At Denver. I'm sure it wasn't on your bucket list at the start of the year, but we've got plenty to talk through.
Definitely. Yeah.
Thought we'd get started just on Northern Star as the overall business. It's a company I've been looking at for many, many years. It's actually quite a simple business. Just the importance of how you've been able to grow the company, maintain just a simple three hub strategy, and the importance of those jurisdictions to your shareholder base.
Yeah. Thanks, Hayden . Great to be here today. Yeah. So I guess, there's been a deliberate strategy of the company over many years around the low-risk jurisdictions. When we think about screening for opportunities globally, it's the first thing that we look for on that screening. That gives us the confidence to apply capital to the systems, to the operations we have to get shareholder returns.
When you have been at Northern Star for over a decade, I mean, the meetings you have had internally and discussions with shareholders. I mean, the willingness to globalize the business and go to more risky jurisdictions. Is that something that has ever really been considered, or is it more a focus of tier one locations?
No, definitely. It has been a focus. I have been with the business for 11 years. The first asset was acquired back in 2011 in W.A. We have only ever focused in Western Australia for that first 10 years of the business's life. Then we ventured out acquiring Pogo in 2018. But have absolutely stuck to that mantra around the opportunities in those locations. That mining is hard enough as it is. Having risk in jurisdictions is not something that our business has had the strategy for.
They are producing about 1.5 million ounces a year at the moment from that suite of assets. Return on equity, shareholder returns, earnings per share growth. It has been quite impressive over the last couple of years. Can we just talk about how you have got to that point and as you now move forward with some pretty major projects coming online, what you think that will look like?
Yeah. The company has gone through some significant investment over the past few years, principally at KCGM. So, we are building or have built, commissioned, and tied in a very large mill. That has been capital intensive. Where we see these returns going or what is the step change, I guess, going forward is, we are going to be seeing production lift at that asset. We are going to be basically getting through those high cash accretive stockpiles. CapEx is dropping off at KCGM. We have obviously got Hemi on the horizon, which we will have at a capital outlay. But KCGM's production growth is, we see our return on equity or our return on capital increasing over these next few years. We have also got, the company does have a hedge book. That is unwinding as well. So we really do see return on capital increasing over the medium term.
That performance you've delivered there, I mean, it's obviously helped grow the balance sheet despite a big, heavy capital spend. The cash balance is growing quite well. How do you think about holding cash, giving it back, those sorts of measures?
Yeah. I guess, what's important to the company is having that investment-grade balance sheet. Just generally strength of balance sheet in our sector is important because of the volatility of commodity prices, so you want to be able to buffer those uncertain times when they're there. It's also been a really important strategic pillar of the business to be able to grow. Having that strong balance sheet means you can invest in your organic business then when inorganic opportunities that are accretive to you arise, you can move forward on those. So yeah, very important. We're all within our investment-grade metrics there. Yeah. It's a key part of the business and a key actually strategic pillar of the business is that investment-grade balance sheet.
I've sat in this room for most of the morning. The word buyback gets mentioned a fair bit. I mean, you guys have started one yourselves over the last few years. Just talk about how you think about buybacks versus just increasing dividends, given you can pay franked dividends in Australia.
Yeah. I mean, I guess the company's got a very demonstrated track record of returning funds to shareholders. I think the first dividend was back in FY 2012 then. It's grown those dividends ever since. So they're very important. Buybacks are really optionality on capital allocation so the choice between investing back in the business or accreting through a buyback are always options. Valuation has to be there, cash flow has to be there, outlook has to be there to determine these things. So we're probably a quarter through that AUD 500 million buyback. I'd say that it's going to be a tool in the toolkit that the Board and the management team want to use going forward just to provide that optionality and that accretion on a per share basis.
Well, let's talk about some of that growth options that you've got versus giving money back. I always sort of I think people sort of forget about those lines down the bottom there with reserves and resources.
KCGM, you're right at the back end of a massive mill expansion. The options beyond that, we can talk a bit more about that, but just the options that will unlock potentially.
Yeah. The mill, yeah, really happy with or very happy with the design, the construction, the engineering of that mill because that's what you're left with. The 30-year life of that project, that's what you're left with, is that design. That's going to unlock. It's going to reduce costs. It's going to lower cut-off grades in the mine, which means you can get efficiencies in your mining. It's not just processing cost per ton, which everyone looks to. It actually is going to unlock the system going forward. At KCGM, we're looking to lower power costs through building some new power infrastructure there, and then that then opens up, again, a lower cost base, and it allows electrification of fleet. It allows materials handling in underground studies to be pursued because of that lower cost of power.
It's really about, as you say, it's the endowment to then be able to invest capital to get the returns that shareholders demand and what we want to return. KCGM's, we're going through the tie-in phase. We're settling the plant now. That's all gone well. Now it's about ramp up.
Most of your assets are two hours door to door from my house, except for Pogo, which means it probably doesn't get the attention it deserves. Can we just touch on that a little bit? It did have a challenging start, I think, in terms of what you were trying to achieve, but how it's going now and where you see the future.
Yeah, I think you're right. I think lots of questions for the first few years of Pogo and then none now. That tells me that it's operating well. I think in mining, consistency is beauty and consistency is value. I think Pogo, we're seeing that now. It did take us a few years to build out that asset, but it's generating huge cash flow now, very consistent operation. Really, the medium term for Pogo is just converting the large mineral resource into the reserve. One of the things that we are looking at at Pogo is testing the low-grade resource domains around the high grade to, in time, really assess whether could there be a bulk mining opportunity at Pogo. That's a long-dated opportunity. I think, yeah, there's huge upside in Pogo, and it gives us good diversification of currency around the U.S. dollar.
Yeah, it's a great portfolio addition to us.
Let's get onto the key asset, KCGM. From consolidating ownership with the merger with Saracen to bring it back under one business, you then leverage that to do this gigantic mill expansion, which has obviously got a lot of headlines in terms of the timeline to finish it and the guidance and the ramp up and everything. Just give us an update on how it's going. We all saw it at site at Diggers and Dealers. It was operating.
Yeah.
How are we going with the ramp up?
Yeah, no. Good. It's an impressive plant. We're really rapt to be able to show people in the flesh what this asset is. The objective with this was really how do we build a very simple, the easiest operability plant, lowest maintenance cost. That's how it's been designed. Everything is larger, simpler, fewer parts, fewer moving parts. You can see the cranes there. There's a couple of cranes there. The idea there is instead of working in the field on doing maintenance, you literally use the cranes, drop in, pick up a piece of equipment, take that to the store, get that fixed, drop a new one in. So it's really about operability and available time and using gravity there. You can see the flotation cells there. Using gravity as well, so low-cost energy.
This first quarter's been about using the old mill to generate cash flows while we're commissioning and tying in. The project now is tied in, and now we're just really stabilizing the plant before we hand it back to ops to ramp up.
Just the simplification. You can't quite see it there, but that old bit of the plant that you're getting rid of is quite a complex beast.
It is. That's right. Lots of add-ons over the time. I think there was about five ball mills. We now only have one. So yeah, it's fewer equipment, bigger equipment. Yeah, really looking forward to seeing the ramp up, the cash flows. You can sort of see in the background the stockpiles. Stockpiles in close proximity, and they're going to be really accretive from a free cash perspective.
One thing I don't think that's talked about enough, there's been a lot of focus on delivering this and getting it going. But Fimiston South effectively is a cutback with 8 million ounces in it. I mean, it's a pretty impressive open pit. I mean, the potential to look at ramping up mine production out of there and displacing stockpiles just from within KCGM itself.
Yeah, that's right. I think the highest accretive activity we can do is try and displace those stockpiles for as long as we can. So we are aggressively stripping through the waste at Fim South. I think we're doing 60 million tons this year. As you say, there's 8 million ounces in resource there. That's going to be the medium long-term feed source of this mill, along with, as you know, the Fimiston and Mount Charlotte undergrounds. Interestingly, this year now, when you look at the resource between the open pit, 18 million ounces, and the underground, the underground's now higher at 21 million ounces. So yeah, there's a huge future there to ramp that underground and to feed the mill. Regionally around us, there's opportunities in our portfolio around bringing material into KCGM as well.
There's been some discussion, obviously, with Elliott on the register about accelerating that process. But really, I imagine you need to get this mill bedded down, get its milling costs sorted, and then start picking the eyes out of the regional satellite projects, and then look at a rationalization program?
Yeah, that is right. I think, yeah, the immediate term is settling this mill, showing the run rate. The market wants to see the performance here. They have seen it in the flesh, they want to see the performance. So we are keen to show that with them in physicals. They will see that over the quarters ahead. And then, yeah, once it is settled, then it is about, okay, well, what feeds the mill over the medium and long term? And how do we prioritize and sort of sequence that?
Yeah, absolutely. It is 100 million ounce endowment originally at KCGM, and you will probably get it to 1 million ounces a year, as one of the early presenters
Yeah
discussed. There are not many 1 million ounce a year projects out there.
No. It is impressive.
Look forward to that happening. Let's get on to Hemi. It's been a little bit frustrating from the market's point of view in terms of the timing and when we'll get to a decision to actually push ahead with this. Can you just talk about some of those challenges? They're not distinct to Hemi. The approvals process at W.A. and federally is getting much harder than it was previously.
Yeah. The approvals definitely probably have taken longer than what we'd expected. As you know, we needed two environmental approvals. We've got one, which is the state government one, and we're waiting on the federal permit, which we expect to get in this quarter. Then in terms of what's the critical path for this project, it's really around a dewatering trial, which is actually undergoing now, which is quantifying the water needed to be taken out of the palaeochannel and reinjected. We're doing that trial now. We need to dewater before we actually start mining. That's going to be a three-month trial. Following that, the results have got to be sent to the regulator, and then we'll get our dewatering license, likely in the new calendar year. Then that allows us to obviously start that process.
Then following that, really, the other lead time item is the engineering and design around the flow sheet to inform FID on the project and ultimately the capital cost of this project. We said to the market that, "Look, give us some time." We're obviously focused on KCGM at the moment, but there's some lead time items here. So we're likely to come later in the fiscal year or late in the fiscal year with an FID to the market.
Just on the ultimate scale, you probably can't give too much away at this point, but the original numbers that are out there were effectively to minimize the front-end capital. Your strong balance sheet, cash flow out of KCGM probably gives you more levers to pull on a bigger development, potentially.
Yeah, that is right. So we are looking at all that, and building, as you say, building contingency and upside in the equipment package to deliver, yeah, higher throughput, if it is warranted on a returns basis. Yeah.
Okay, brilliant. We will just sort of move on to the rest of the business. You have obviously got a massive reserve resource base that is not talked about probably as much as it should be. KCGM is one leverage point to that, maybe a bigger Hemi, and we sort of touched on Pogo. How do you think about the rest of it? Is there more of a rationalization here where we will actually bring that number back down as we move some of the smaller things on? Or how are we thinking about sort of growing the business and leveraging off that?
Yeah. You look at it is a massive endowment, I think, and again, that gives us confidence to deploy capital and get the returns needed. Half of that mineral resource endowment is almost KCGM. And really, KCGM's story is about, we have got a very large mill now and it is about keeping ahead of that from an underground perspective. So, a lot of the focus in the near term is about conversion of that resource into reserves, particularly around the Mount Charlotte and the Fimiston undergrounds. We spoke about at Pogo, the focus is really, again, similarly where we are converting, but also equally looking at can we increase that mineral endowment that could potentially change the way we think and mine that asset in the long term, not in the medium term.
As you say, on Hemi, there is some great regional opportunity which we are focusing on this year. We have seen kilometer length gold anomalies that have been informed by early exploration up there, just north of Hemi. There is 1,800, I think, square meters of tenement package there. So there is lots of opportunity there. And at Jundee, which again, Jundee has a large resource. Smaller reserve, but large resource. It is about can we unlock the mineral at depth there with maybe growing that inventory and, does that support then maybe some capital investment in the plant to produce a concentrate that could go to KCGM and be processed. So yeah, there is lots of opportunity and the mineral endowment allows these options to be realized.
Yeah. I think with Hemi, it potentially unlocks a lot of that value at some point, some of those other assets. For the last 12, 18 months have been probably the most interesting, certainly the last few weeks at Northern Star. The next three years, what is the outlook now you've got the big capital hurdle sort of done? How do we keep the business going forward from here?
Yeah. The next three years really, KCGM's pretty clear. We've done all the heavy lifting around the plant. We've been building this for three years. It's ready to turn on. The stockpiles are there. The cash flow's there. The mining's going really well. There's a clear path there that the free cash is going to lift, the CapEx comes off. Hemi, over the next three years, likely that'll be just starting production. That'll be exciting. That's going to be a decades long asset and a great cash flow generation. Generate high cash flow for the business. Pogo, we'll probably start to see where that optionality lies in the long term for Pogo. The other assets really, there's lots said about them, and lots of ideas about them.
They generate great cash flow, and they've been the driving force behind the investment in KCGM. While KCGM's been spending money, it's been their money that they've been spending. That portfolio has actually assisted to keep the balance sheet strong and to be able to invest in the business. Yeah. We see incredible value in our company, and we're on the precipice of beginning to realize that.
You are going through, obviously, well-publicized management changes. Stu left earlier this year. Suresh starts Monday, I think.
Monday. Yep.
The Chair will change over at the AGM in November. What do you think the initial focus will be from Monday morning?
Monday morning, probably firstly, coffee first, Suresh. No, I think his initial focus will be ultimately getting under the hood of the assets. I think he's got two weeks out at the operations. He'll want to quickly understand them, talk to the people, understand where they see the assets going, understand the risk, understand the opportunities, and start forming his view of where we could take this business. That's probably the first 100 days.
The Board changes that we've seen. Obviously, there's been the Chair, but also a number of other changes as well. Just how that sort of played out.
Yeah. Prior to Elliott, which is well-publicized, the board was going through a refresh with Mike Chaney obviously leaving the Board after five years as Chairman, with Michael Ashforth succeeding him. John Fitzgerald, our longstanding Director of 13 years, also equally notionally rotating off. The Board wanted deep gold experience. We brought Jeff on, who's got tremendous experience, and we're really looking forward to working with. With John leaving as Chair of the Audit Committee, the Board have got a coup in bringing Terry Bowen in, who's got lots of experience. Ex-BHP Chair of the Audit Committee, too. So that's a great complement. With Mark and Peter, some really great skills on, as I said, with the management team, just generating value of what we see in this business.
Brilliant. Well, we're out of time. Ryan, as I said, I think you expected to be up here at the start of the year, but did a great job. Well done. Thank you.
Thanks. Thanks, Hayden. Cheers. Thanks, all.
Thanks. Cheers, mate.