Thank you for standing by, welcome to the Northern Star FY 23 financial results. All participants are in a listen-only mode. There will be a presentation, followed by a question and answer session. If you would like to ask a question, you'll need to press the star key followed by one on your telephone keypad. I would now like to hand the conference over to Mr. Stuart Tonkin, Managing Director and CEO. Please go ahead.
Good morning, all, welcome to the Northern Star full year Results Presentation for FY 2023. Joining me on the call today is CFO, Ryan Gurner, and COO, Simon Jessop. We have a presentation we'll be referring to this morning, as published on the ASX, named Results Presentation. In that presentation, I'll start on slide three. We are in an exceptional position on the conclusion of another financial year, whilst advancing our five-year profitable growth strategy. Northern Star is a global leader, as well as one of the largest and most liquid gold expert exposures across the Asia Pacific region. Northern Star continues to build from strength to strength, this is achieved through our deliberate and simplified portfolio of three large-scale production centers in Tier One jurisdictions, producing one commodity: gold.
As you will see in our update today, we continue to execute our clear, low-risk strategy, which is generating superior returns for our shareholders today, tomorrow, and into the future. Our focus remains on operational excellence at a disciplined and a mature approach to investing shareholder funds. I'm particularly proud of our people and their commitment to safely and sustainably execute our value creation strategy. Our people, delivering through our core values of Safety, Teamwork, Accountability, Respect and Results, should be proud of the achievements of FY 2023, and ensuring we secure our bright future ahead. I'll now pass to Ryan to review the highlights.
Thanks, Stuart. Good morning, all. It gives me great pleasure to present to you our financial results for the year ending 30 June, 2023. I'll be referring to the slides in our presentation released this morning. Firstly, to page four, which presents an overview of the key financial highlights achieved during the year. With record cash earnings of AUD 1.2 billion, which represents the company's strong, sustaining free cash generation. Underlying EBITDA of AUD 1.5 billion, the company made a statutory profit after tax of AUD 585 million. When adjusting for abnormal items, post-tax of AUD 284 million, which is set out on page 17, the company made an underlying net profit of AUD 301 million.
These abnormal items largely relate to the non-cash writeback of low-grade stockpiles at KCGM, following the approval in June of the KCGM mill expansion project, which now provides certainty over the timing of processing these stockpiles. This resulted in a reversal of AUD 437 million inventory write-down previously recorded in FY 2021. A final unfranked dividend of AUD 0.155 per share, which is up 35% from the prior year final dividend. This takes our total declared dividends to AUD 0.265 per share for the full year, which equates to a payout of 25% of full year cash earnings. During the year, the company bought back AUD 127 million of its shares through its on-market share buyback program.
Today, I'm pleased to announce the company is extending its share buyback program for a further 12 months, which is consistent with our proactive capital management strategy and in recognition of the confidence in our free cash flow outlook. Finally, we remain very well positioned to deliver on our near-term profitable growth strategy with our strong balance sheet, which presents a net cash position of AUD 362 million at 30 June. Turning to page five. I'm proud of the team for delivering our FY23 production and cost guidance in a year that has seen challenges. Gold sold was 1.56 million oz at an all-in sustaining cost per ounce of AUD 1,759 per ounce.
We are two years into our five-year profitable growth strategy, with another good year of progress across our three production centers, with highlights being a 26% increase in material movement at KCGM, commissioning of the Thunderbox mill, and Pogo's record performance in Q4. Over to page six now. This slide highlights the significant cash generated by the business during the year, with AUD 359 million of group underlying free cash flow. The waterfall chart on the left illustrates the positive contribution from each production center to the group's cash earnings for the year. Cash earnings for each production center is represented by the EBITDA generated, minus the sustaining capital spent at that center. Corporate, technical, and exploration-related costs of AUD 180 million are deducted, as is net interest costs and tax paid of AUD 3 million.
The AUD 1.2 billion of residual capital, which is cash earnings, is available to deploy for capital management, growth-related investments which meet our hurdle rates, and balance sheet management. Pleasingly, all production centers contributed well, with Kalgoorlie, our largest center, comprising 53% of the group's cash earnings for the year. We expect the expanded mill, now commissioned at Thunderbox, and optimization at Pogo, will translate into higher percentage contributions to group cash earnings in FY 2024 for the Yandal and production and Pogo production centers. I'd like to point out a reconciliation of statutory NPAT to underlying EBITDA and cash earnings has been provided in the appendix of this presentation on page 18. To page seven, which highlights EBITDA margins achieved for the group and each production center over the year. All three production centers performed strongly and achieved healthy EBITDA margins.
When normalizing EBITDA for the non-cash charge resulting from the processing of the KCGM acquired stockpiles, group EBITDA margin for FY 2023 rises from 37%- 41%. Pleasingly, and is illustrated by the column charts, contribution from all production centers improved significantly in the second half of the year. Notably, Pogo's second half performance, lifting its EBITDA margin from 22%- 33%, was achieved from higher physicals and productivity, with great optimization and stope ore contribution, a key focus area. Now to page 8. The company is now two years into its 5-year organic, profitable growth strategy. Over this time, we have delivered major milestones which are key in achieving our plans, including the major equipment fleet investment at KCGM, which is a key enabler for us in lifting material movement at the operation to gain access to high-grade open pit ore.
We are achieving our goals here with 83 million tons moved during this year, and we will continue to build on this. Completion and commissioning of the Thunderbox mill expansion to 6 million tons per annum, which is a key pillar for production growth at the Yandal Hub. At Pogo, we've also upgraded plant infrastructure and invested in underground development and infrastructure to improve performance at this asset, which we are now realizing. Over the financial years of FY 2022 and FY 2023, along with the progress made on our strategy and the capital investment undertaken in our operations, the business has generated just over AUD 1 billion in cumulative free cash flow from operations. As you can see on this slide, there are great opportunities within each production center to continue to build on that free cash generation. As illustrated on page nine now.
The company maintains a strong balance sheet with AUD 2.2 billion in liquidity at 30 June, and has access to long-term capital funding options with an investment-grade credit rating from all three major agencies, which are reflective of the strength of our business and the positive long-term outlook underpinned by the company's significant reserve backed production profile. Our balance sheet strength supports our strategy and gives us flexibility through the cycle to fund opportunities that may arise, to enhance our portfolio of assets to deliver long-term superior returns to our shareholders. An example of this has been the decision to invest in our largest and longest life asset, KCGM, to expand the milling capacity from 13 million tons to 27 million tons per annum.
Once delivered, this will see the operation materially lift its production, lower its cost profile, resulting in a significant positive step change in sustained free cash flow generation. The company continues its demonstrated history of returning funds to shareholders. Including the FY 2023 final dividend, the company will have returned over AUD 1.3 billion in dividends to shareholders and bought back AUD 127 million of its shares, totaling AUD 1.4 billion in capital management over the history of the business. Over to page 10. The plant expansion investment at KCGM will strengthen Northern Star's portfolio, materially increase our free cash generation, and progress our long-term strategy to be within the second quartile of the global cost curve. This project is financially compelling and is a significant enabling step towards delivering our strategy to generate superior returns to our shareholders.
Further, the project is important in our sustainability journey and will also sustain hundreds of local jobs, economic and social investment, and local procurement opportunities in the Goldfields region. On page 11, we have set out the key elements of how we deliver value, which is through owning world-class assets in Tier One locations and applying our DNA of operational excellence to deliver value to our stakeholders. We do this in a safe and responsible way with a demonstrated track record. As a foundation, we maintain a strong balance sheet, which enables the execution of our strategic framework through the cycle. Page 12, which presents our FY 2024 guidance provided during our Q4 call last month.
Please note, we have provided additional guidance in relation to depreciation and amortization per ounce, and the group's estimated effective tax rate for FY 2024. As previously flagged, the company is not expected to pay tax for the Australian operations for at least the next 18 months. Therefore, this will see any anticipated potential dividends to be unfranked for at least the next 18 months. Finally, please take time to familiarize yourself with the all-in sustaining cost to cost of sales reconciliation slide in the appendix. Thanks very much. I'll hand back now to Stu to finalize the presentation.
Thanks, Ryan. On to slide 13, you can see our profitable organic growth strategy planned out to FY 2026. I would like to emphasize that this growth path has low risk delivery and is executable from our existing assets. FY 2023 was another year that we made significant progress. At KCGM, we grew our material movement to 83 million tons per year, up 26% from FY 2022. Our new fleet continues to operate very well there. The Thunderbox mill is well positioned to operate at 6 million tons per year, nameplate capacity this year. While at Pogo, we delivered a record operating performance in the June quarter, achieving above our key objective of 300,000 ounce per annum run rate. We are well on track to deliver our growth plan to 2 million oz per year by financial year 2026.
Our Fimiston mill expansion at KCGM Super Pit is in addition to this plan, will be commissioned in FY 2027, enhancing organic growth and returns to shareholders, as Ryan highlighted. Now to slide 14. We maintain a significant mineral resource base above 57 million oz, with reserves above 20 million oz. We have very effective exploration programs across our significantly endowed geological systems to replace and grow our mine lives. In FY 2023, we continued to add resources at an industry low cost of AUD 31 an ounce. Further, we have a 10-year reserve backed production profile, which provides significant visibility to enhance the delivery of superior returns to our shareholders. On slide 15, in addition to the financial results, Northern Star has today released a number of sustainable development publications, including the Sustainability Report, Corporate Governance Statement, and Modern Slavery Statement.
I would like to recognize Hilary Macdonald and her team that produced these outstanding documents, highlighting the great achievements of Northern Star over the financial year. I would encourage you to review these annual suite of publications on our website. In FY 2023, Northern Star maintained a sector-leading lost time injury frequency rate and safety record, and continued to build a strong safety culture backed by critical risk management practices. On decarbonization, we continue to our reduction of our Scope 1 and 2 absolute emissions by 35% by 2030, and have a net zero ambition by 2050. In FY 2023, at Jundee, we approved a solar farm, battery energy storage facility, and four wind turbines designed to reduce Jundee's Scope 1 and 2 emissions by between 35% and 50% by 2030. We're advancing these projects well.
Now to slide 16. We continue to execute on our clearly defined strategy of generating superior returns. The FY 2023 results presented today are outstanding, and the result of our team's efforts on safely delivering operational excellence in parallel to a disciplined approach to investing shareholders' funds. Thank you for listening to our presentation. I'd now like to pass to the moderator for Q&A.
Thank you. If you would like to ask a question, please press star one on your telephone and wait for your name to be announced. If you'd like to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Levi Spry from UBS. Please go ahead.
Good morning, Stuart and Ryan. Thanks for your time today. A couple of simple ones, I think. Firstly, just on the write, write, write back up, of the low-grade stockpiles at the Super Pit, can you just remind us of the physicals there? What, what, what sort of tons and grade are we thinking, and is that already reflected in the reserve update?
It's already in the reserves, about 120 million tons, at 0.7, and it's still about 2.7 million oz. It's already in reserves and it's there. We obviously wrote it down when we weren't gonna be milling it, then as we've done the mill upgrade approval, we've brought it back on the balance sheet.
Great. Thank you. So, so there's no other desktop wins to be had there, I guess?
Well, I, well, Levi, the, you know, the value, I, I, I guess they were. You know, it was fair value at the time when we essentially bought and, and, and, and, you know, merged with Saracen. Gold price back then was 50% lower than what it is today. No desktop wins, but certainly from a value perspective, you know, we certainly know that we're gonna generate a lot of cash from processing these stockpiles. Then if you couple in the fact that we're, you know, gonna materially lower processing operating costs with the expansion, that then gives it another leg up. Yeah, it'll be a, it'll be a really good, cash generation, you know, element of the business once, once we, have the mill upgraded.
Yep. Great. Thank, thanks, Ryan. Just an operational question. three, three shuts across your hubs this quarter. Can you give us an update on how they've gone?
Yeah, good as planned. We, we highlighted that the guidance we've given for FY 2024 is second half weighted, so with the recognition that there was planned maintenance occurring at all the plants in Q1. Just reminding people that Q1 is the lowest of the four quarters. We're still very pleased with the momentum and progress we've made out of Q4 from FY 2023. It's all, all going to plan.
Great. Thank you. Thanks.
Thank you. Your next question comes from Daniel Morgan, from Barrenjoey. Please go ahead.
Hi. I just wanted to follow up on the, the stockpile question that Levi had. You know, what I guess, what are the broader implications from the mill expansion regarding the in-pit reserves? I imagine, you know, have you applied the, the new cost structure to your in-pit reserves? You know, should we expect upgrades over time from conversion of inferred resources and even, you know, mineralized waste? Thank you.
Thanks, Dan. If you kind of recall that the mill expansion business case was supported, a really simple base case was supported by that by grade stockpile. There's a technical element of the financial accounting of it, but the actual premise of cash flows and the, and the asset was on the that stockpile going through the expanded case. We recognize that inside the existing pit shell, there will be material that would be the same economics or better than what's on the stockpile, and it would preferentially go direct to, to the, to the new mill. Then we have yet to run a lower cost through the reserves. We won't necessarily do that because in three years' time is when we enjoy the lower operating cost. It's really assessing that at that time.
Yeah, we recognize that we weren't going to be depleting that stockpile unless we expanded the plant. That drove the business case and the, you know, nearly 20% IRR at a modest gold price. The technicality of just bringing this stockpile back onto balance sheet is because it will be, will be drawn on, within that sort of 5-10 year pro profile, which it wasn't going to be under a non-expansion case.
Yeah. Okay. Thank you. Maybe more of an accounting question for Ryan with regard to the write back. If I've heard correctly, it's been written back to the fair value assumption, which was made at the Saracen acquisition, and I imagine there's additional margin over and above the number that you've written back onto the balance sheet. Thank you.
Yeah, that's right, Dan. That's exactly right. We can't write it up to fair value. Certainly we could write back what we had originally impaired or, or written off, which was AUD 536 million. Absolutely, as I was saying, back, you know, when, when that fair value was struck, gold prices were, you know, around AUD 2,000 an ounce. The actual fair value is much, much, much more than that number, definitely.
You also can understand that it's been mined. It's sitting adjacent to the mill. To pick it up and mill it under the new operating cost is well under $20 a ton, and it's 0.7 grams. You can see the cash margin inside that stockpile. We're talking about $2 billion.
Yeah. Yeah.
Thank you. Just a little bit of interest in that buyback being extended. What is, you know, your management team's view on how to deploy that buyback? Because obviously you haven't been active in the market in recent months. What would cause you to change this? This is an opportunistic buyback where, you know, there's a trigger on share price weakness or something of that nature. What would cause you to trigger to actually buy back stock?
Yeah, we've got a pretty clear framework in our head. Obviously, we sort of allocate that outside of blackout trading periods for the third party to do those volumes. Ultimately, in the last sort of six months, appreciate we were evaluating the Fimiston fit decision, right? We also went and secured the $600 million U.S. bond. Those were quite a few things that were weighing up deploying cash at the time versus, you know, deploying it into these capital investments internally. We're sitting here now with a very strong balance sheet, net cash, with good outlooks, with a pretty modest hedge, hedge profile, but really good outlooks on all fully funding, all of our organic growth, and obviously surplus cash.
You know, the capital growth does not impact dividends, which are linked to cash earnings. That's not affected by any growth capital. We just, we forecasting, you know, surplus cash flow that could be deployed to this buyback. It, it was prudent that we extended the time. The, the total value was still AUD 300 million, but we've extended that 12 months. You know, as gold price changes, our internal NAV changes, and we will make, make calls on that. Yeah, we're just looking for the best returns from our investments.
Thank you very much, Stuart and team.
Thanks, Dan.
Thank you. Your next question comes from Matthew Frydman from MST Financial. Please go ahead.
Sure. Thanks. Morning, Stuart and team. I might, I guess, continue on, on that buyback discussion. I guess the, the, the question's in, in two parts. The, the first point is that, you know, Ryan mentioned that part of the reason that, that you've chosen to extend the buyback is your confidence in, in the free cash flow outlook. Obviously that's, you know, interlinked with the, the spend on, on the KCGM and mill expansion. I guess the first question is: Can you remind us how much of that AUD 1.5 billion budget for the mill expansion is locked in with the, you know, circuit AUD 1 billion contract you've got with Primero, I should say?
You know, how much of that AUD 1.5 billion are you sort of still exposed to in terms of, I guess pricing and, and capital risk? Then how does that, I guess, then flow into your view on the potential to, I guess, upsize the buyback further as, as that capital spend profile gets de-risked? Thank you.
the 1.5, there's about, 1.15, one point, two-... committed, contracted, secured. And that was sort of, you know, 85% of the, the non-contingency component. Again, that stuff's, you know, long-lead items being, being ordered, secured, you know, construction's underway, contracted works. The if you kind of think of the relativity, the buyback, is around an era compared to those work and the scope and the profile, of that investment, sort of, you know, three, three years at sort of AUD 500 per annum. It, it really the two are, the two are separate. It's around, surplus excess cash and redeployment of that. We've got different ways to, to do that. Understanding that the dividend we've just announced, AUD 0.155 final, is, is unfranked.
We've exhausted those franking credits in the near term. We just see buyback, you know, capital returns, dividends, all these things to be assessed to ensure that we're providing a good capital management back to shareholders. Yeah, I know I'm giving you a bit of a roundabout answer, but, like, these are, it's not one versus the other. We're able to do all of these things, it's the again, just demonstrates the strength of the business.
Okay. Thanks, Stuart. I guess the question then is: what would trigger you to revisit the size of that buyback? If you've already de-risked 85% of the capital spend profile at KCGM, which is obviously your biggest single capital commitment, is it just a matter of, you know, I guess assessing the cash flows coming in across the business over the course of the year, and I guess rethinking what the appropriate level or size of that buyback program is?
two, two things. once that one's exhausted, revisiting it. The other one is our consideration of the returns we generate from it versus other options.
Okay, that's pretty clear. Thanks, Stuart.
Thanks, mate.
Thank you. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.
Thank you. Sorry, I thought I withdraw my question. Really quick one, as in. Can you just talk to me about the logic of maintaining a DRP whilst also conducting a buyback?
Yeah, Mitch, yeah, it's a good question. We, we had contemplated changing that, but we figured that, look, we, we have a 1% to 2% take-up of our DRP, so we've kept that. The buyback, you know, it'll, we'll trigger that based on our internal sort of view of things. We don't want to keep them. You know, we, we sort of figured that we would keep them, keep that dividend reinvestment plan out there, even though we are contemplating buying back stock over the year.
They're different audiences, is the way that I'd say. The buyback is, you know, us, us using company cash to, to reduce that register. The DRP is individual people's choice of how they manage their own capital. I think that I get the point.
I, I guess, yeah. And I guess the DRP, just remind me, there's no discount on the DRP, is there?
No, no.
Okay. Thank you. Thanks for the question.
Thanks. Thanks, Mitch.
Thank you. Once again, if you would like to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from Alex Barclay from RBC. Please go ahead.
Thanks. Morning, Stuart and team. Another quick one on the KCGM inventory right back. Is that going to be depreciated or a non-cash cost? If so, would that have an impact on the guidance you put out in FY 2024 or the longer steady state all-in sustaining cost number? Thanks.
Yeah, Alex. No, look, it won't. It won't, it won't impact guidance because they won't be processed for a few more years yet or starting. It won't impact guidance. In terms of how it'll sort of unwind, I guess, is, it would just unwind similar to how the stockpiles we're processing now unwind, you see, you know, in our quarterlies, you'll see that non-cash inventory movement. They'll just be expensed that way. If you just take your, you know, your AUD 430 million odd of balance sheet and divide that by your oz, that's sort of cost per ounce on a non-cash sort of inventory movement that you'll see when these stockpiles start to get processed in a few more years.
Okay, it would be outside of that 1,425 long-term guidance you put out?
Yeah, correct.
Thanks, guys.
'Cause it's non-cash, Alex, just to, just to be clear, it's a non-cash charge, so it wouldn't be in all-in sustaining cost.
Okay, sure. Thank you.
Thank you. Your next question comes from Hugo Nicolaci from Goldman Sachs. Please go ahead.
Morning, Stuart and team. Thanks for the update this morning. Maybe just one on Thunderbox. Just wondering if you could give us an update there as to how things are progressing in terms of the, the mill ramp up and, and broadly, just the works around, you know, Orelia and establishment of, of Wonder as, as things have progressed there?
Yeah. Thanks, Hugo. Simon here. Yeah, look, it's going, going very well. We've, you know, over the course of FY 2023, we built the mill, started commissioning it, ramped up over the, over the course of the quarters. We're steadily, steadily commissioning that and improving on plan into FY 2024. Really happy with the, the progress of, of how the processing plant is bedding in. Really it's just into optimization now for going forward in FY 2024. In terms of Orelia, look, the material movement up there is going very well. Certainly, certainly on plan and, you know, looking forward to putting that through as a key fee source for the next few years of the operation. Yeah, tracking well. I'm very happy.
Great. Thanks, Ryan. That's all for me.
Thank you. Your next question comes from Meredith Schwartz from Bank of America. Please go ahead.
Good morning, Stuart and team. Just a quick question on M&A. I know that you've said that, you're looking at organic growth within the portfolio rather than, than acquisitions. I was just wondering whether perhaps you would look to divest any of the higher cost, smaller assets within the portfolio, given there's been a little bit of action in that space over the last six months. Perhaps, you could deploy the cash from that into sort of upgrading the portfolio, within, you know, around your, your current assets. Thanks.
Thanks, Meredith. Why don't we I'll refer to that slide 13 in the pack, which is around that 5-year strategy, and that's been delivered from all the assets we currently have and are operating and are growing. There's no motivation to divest anything. They're all quality assets that are all contributing towards it. That sort of final box in that slide 13 shows what we believe is, you know, quite a sustainable business, that three to five production centers, 1.8 million-2.2 million oz, et cetera. That is without the Fimiston expansion coming in in three years' time. Our attitude is, you know, always review everything, active portfolio management, generate the best returns. We don't need those proceeds and any cash from a sale to reinvest.
We, we're net cash, we're fully funded with all of our plans, so that's not the motivation. you know, you're seeing our journey as a business, these things get assessed from time to time. yeah, at the moment, you know, we're very pleased with the portfolio we have, and it's delivering on our strategy as we, as we intended.
Yeah, perfect. Another one, please, if I could. On KCGM and mill expansion, how comfortable are you with, you know, the CapEx, given the inflation, you know, access, access to equipment and labor? I know you've got contingencies factored in, but how are you... You know, are you seeing any uptick in, in those CapEx? Or in, I suppose, the costs so far, as you're progressing?
Yeah, so we're obviously 1 month into a three-year build. We're very happy with what we've secured and the long lead items and, you know, timelines and indications. We've got a good owners team working really closely from the start in managing, you know, risk, risks and starting of works and controlling those things. Very good communications with all the contractors, and very confident. That's, you know, what gave us the confidence to make the investment decision. We are going to manage it very, very closely throughout the build, and it's a three-year build. Yes, we are absolutely very confident how we deploy and expend that money.
Just appreciate as well, it's, it's only a bit over 10%-15% of what we're currently doing in business activity across the whole company per annum. It's not, it's not a game-changing, you know, or, or very different program or, or project to what we're already doing and the type of work we're doing, which is also being managed very, very closely.
Great. Thank you very much.
Thanks, Meredith.
Thank you. There is another question here from Al Harvey from JP Morgan. Please go ahead.
Good morning, team. Just a quick follow-up on your comments in the opening remarks, just around the 2024 EBITDA contribution from the three hubs. Just trying to get a sense of how you're thinking, where they might land in 2024 and, and maybe beyond, at, at your kind of long-term, long-run, mine plan assumptions.
Yeah. Well, thanks, Al. We won't talk about EBITDA, because it's obviously gold price linked, but it's about the lift of the percentage of margin showing half one to half two in FY 2023, and obviously the momentum we, we've got entering into 2024. Obviously we've given production guidance, AISC guidance, CapEx guidance. EBITDA will be related to gold price, and we're modestly hedged through that period.
Sure. Thanks, Stuart.
Yeah.
Thank you. There are no further questions at this time. I'm going to hand back to Mr. Tonkin for any closing remarks.
Thanks very much, everyone, for joining us today. It's clear our strategy is delivering strong returns, as demonstrated in our financials and balance sheet strength. Thank you and good morning.
That does conclude our conference for today. Thank you for participating. You may now disconnect.