
Northern Star continues to work closely with state and federal regulators, key stakeholders, and the broader Pilbara community. With gold price now exceeding $7,000 an ounce, it is an outstanding time to be producing and discovering gold in the stable, low-risk jurisdictions of Western Australia and Alaska. Our balance sheet remains in a net cash position, and as our hedge book decreases, our growing exposure to spot gold, coupled with increasing production, positions us for very strong increasing cash flows going forward. I'd now like to hand over to Simon Jessop, our Chief Operating Officer, to discuss our operational highlights.
Thank you, Stuart, and good morning. The Kalgoorlie Production Centre delivered a lower-than-expected quarter driven by two main issues. The first issue was the previously announced partial suspension of mining at our South Kalgoorlie Operations. A new escape way was mined and installed over nine weeks. Mining at South Kal from mid-December has returned to normal operations. The second major issue was a lower-than-expected processing outcome at KCGM. The mill underperformed all quarter on throughput volume, both rate and runtime, with the primary crusher failing in December. Since the 5th of January, the crushing circuit has performed in line with normal expectations, and we have crushed over 700,000 tonnes in 20 days versus December's full-month crushing performance of 600,000 tonnes. KCGM's total mining performance was an outstanding result, with 207,000 ounces mined in the quarter, a new record for the site under Northern Star Resources' ownership.
Open pit total material movement was AUD 22 million for the December quarter and AUD 45 million for the first half, at the top of the 80-90 million-tonne annual guidance range. The open pit for Q2 mined 163,000 ounces at 1.5 grams per tonne, with Golden Pike's contribution of 117,000 ounces at 1.7 grams per tonne. The KCGM underground operation developed 8.7 kilometers for the quarter and mined 819,000 tonnes of ore. For the first half, the underground ore mined was 1.55 million tonnes, above the annualised target of 3 million tonnes per annum. Due to the processing throughput issues, KCGM finished the quarter end with 1.3 million tonnes at 1.9 grams per tonne and 81,000 ounces of high-grade ore on the ROM pad. Carosue Dam performed in line with expectations for the quarter and the half.
Let me close on the Kalgoorlie Production Centre by again sharing that the KCGM mill expansion continued well over the Christmas-New Year period, with a workforce of around 350 people. The project has ramped back up to 800-plus personnel, and for the remaining six months, we'll finalize on construction and transition into commissioning and ramp-up planning, with the project remaining on time for an early FY27 ramp-up. Turning to our Yandal Production Centre , both Jundee and Thunderbox experienced a challenging quarter and first half. At Jundee, the previously announced localised structural failure of the crushing circuit works have progressed well, but it has taken longer than anticipated. The coarse ore stockpile tunnel has been excavated, rebuilt, and reburied, with ROM pad loaders feeding the bin again as normal. The full completion of the tunnel works is on track to be restored by mid-February.
The Jundee team has actioned these works safely and professionally for an extremely large job. The Jundee airstrip is also less than two weeks away from its first flight and remains on track for flight savings and less rain interruptions going forward. At Thunderbox, two issues prevailed for the quarter. The first one, reduced throughput due to tank issues, which also impacted recovery by 5%. Less mined ore from Orelia and the haulage of the high-grade ore to the mill. On the processing impacts, all tanks were back in operation at the quarter end, with rectifications planned for H2, which we'll see a cycle through the seven tanks. Secondly, on Orelia, the resource is not performing as modeled and mined in the high-grade areas of the ore body.
We have already reduced the mining fleet from 17 trucks to 11 trucks in order to manage the required mining practice changes, improve mining, and cost efficiencies. The Orelia open pit strip ratio reduces from here on in. Orelia has an estimated life of 21 months and will generate 215,000 ounces at 1.4 grams per tonne. Meanwhile, open pit mining at Bannockburn ramped up significantly, with first ore being stockpiled ahead of milling in H2, providing another ore source close to the Thunderbox mill. Finally, turning our attention to the lower gold sales, was impacted by lower head grade of approximately 0.5-1 gram per tonne due to a combination of stope dilution and ore loss. Volume of ore was also approximately 30,000 tonnes less due to East Deeps' fan constraints on scheduled high-grade areas of the ore body.
We also lost about three days in December due to extremely cold temperatures below 40 degrees Celsius. Early in January, we have seen an improvement in mine grades above 6 grams per tonne and an increase in stope ore firings. Processing performance for Q2 was very good, with availability averaging 92% year to date. The recovery was 86% during the quarter, 5% higher than expected. Development continued to improve at Pogo, with 5.2 kilometres achieved for the quarter, corresponding to a monthly average of 1,731 metres a month. The quarterly performance on gold sold was impacted by a number of significant events across the portfolio, which has resulted in lowering our annual gold guidance between 1.6 and 1.7 million ounces. We are in a much stronger position as we enter the second half of the year. KCGM and South Kalgoorlie operations have returned to normal.
Jundee has some outstanding issues that are expected to be resolved during this quarter, and Thunderbox is in improved shape, and at Pogo, we are seeing the December improved head grade continue into January. I would now like to pass to Ryan, our Chief Financial Officer, to discuss the financials.
Thanks, Simon. Good morning, all. As demonstrated in today's quarterly results, the company remains in a great financial position. Our balance sheet remains strong, as set out in Table 4 on page 10, with cash and bullion of AUD 1.18 billion, and we remain in a net cash position of AUD 293 million at 31 December. The company has recorded strong cash earnings for the first half of FY26, which is estimated to be in the range of AUD 1.06-AUD 1.11 billion. A reminder that our dividend policy is based on 20%-30% of cash earnings. Although Q2 was a challenging quarter, all three production centers generated positive net mine cash flow, with capital and exploration fully funded.
Figure 8 on page 11 sets out the company's cash bullion movement for the quarter, with the company recording AUD 738 million of operating cash flow, which included semi-annual coupon payment on the notes of $18 million and approximately AUD 30 million annual insurance premiums. Additionally, during the quarter, the company paid AUD 370 million of income tax, bringing the first half tax payments to AUD 437 million, lower than the first half cash tax guidance. Major operational growth capital investments include a KCGM open pit development at Great Boulder and underground development at Fimiston and Mount Charlotte, which will enable us to lift production over the coming years, and at Thunderbox Operations, open pit development at Orelia and Bannockburn. In respect of the KCGM Growth Project, AUD 180 million was invested during the quarter, with major progress in structural and mechanical installation, including SAG and ball mill installation progress.
Electrical and piping installation is advancing, with final construction and fit-outs to follow throughout the second half. The project remains on track for commissioning early FY27. At our Hemi Project, $20 million was spent advancing process plant design, securing long lead time items, and progressing on non-processing infrastructure. On other financial matters, Q2 group all-in sustaining costs included approximately $20 million of additional costs associated with the disruption events across Jundee, Kalgoorlie Operations, and KCGM during the quarter. H1 depreciation and amortization is at the top end of the guided range of $875-$975 per ounce and is expected to lower over the second half, with the forecast increase in production. Non-cash inventory charges for the group in the December quarter are a credit of $93 million, driven by low-grade stockpile build and higher ore stocks at KCGM and stockpile build at Thunderbox.
From a tax perspective, with the update to second half production, we lower our second half group cash tax forecast to $230 million-$270 million. No change to our estimate quantum or timing for landholder duties for the De Grey and Saracen transactions. The company continues to unwind its hedging commitments, with 158,000 ounces delivered during the quarter. At 31 December, total commitments equal 1.1 million ounces at an average price just over $3,300 per ounce. I'll now hand pass back to the moderator for the Q&A session. Thank you.
Thank you. 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 and if you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Levi Spry from UBS. Please go ahead.
Hi. Yeah, good day, Stuart and team. A couple of questions, I guess, on the CapEx, KCGM, and then Hemi. So just so I understand, the increasing CapEx at the mill expansion, is that about more people? Is it about better people? Is it about paying more? Just so we understand, I guess, where the industry's at.
Yeah, thanks, Levi. Look, it's targeted and deliberate, and it's to ensure we meet the commissioning timing of that FY27. So it's more people, and it's recognizing, I guess, the productivity we've got out of the team that are there today. It's not saying they're good or bad. It's just saying when everyone's working in that congested space, we haven't made the progress on some of those things. We were targeting around 600 people throughout the build. Simon just spoke to, we retained about 3,350 over Christmas, which would normally have been a shutdown. We've also run some back shift, night shift throughout the last six months. We've come up now to 800 headcount working on that project. It's targeted, deliberate. It's at a cost.
Obviously, there's an uplift of about AUD 110 million throughout this year, of which a large part of it's being spent in the first half. So there's a second half kind of tail out of all the electrical and cable runs. But really, it's important that we meet the schedule on time and get that commissioning and get the cash box working.
Yeah, got it. Thanks for the extra detail, and so can we have a little bit more, I guess, on that Gantt chart, so what is actually involved between, I guess, now and what activities specifically, and then I guess what is required to hit 23 million tonnes in 2027?
Yeah. So really, the contrast that's above it, we talk about in the bullet points there. This is on page five of the quarterly. Obviously, 90% of all the structural steel and 80% of all the mechanical installation is complete. So we're back to the tying in electrical cable runs and sort of testing and powering those things up. Obviously, there's an element of putting it all in place before you do any of that live testing. And it's really the final coupling of all the pipework. So we're well through the bulk of it, and it's in the right order. Nothing, I guess, is behind, but we're recognizing the work ahead just needs that additional labor, which we're working with the contractors to source. And we were doing just prior to Christmas. So December, we started to increase numbers.
We continued with a, we can call it a skeleton crew. It was certainly 350 people throughout the Christmas period. But really, it gets down to that final tying, all the pipework, pressure testing, the cables, dead testing cables until we're ready to energize things. So yeah, it'll be ready to power up in June. The question is whether we want the disruption. In the back half of June, typically, you won't get the extra gold sold because it all has to come through the float circuit and out through concentrates, etc. So we may be bringing up in parallel. But ideally, in July, the mill is running. 23 million tonnes represents a 27 million tonne per annum plant turned on and then deliberately turned off to do retorquing of bolts and just visual inspections on wear rates, etc.
That's deliberate planned downtime throughout the year, which derates it from 27 to 23. But when it's running, it'll run at the 27 million tonnes per annum. I think that answered part of your questions.
Yeah, that's good. Thank you. And just one more on Hemi. So permitting is still a pretty complicated subject for us. Can you just give us a bit more detail around what stage it's up to now? What happens next?
Yeah. So essentially, EPA approval is still going through their processes. This financial year, we're expecting there's no real way to fast track those processes with the regulators, and it's prudent that they take the time. In parallel to that, we're working on the water trials and dewatering testing. And that's the engagement we're having with Traditional Owners and the like presently. But all those things are progressing as normal. It's very, as you imagine, weather-wise, it's the hot season. So laying pipe and doing works is a bit of a derated activity, as we used to do in the Northern Territory. Northern Pilbara gets pretty hot this time of year. So there's some of that activity. We're just sensibly laying pipe and getting the bores ready for that throughout these months.
But fundamentally, we're working towards the end of this calendar year to be in a position to be putting numbers together for FID. The extra expenditure is about the optimization work, just continually testing the flow sheet and making sure we've got options and that when we put the data into the FID papers, that we've thoroughly thought of all those combinations. And one of the things you just keep looking at, you keep finding options and can find better work. So yeah, they were using the time wisely in that regard.
Thank you. Thanks for the detail.
Thank you. Your next question comes from Ben Lyons from Jarden Securities. Please go ahead.
Thank you. Good day to you, Simon. Just wanted to revisit the underlying reasons behind the recent changes to production or in sustaining costs and I guess also CapEx guidance, the three consecutive downgrades over the past couple of weeks, and maybe at the same time, advocate for some greater disclosure from the company as well, so one of the reasons, for example, that was given for the production downgrade was the underperformance of Thunderbox, which is now sort of pitched as a 250,000-ounce mining center rather than a 300,000-ounce mining center, and specifically, those lower grades, you're saying originate from the Orelia open pit. So I was just wading through the 600-page resource and reserve report, and I just can't find anywhere like a simple tonnage grade and strip ratio outline for those key ore sources like Orelia, like Bannockburn, etc.
And the same goes for Carosue Dam and Jundee, like the actual ore sources that sit behind these mining centers. So the comments made by Simon in his introductory remarks are helpful. Gives us some of the pieces, but just like to have a really basic outline of the ore sources that sit behind the actual mining centers or at the very least a detailed investor day where we can do some deep dives on these assets as well. Just think that'd be helpful to better assess the predictability of this business and the reliability of the forecasting that we received, just a bunch of numbers from you guys at head office level, just to go deep on these assets. So am I missing anything in that 600-page resource report that could sort of help with these just sort of basic metrics?
No, but I'll take that as a comment, not a question, Ben.
Yeah. Okay. Cool. Okay. Thank you. The question then is, Corp Sec did scrutiny on your continuous disclosure obligations. Why wasn't the crusher failure at KCGM immediately disclosed to the market? I would have thought that was a significant event in itself. To paraphrase your response to the ASX, it was basically we didn't get the data until the 1st of January. How regular are your updates from site to the head office in Subiaco? I would have thought that you're getting daily updates on simple metrics like production and sales, but is it weekly? Is it monthly? Surely it's not quarterly. Surely you didn't have to wait until the 1st of January to know that you're going to downgrade.
So, Ben, there's a very comprehensive response to an awareness letter from ASX. There's a very simple one-page disclosure around production on the 2nd of January and a very thorough response to the ASX in regards to the query. I think that addresses it.
Yeah. Okay. I mean, I've read it several times, but from my perspective, I don't think it's satisfactory. I would have thought you get real-time data on sales at least weekly or monthly, not quarterly. But anyway, happy to go and have another read. Thanks.
Thank you. Your next question comes from Hugo Nicolaci from Goldman Sachs. Please go ahead.
Morning, Simon, Ryan. Just one on the updated cost guidance. Look, obviously, good to see the revised cost guidance coming in line with the prior top end, considering the gold price increases and royalties associated with that. But if I break that down nominally, you've effectively tightened the range and the midpoint of costs is pretty much unchanged despite highlighting earlier this month that the operational impacts were going to have a number of cost impacts. So I guess the question is, what operational and sustaining costs have you been able to defer into next year to be able to keep that cost guidance flat?
Yeah. Thanks, Hugo. I think the key thing is that the one-offs and the events are behind us, and we know the impacts and effects of those events. They're finite. They're complete. Obviously, we've disclosed on some of the continuing things that are in the week one of January that are behind us now. So really, this is the reset and the view of the forecasting of where the sites are operating at, and the cost basis has allowed us to narrow the guidance range because we've got six months ahead, not 12. So that's really where that is at. It's a much stronger second half. If you really look at what the second half will deliver, a significant step up from quarter three in production. You're seeing our realized gold price.
It's improving, but it's still a long way off spot because of the hedges, which are unwinding rapidly, and then obviously delivering into a higher spot. So coupled with increasing production, the gold sales being the denominator of all the sustaining costs, the exposure to that spot by the cash generation over the next two quarters and the run rate exiting this financial year for another structural change of Fimiston being turned on positions the company into a very strong position. So yes, it is future telling. It's forecasting. It's looking at what's in front of us. We would ask people to isolate quarter three. We have provided very detailed information around the events that were unforeseen or some are out of our control, some were risk balanced around maintenance events. But ultimately, they have been addressed.
The team have done an absolutely fantastic job managing through that period and working on those items, and that gives us the confidence to place the forecast. On the full year, yes, there's a step up in cost. There's a step down in production, but when you look at the second half run rates, it's a very, very strong, healthy business in that regard, and it can't undo what's happened in the first half, but ultimately, we've got a very confident outlook.
Great. Thanks, Judy. So yeah, obviously, taking sort of first half and the unforeseen impacts as they were, but sort of just to dig into that further, I mean, your AISC range is sort of now $4.4 billion-$4.5 billion for the year. It was $4.25 billion-$4.6 billion. You've highlighted $40 an ounce of that, or roughly $64 million at the low end is from royalties. So where has some of those other cost savings come from, though, sort of looking forward? And should we expect those costs to end up into FY27?
I think it's right here. I think the costs are there, obviously. In the immediate term, all costs are fixed. So you're right to do the math on the overall, I guess, checks written at the business. What we're saying is, and as Simon was talking to when he spoke, a lot of these disruption issues that cause production issues are behind us. We're confident in the grade outlook at Pogo, Jundee. Simon spoke about the high-grade material sitting on the wrong pad at KCGM. You've seen the grade lift there. And then also the throughput confidence in this second half. So they all contribute to keeping us aligned and narrowing that cost range. Even with those, as you say, expected royalties, we're confident that in that range, $2,600-$2,800, lands us with their lower production profile.
Any discretionary spend as well will be shelved and pushed because it's not only is it dollar millions, but as far as activity and distraction, ensuring that the team have a very clear, simplified sort of activity list. That's what we'll do. So does that go push a wave into FY27? We'll assess it at the time. We'll assess the balance of risk around planned versus unplanned maintenance, etc. But there were items that were budgeted that we will just strike off the list that will not get spent in the second half.
Yeah. Got it. I guess the question was, what are those items and how much are they spent? But maybe we'll pick that up later. Next one, just around the upward revision of Hemi CapEx. You've called out a more detailed review of engineering design work, so why CapEx this year is AUD 25 million higher. But studies were originally to support an FID by the end of FY26. So is that just a bring forward of detailed engineering works that you would have otherwise had to do? Or were those not initially detailed enough for an FID timing as originally planned? And I guess, how should we consider that in the context of, I think, market expectations for Hemi CapEx now, sort of AUD 2.5 billion? And should we continue to expect that maybe there's a bit of creep there?
Look, yeah, I would say reset on the overall CapEx number. So, saying if we're spending extra this year, it comes off the overall CapEx number. It's certainly work that's progressing and would be required and that we would be doing. But I'd also consider work that may have been spent. We would consider, okay, that's redundant, and we replaced it with new study work that's got an improved operating outcome or an improved flow sheet outcome. So I think we've got to be careful of saying extra money spent this year comes off the total. There's certainly items that were long lead items invested in, spent, bought, that we'd also say perhaps we'll resell and repurpose and replace with larger, simpler kits. So that's been something we've done with the time. That'll all come in a final FID paper on explanations in that regard.
There's not material structural changes to the overall flow sheet. What we've looked at is synergies with the rest of our operations to have common parts, common spares, which wasn't considered when that's a standalone asset in a single asset company. We've looked at it through the lens of Fimiston mill expansion, some items that could replicate, save on the engineering because we've already done it, but we've actually got to spend for the parts to get commonality, which will de-risk us in the future running to sort of sister plants.
All right. Got it. I might pass it on around back. Thanks.
Thank you. Your next question comes from Matthew Frydman from MST Financial. Please go ahead.
Sure. Thanks. Morning, Stuart and team, and happy new year. A couple of questions from me, please. Maybe firstly, can I take the thrust of Ben Lyons' comments and maybe turn it into a question that hopefully we can actually answer on this call? In the release, you say you've reduced CapEx spend at Pogo and Kalgoorlie and increased spend at Yandal to support the regional hub strategy. Can I just ask, what is the regional hub strategy at Yandal? Can you summarize it in terms of production ounces, life, unit cost, and how much capital needs to be spent to deliver it? Because I'm not really clear on any of those things, and it sounds like maybe there's other analysts that aren't clear either, so that'd be appreciated.
Okay, Matt. So there's a 3 million tonne per annum plant in the north called Jundee, and there's a 6 million tonne per annum plant in the south called Thunderbox. Higher grade ore will go to Jundee. Lower grade ore will go to Thunderbox. Jundee will sit at around 300,000 ounces per annum. Thunderbox will sit at around 250,000 ounces per annum. So the hub, which is called Yandal, will produce at about 550,000 ounces per annum. That's different. The 600 we've set, but we've articulated that 550 is probably the happy place that that will be at. It might oscillate where Jundee does 250 and Thunderbox does 300, but overall, that Yandal belt, we're saying, can operate at around 550. We've got the reserve statements. It's got all the trades and all sources, Bannockburn, derivatives, Thunderbox. You've got all the data that sits behind that.
That's fundamentally more than what any company is providing and giving with the materiality of what that asset provides for the group. The key aspect of those assets that we're not liking at the moment is the costs. So the economies of scale from expanding Thunderbox was to materially improve the all-in sustaining costs, as is the growth at Jundee, was to keep the costs down. And you can see the costs for Yandal in the quarter on the lower ounce profile are very high. So that's in our head to say, well, what's the overall outlook? Like, we've got to improve this to ensure that its contributions, as it has been for a decade in our business, foundation asset, we can provide more view and color on what those can be. But we're still building new high-grade mines, and the development rates are still contributing towards that.
So pulling out Orelia and talking about decimal points of grade of something that's not even providing a third of the feed to Thunderbox for a number of years is immaterial. And I want to focus on that. It's immaterial in the overall.
Yeah. I mean, I didn't specify Orelia, Stuart. And you've answered the question in terms of ounces and life. But as you point out, I think probably the gap in understanding is really more around unit costs, expectations, and also, I guess, the capital required to get there. So I suppose the question that probably the market has is, what's the quantum of capital you're going to spend in order to get the cost to a certain point? And I guess, what does that look like? And I suppose we wonder out loud, how do you make those investment decisions when it seems like we don't have a good visibility on what the target is around cost and total quantum of CapEx?
Yeah. So we provide production and cost guidance on an annualized basis in July. And that's what we've done for a long time, and that's what we'll keep doing at Yandal. We're putting the pace plan that's getting into the higher grade at Jundee. It'll see some of the grade restore. All the commentary that sits around this asset shows the growth of Wonder down south giving better grade into Thunderbox as well as new Bannockburn operation. You're going through the stripping at the moment, getting into primary ore. The questions, we're not going to answer on a quarterly call. Let's put it that way.
No, that's fine. I guess the theme there is that I appreciate that you guys give one-year guidance, but clearly, the impact to the market's perception of the company from arguably some of these short-term disappointments from quarter to quarter, potentially that impact is exacerbated because we don't have a multi-year sort of longer-term picture for some of these elements of the business. So obviously, anything you can do over time to shine a light on that is appreciated. But I'll move on from that line of questioning. Matt, can we?
Before you do that, the point is, with KCGM in the half one, it's really changed it, and it's the mill throughput that's really impacted the overall ability to deliver. All the other some of the small parts on a materiality threshold are negligible. But the actual throughput.
I agree with you. That's why I'm making the point. That's why I'm making the point that if you only give one-year guidance, it's exacerbated.
Please let me finish this answer. Everyone needs to focus on the asset KCGM, and there's 82,000 ounces sitting on the ROM pad of high-grade ore ready to put through that plant. And the new expanded plant will be commissioned in less than six months' time. So if everyone wants to dive into smaller items across all the assets, we recognize that it was a poor quarter. We understand the elements that contributed to that. There were many. And we understand what we've done to rectify it and what the outlook is going forward. I pick up the frustration from the questions, and I'll pick up the frustration from investors or from analysts who can't model this. Quarter two is behind us, and the second half outlook is strong. And we will work very hard to deliver that. And where we position ourselves into FY27, we're in an excellent position.
So I just want to reinforce we're getting into minutia, which is behind us and doesn't matter on a materiality threshold. So think about the things that make a difference. KCGM is a key asset. That's where the focus and effort is today. It's not on these satellite small life short things, but also generating significant cash flow that are actually contributing towards spending the capital at a long life, high margin assets.
Yep. I apologize. Thanks for the answer. Apologize for cutting you off, Stu. I mean, I would say that the Yandal hub is still going to be a third of your business, so I'm not sure that it's characterized as minutia. But anyway, thank you for your response.
Second question is just on the KCGM mill expansion, I guess, increases to the capital guidance there. You talked through in some detail around where that's going and why it's important to, I guess, stick to the schedule. Is there a risk there that, I guess, throwing more money and people doesn't really solve the productivity issue you're having? I mean, you talked about how it is a fairly condensed space there that your teams are working in. I guess the question is, why are you confident that spending more is the right approach versus just taking longer to complete the project? Thanks.
So it doesn't solve the productivity issue. That's why you add head count because you can't achieve if it's 600 people, so you throw 800 at it. That's the answer of productivity, and you're paying more to get the same thing done. That's why there's AUD 110 million extra spent in this year to deliver that. The most important part is to have the plant on, getting all through it, and step-changing the asset's cost base and its revenue. Time is of the essence with KCGM, not capital, sadly, at this point. It's not sensitive to capital. We don't lightly spend AUD 110 million unnecessarily. We want to see this plant operating and starting to contribute.
Yep. Okay. Thanks. So just add a little bit to that. So during the next, really the next four months is where we've got the peak manning. So we've ramped up, as Stu said, above what was originally the plan, and that sort of progression started during Q2 in terms of accelerating the work. We've got still many work fronts at the moment, so we still have that opportunity to put those people in there. Three, four months from now, those work fronts start to wind down, and we're very, very focused on the critical path, which is stage one, which is first ore into the new mills. So while we've still got the opportunity, we've taken that, and the project team has to put the extra people in there, get the work actually completed.
That's the picture right now, which gives us the ability to remain on schedule for FY27, ready to go in sort of June. So if we didn't put those extra people in, the work fronts start to dry up, and then it genuinely will be delayed. So the project is in really good shape. It's focused on stage one, and that is first ore into the mill. The stage two is moving Gidji back down to KCGM. That can happen in the months after we're milling ore.
Got it. Thank you for the additional color there, Simon, and thanks for your responses, Stu. Cheers.
Thank you. The next question comes from Daniel Morgan from Barrenjoey. Please go ahead.
Hi, Stu and team, so obviously, a key theme of the call has been throwing a lot more bodies at the project to keep it on schedule. I understand that makes sense given the gold price and the project you're trying to keep on schedule, but do you still expect the July turn-on? I mean, is the Gantt chart, I imagine, the critical path, the turn-on date, is it not shifting back? Is it not wise, given recent guidance and market disclosures? Is it not wise to maybe start to push market expectations of the schedule of the turn-on back, or is this the expectation that this extra budget will keep the schedule to July? Thank you.
It's quarter one. My expectation is early quarter one, so obviously, there'll be parallel running up at the plant. This isn't about market expectations. This is about our disclosures, around a three-year build on time to the budget we're saying and the overrun on that expenditure because we're throwing more labor at it. We're not here trying to game this, Dan. We're here explaining where we're at, two and a half years into a three-year build. And as Simon's got the confidence in discussing as well, we're very, very pleased with the progress being made. And we're working very closely with the contractor that's constructing it and looking for any opportunity to get this done not only on time, but earlier. And part of that combined solution is around adding head count. And we don't just add it so they're standing around holding stop signs.
There are people there doing productive work that's contributing towards that deadline. So yeah, that's what we're working towards. It's pretty exciting. I think the team that got around the plant at Diggers and Dealers saw a massive step change year on year. If you went there again today, you'd say, "Well, why can't you turn it on now?" That's what you'd visually see. And it's no different. You're building a house, wait for your carpets and your fire screens. All the cabling, all the tiling, all the final elements of that. It looks like it's being finished, and it looks like it's sitting there doing nothing.
But it's that final, final finishing to ensure that when we get it turned on, the quality's met and the work's done so that we don't have to bring it down or we don't have to have those lessons that we learned out of the Thunderbox expansion. We endured 12 months of ups and downs and rectifying some of those things. We'd like to see all that addressed prior to turning and commissioning this on. So that's the work that's underway for the second half.
Thank you. And I guess, obviously, there's a lot of focus on the call and obviously concern about various aspects. But maybe pivoting and changing tack a little bit. Just over the last six months or so, what is changing in the business that you can see from a very positive sense? What is something you'd highlight to investors where there's been change afoot or something that's getting better, be it exploration, be it a site? What is changing in the business in a positive sense that you could highlight to the market today?
Yeah. Well, I mean, I'd recognize the underperformance in share price against the peers, global majors. We acknowledge that. We acknowledge that there's reflection on short-term production misses, cost misses, and we've been very clear on the events that have contributed to that and what we've done to rectify that. Just look at the run rate of second half in its own right.
Very, very strong uplift in production. Look at the reducing hedge book and realized gold price that we're growing exposure to spot. And the step change of the business as KCGM mill expansion turns on in FY27 and the uplift again, step change in production profile for the group. They are the things that are so close to us that the opportunity for investors now to get in and get positioned. That's the confidence in the outlook. I see, to your point, people are focused on here-now concerns. They're looking at relativities. That creates the opportunity to understand the long-term value creation that all the stars are doing.
Thanks very much, Stu.
Thank you. Your next question comes from Milan Tomic from JP Morgan. Please go ahead.
Yeah. Hi, Stu. Thanks for the call. Just a question on the Hemi permitting side of things. Can you provide maybe a little bit more detail as to how that process is progressing? Have there been any issues, specific issues that have been flagged by the Indigenous nation groups in that area? Or yeah, just wondering if you can give a bit more color as to any concerns that might have been raised so far.
No, no major concerns there, Milan. It's really the dewatering trial is something we've got to commence, which will likely be the start of quarter four. Ideally, we would have started that in quarter two, but there was a delay in getting all that infrastructure in place through the hot season. So once that's in place and we've got a plan that's acceptable, we'll commence that trial. It takes about three months, and that feedback loop goes into our 5C water licence for dewatering of the pits pre-production. So that's probably something that has slipped. It doesn't affect the overall state and federal EPA approval licences, which are continuing. But ultimately, that's probably the operational part that we would have liked to have seen commence pre-summer, and that's going to start March, April, likely with the modified scheme that we've negotiated or are negotiating with Traditional Owners there.
Yeah, and just in terms of the work that you're doing on optimization, any major changes regarding mine plan sequencing, etc., that you could share, that's kind of been different from how that project was initially envisioned to be?
Yeah. So scheduling. So what we're going to look at is first gold pour and that deadline, even though there's a delayed timing of starting, to understand, okay, what impacts through to that. The actual flow sheet, generally, we've looked at lots of different scenarios and options and defaulted back to what that primary flow sheet is with the high-pressure grinding rolls at the start instead of SAG mills. It's still sound. Resizing some of the gear, mills, etc., is probably something we've done with ability to expand later on a more simplified plant. But all the autoclaves and all that are already in train to be built and long lead items like that are constructed. So that's all sound. Mining sequence, again, just around water management, around borrow pits and getting that prepared.
We've just got options and scenarios there as opposed to the one plan that previous owners had. We've just got a number of scenarios there that could go different paths to get to the same result. So that's just what the team are doing while the approvals are underway, iterating, iterating. It's what they do best as the engineers.
Yep. Thanks very much, and maybe if I can just squeeze one more in on Jundee. To get it to 300,000 ounces, you'll have to get quite a sizable uptick in the grades compared to the last couple of quarters at least. Can you maybe just shed a bit of light? How are you getting that increase in grades? Are you moving into a high-grade part of the ore body, or is there something else that we should be considering there? Thanks.
A mix of both. Primarily, the throughput's not changing. So yes, the average grade delivered to the plant needs to be there. It's been there before. We've certainly got isolated pockets that are different grades and different mining sequences. We've just added a paste plant, which allows us to go back up into the upper levels, regional high-grade areas, and take those high-grade zones that were sterilized because they just opened voids. There was no paste in the mine in its history, 30 years. It's never had any paste backfill. But we've got that paste plant installed and starting to fill those voids. We can go back and take those high-grade pillars out of those upper levels. So there's areas like that, New Cook, Griffin mining zones, producing better grade. So all those things contribute. But overall, it is a grade focus rather than a throughput focus.
Great. Thanks very much.
Thank you. Your next question comes from Adam Baker from Macquarie. Please go ahead.
Hi, Stu. Just one follow-up for me, just on Hemi. I noticed you noted that in May 2026, you're going to have the optimized resource and reserve. I'm just wondering, is there anything that we could be seeing to see a quantum change in the resources or the reserves, noting changes like gold price assumptions , etc., and likewise for reserves around cut-off grade, etc., with your work integrating this into the Northern Star reserve and resources? Thanks.
Yeah. Thanks, Adam. Look, I won't preempt things that happen with R&R. There's still a fair bit of work to occur in the coming months leading into that. But we'll basically release Hemi in a Northern Star view of R&R with the group's R&R. I would say Hemi had a high gold price assumption in what was previously released. So we'll try and align with the group overall where we set those gold prices for resources and reserves. They're almost irrelevant in regard to where the current spot price is and watching what peers are doing in gold price assumptions around resource and reserves. But it does, in turn, reflect back to cut-off grades and how these overall pit shells are valued. And can you actually merge pits together, take out saddles, and make a bigger or larger overall lower-grade resource economic? That's what we've got to consider.
But I would just say, look, we've probably got a stricter, more scrutinized view around what's in and what's out. So if anything, a more robust scrutiny or eyes on that resource is more likely than material growth. If you think about the drilling and the data that's occurring there, all we've really done recently is redirect some drills to do some truthing. We haven't done any real growth drilling since we've taken control of that Hemi region.
That's clear. Thank you.
Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.
Morning, Stu and team. Stu, you've made a couple of comments with regards to Hemi. You called it a sister plant to KCGM, and you talked about taking the opportunity to resize mills. Does that potentially mean a change of scope of mill size relative to previously disclosed grade numbers? Can you help us understand that?
Correct. Ideally, things like the crusher, things like the mills, ideally are identical to what we have at Fimiston. And that's been currently our thinking. There's already some mills purchased. They're already sitting in a shed packaged up in Port Hedland. I've literally seen them unloaded off the truck. I look at those and say, "They'll do the job of a 10 million tonne per annum plant. To get to a 15 million tonne per annum plant, I'd need a third one." Would I consider, instead of doing that, having two large mills today that match Fimiston? The answer's usually yes. So be the sort of considerations we're doing to say, irrespective of owning some hardware that's sitting there in a shed, would we start again and say, "Two large mills that match Fimiston?
What's the logic of that?" In the scheme of reselling these things, there's options that are there. In the scheme of redundant expenditure, you can recoup your costs because you haven't installed them and they're ready to freight. That's the type of thinking that if you're in a hurry to build the mill, they would have got built, and then when you want to expand, you add a new mill. When we look at that now with the time, say, "Well, let's just not go build something because we have the parts. Let's consider what we would do if we had a clean sheet." That's the example. Same as the crushing circuit.
Absolutely take the replicate design from Fimiston and say, "Is that something you could install here that's oversized but matches parts, etc.?" As opposed to going through something that's been designed specific for the throughput rate of Hemi, and we go to something that is the sister plant to Fimiston. That means that if we have issues like Simon had in December at KCGM, we could be fast-tracking the knowledge and the skills and the parts across the business that every three or four years would happen at one of those large crushing units.
Yeah. Thank you. Appreciate the call.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Tonkin for closing remarks.
All right. Thank you for joining us on the call today. And I appreciate the interest. It's been a busy day for everyone, but looking forward to a strong second half and growing from here. Appreciate it. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect.