Northern Star Resources Ltd

ASX:NST

Earnings Call Transcript 2020-Q1

[Operator]

Thank you for standing by, and welcome to the Northern Star September 2019 Quarter Results Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Bill Beament, Executive Chairman. Please go ahead.

[William James Beament, Executive Chairman]

Good morning, and thanks for joining us. On today's call, we have Chief Executive, Stuart Tonkin; our CFO, Ryan Gurner; and our Chief Geological Officer, Michael Mulroney. Today's September quarter results highlight an Australian business that is in great shape and also serves to highlight the operational success we're having at our Pogo operations. And I'd like everyone on the call to ensure that they have access to the Pogo operational update we released this morning as Stu will run through this more detail later. But I'll touch on some of the key points I feel are worth noting.I've always said that Pogo has the potential to be Northern Star's next Jundee. A more in-depth analysis at today's results shows the potential and significant progress we are making towards that statement, as evidenced by a number of key operational improvements. Progress at Pogo this quarter has seen a 26% increase from the June quarter in development meters to an average of over 1,300 meters per month, and current advance rates are well on the way to the target of 1,500 meters per month level, which will sustain an ore tonnage of 1.3 million tonnes per annum. Stoping tonnes also lifted to 37% of the total ore tonnes mined for the quarter, up from 33% in the June quarter with a record achieved in the month of September of over 32,000 tonnes at a head grade of 8.6. This is tracking as planned to the target rate of 60% of all tonnes coming from stoping activities.In terms of head grade for the quarter, it's worth highlighting that the achieved head grade of 5.7 is not reflective of the life of mine grade but impacted by mining a higher ratio of development ore versus stoping and processing of lower-grade material as a supplement to fill the excess mill capacity. Grade will improve as new mining areas are accessed and multiple stoping fronts are brought online. In fact, for the quarter, if we remove this lower-grade material, the average head grade rises to 8.5 grams per tonne.For the attendees of the recent site tour to Pogo, one of the key parts of the tour was highlighting the difference between some of our new working areas versus some of the older mining areas. The increase in material movement and productivities is due to a lot of hard work but also some smart mine design work by the team at Pogo. It is also worth highlighting on the cost front that while the all-in sustaining figure is elevated per ounce, the operational and physical cost spend per month basis is performing to budget and at a much lower monthly spend than previous zones.The substantial increase in underground material movement, mine development rates and stoping tonnages are key pillars of the expansion strategy and to transitioning this mine to one of the most profitable assets in our portfolio.Another pillar is exploration. There's no point in increasing mining rates without having the inventory to support it sustainably. We've enjoyed huge success on this front. After just a year of ownership, we have established a JORC Resource of nearly 6 million ounces and a reserve -- maiden reserve of 1.5 million ounces.And we've also made the highly significant Goodpaster discovery immediately along strike from the Pogo mining area. The results at Goodpaster are absolutely superb. High-grade mineralization is being intersected repeatedly over a 2.3-kilometer strike and down to 500 meters at depth. And it remains open in all directions.The combination of this exploration success in mine and regionally and the strong progress being made in the switch to stoping resulted in the decision to invest USD 30 million expanding the processing plant from 1 million tonne per annum to 1.3 million tonne per annum and due for completion in early 2021. Along with the new mining method, the expansion will drive further scale and enable us to capitalize in the size and strength of the gold system at Pogo.Turning the attention to our Australian assets, and the performance of our Jundee operation has been exceptional. It is a Tier 1 gold mine by any definition, be it at production, cost, mine life, location or all of the above. I was onsite at Jundee a couple of weeks ago and as someone who has seen and worked at a lot of gold mines as both a contractor and an owner over many years, I can confidently say that it's virtually impossible to find fault with Jundee. The people working at that mine are outstanding operators. In my view, they're as good or better than you'll find anywhere else in the world.Stuart Tonkin will now take us through the operations at Pogo and Australia in more detail.

[Stuart Peter Tonkin, Chief Executive Officer]

Thanks, Bill. So if we can turn to the presentation for the Pogo update. I'll now provide context to our search in the Pogo operations delivering the foundation of a long-life Tier 1 asset. The Pogo September quarterly result doesn't reflect the significant progress being made to establish the necessary platform to deliver the sustained production for the long term.On Slide 3 of the presentation, Pogo update, the leading development physicals required for access to new production fronts have been steadily increasing, as seen in the chart. A sustained level of 1,500 meters per month will enable sufficient new stoping areas to meet the 65,000 stoped tonnes per month target.With the new fleet now commissioned and continued training of the U.S. staff in the latest technology machines, we have built to 1,400 meters per month, and the month to date, we're at the 1,500-meter development run rate. To highlight this progress, this equates to a 76% performance uplift in the 6 months since the new fleet arrived.The split of the waste and ore development reflects the infrastructure to build developed inventory to sustain future production from multiple stoping fronts to meet the 1.3 million tonnes per annum. This parallels the approach successfully implemented at Jundee and Kalgoorlie to grow production there.To the next slide, 4. We see the increasing contribution of long-hole stoping ore to the milled blend. This is the key strategy to reduce mining costs through this changed mining method away from jumbo-dependent cut-and-fill. As our development accesses new stoping fronts, we can commence the stoping activity, and this is growing quarter-on-quarter as shown in these charts. We're halfway there to the desired target of stoping volumes with the September stoping at 32,000 tonnes at 8.6 grams per tonne, which is really contributing to 37% of the total ore tonnes mined in that month. Continued growth of stoping activity is the key to delivering production and cost guidance in FY '20, which is weighted to the second half of the year.To the next slide 5, shows the breakdown of grade by ore source. And given we have been mining-constrained, we have fed economic low-grade material to supplement development and stoping ore. This low-grade material will be displaced as we lift stoping performance, and the milled grade will again reflect reserve grade of 7.5 grams per tonne.The final slide represents the growth in mining physicals at Pogo for the calendar year to date, something we're very proud of. The total underground material movement, which totals all ore and waste, has increased 52% over the 9 months under our management. This final chart is evidence of the significant effort being executed by the Pogo team and their acceptance of the proven Northern Star strategy to secure a bright future for Pogo.Now I'd like to turn to the Australian operations. And at Kalgoorlie operations, there was also a 16% increase in development meters as we built the new Moonbeam underground at Kundana. With portal established and capital accesses both from Pope John underground and the Moonbeam pit, it's progressing well to access Moonbeam for H2 production.At Kanowna, the stoping grade was lower as we trialed hanging ore sources higher up in the mine, and we remained selective on these tertiary resources to review the bulk extraction method for the Kanowna region. This lower-grade quarter lifted Kalgoorlie's operational all-in sustaining cost.The HBJ underground is providing opportunity for extensions in the North Ore Zone at improved grade and continues to contribute meaningful cash flow to that southern tenement region. Our Kalgoorlie operation sold 73,616 ounces for the quarter.To Jundee, we delivered a continued high performance, and as Bill spoke about, with a 26% increase in development physicals quarter-on-quarter and major highlight from the Invicta development team achieving a world record of 754.3 meters of development in the month of August with a single jumbo crew. This is a major credit to the Byrnecut and Northern Star team to continually reset the bar higher and demonstrate industry-leading performance.High productivities, coupled with continued stoping performance, maintained the underground mining rate greater than 2 million tonnes per annum. That's over double the mining rate that we inherited this asset at 5 years ago and were also reflected in the impressive all-in sustaining cost of AUD 985 an ounce for the quarter. The Ramone open pit continued mining through the quarter to supplement milling feed, but we also built stockpiles -- future stockpiles there as we're milling-constrained. Jundee sold 81,427 ounces for the quarter.I'd now like to pass to Ryan to discuss the financials. Thanks.

[Ryan P. Gurner, Chief Financial Officer]

Thanks, Stu. Good morning, everyone. I'm pleased to be able to present to you some of the key financial aspects of the company's September quarterly results. During the quarter, the company sold 184,000 ounces at an average realized gold price of $2,020 per ounce and a cash cost of $1,170.Moving to the cash flow waterfall charts on Page 5 and 6, which provide an overview of cash, bullion and investment movements for the September quarter and the generation of $100 million in operating cash flow and $28 million in underlying free cash flow, which, of course, adjusts for working capital movements in the company and equity investments.As Bill stated, the company invested a total of $57 million in capital and $17 million in exploration during the quarter. Of the $57 million in capital spent by the company, $17 million was invested at Pogo, where the development advance focused realized a 26% increase in total development meters from the preceding June quarter, which will provide the platform for new production areas this year. Mine and surface infrastructure investment [ in streaming ] to increase productivity of operations and a further capital investment of $4 million was spent establishing vent and pumping infrastructure access to support the establishment of new mining areas.At Jundee, decline and lateral development investment increased in the September quarter, which will open up future stoping areas along with nonsustaining capital investment in drill drives for future ore zones of Gateway South and Revelation.Moonbeam decline development and Pode development were the investment focus at Kalgoorlie operations, along with resource definition drilling at KB primarily focused on the Sims zone.Exploration investments for the quarter was $17 million with approximately half the spend focused on surface drilling at our exciting Goodpaster project at Pogo. The majority of the balance of spend related to resource targeting at key regional prospects at South Kalgoorlie and Kanowna.With the solid contribution from Ramone, Jundee mined just over 105,000 ounces during the quarter and sold 81,427 ounces at a cash cost per ounce of $770 and an all-in sustaining cost of $985. At the end of the quarter, Jundee had 53,000 ounces in stockpiles and GIC.Kalgoorlie operations mined just over 78,000 ounces and sold 73,616 ounces at a cash cost of $1,200 and an all-in sustaining cost of $1,542. The higher cost realized were in part due to the lower-than-anticipated grade at KB and lower mining tonnes at EKJV, both of which are expected to restore during the year.Additionally, planned maintenance at KB and Jubilee processing plants, combined with increased development progress at our South Kalgoorlie operations to bring stoping areas into the mine plant, also contributed to high cost in the quarter. The all-in sustaining costs at Kalgoorlie are expected to trend lower for the remaining year.During the September quarter, Pogo gold operations recorded an all-in sustaining cost per ounce sold USD 1,919. The higher costs relate in part to the investment on decline and lateral capital development where 1,300 meters were advanced for the quarter, representing a 289% increase from the prior quarter. The mining method transition continues to advance with a percentage of long-hole stoping tonnes to development tonnes rising 37% during the quarter. Grade was lower than previous months due to scheduling and sequencing of areas mined. And Pogo's total site cost, excluding exploration, corporate allocation and all stock movement averaged USD 19.4 million per month over the September quarter.Finally, at quarter end, the company's hedge book stood at 312,000 ounces at $1,836 and 22,500 ounces at USD 1,277, which indicatively represents only 13% of production over the company's 3-year hedge policy time profile.I'll now hand over to Mike, who will discuss exploration.

[Michael Geoffrey Mulroney, Chief Geological Officer]

Thanks, Ryan. Good morning, everyone. The group's exploration activity for the quarter increased with an expanded exploration program commencing at Jundee and the ongoing focus at Pogo.Starting at Pogo. The underground diamond drill fleet changeover continued throughout the quarter with 7 rigs now operational and the final rig in the new fleet commissioning as we speak. The underground reserve definition and extension drilling continues to record excellent intersections from the extensions of all known systems within the mine.As recently announced, the surface exploration drilling was focused on the Goodpaster project area with 4 diamond drill rigs in operation from the from the road and helipad positions. The Goodpaster project is considered a continuation of the main Pogo mineralized trend, and Northern Star has rapidly advanced exploration drilling in this area with mineralized intersections now known to extend over a strike length of 2.3 kilometers. Mineralization occurs in a series of stacked flat-dipping veins of the Liese-type and steep [ ore dipping ] veins very similar to the Northern X-Veins in the main mine.In addition to the recently announced drilling results, drilling has continued to return further significant intersections highlighted by Hole 87, which recorded multiple intersection including 0.2 meters at 588.7 grams, 2.7 meters at 6 grams and 4.5 meters at 21 grams per tonne down the hole. There's a significant quantity of assays outstanding for this project area, and we expect further results to be available in the near future.Returning to Australia at Jundee. The underground diamond drill fleet has now increased to 14 rigs with an expanded focus on exploration drilling within the mine [ environments ]. With 5 rigs focused on exploration, excellent early results were recorded from the Lyons South area and the southern side of the Invicta Gap with significant extensions to the Deakin, Cardassian and Hughes mineralization beginning to emerge.Regionally at Jundee, RC drilling at prospects surrounding the Ramone open pit have highlighted new mineralized trends at Tosh, Cornell and Barrett prospects.Switching to Kalgoorlie. At Kanowna Belle, the underground diamond drilling fleet focused on the upper levels of the mine to continue to expand the strongly mineralized structures on the Sims and Troy trends across A, B, and C block areas. East of the mine area, exploration has now commenced on several prospect areas targeting untested zones of mineralization within these hangingwall structures in the KB area.Regionally, across at Carbine, the surface diamond drilling at the Phantom pit successfully outlined extensions to the Phantom trend together with significant new parallel hangingwall zones containing visible gold mineralization, while air core drilling extended the strike length of the Eremenco mineralized trend by a further 450 meters.Moving down to Kundana. The extension underground drilling at Pope John and Christmas has achieved results within expectations with exploration currently focused on the depth potential within the Christmas and Millennium deposits.Further south, exploration across EKJV mining complex was focused entirely on extension and resource definition programs into the new Falcon trend located midway between Pegasus and the Raleigh mines with continued strong results.At South Kalgoorlie, in-mine exploration continues to extend the NOZ trend and has outlined a new parallel mineralized footwall trend. But the real excitement has come from the regional activities. Of particular note, assay results from the first diamond drill hole at the Triumph prospect targeting repetitions of the Triumph and Argo mineralized structures at depth recorded a standout high-grade intersection of 35.4 meters at 7.77 grams per tonne gold including 4.36 meters at 48 grams per tonne. All holes completed in the program to date have intersected the target zone with strong visual indications of mineralization with many outstanding assay results still pending.Further east at Samphire, drilling has extended the significant mineralization located beneath the Samphire open pit with all holes intersected discrete zones of significant quartz-sulfide mineralization in the targeted host gabbro intrusion. Many assays are still pending for this program at the end of the quarter. In addition, RC drilling programs are in progress to the north and south of the open pit area at Samphire looking for continuations of the near-surface mineralization.Finally, at Tanami, regional geophysical surveys and air core drilling continued across the Central Tanami and Tanami prospect areas. And late in the quarter, an extensional RC drilling program commenced at the Ripcord deposit located to the southeast of the Groundrush mining area within the Central Tanami joint venture.I will now return you to the moderator for questions.

[Operator]

[Operator Instructions] Your first question comes from Michael Slifirski from Crédit Suisse .

[Michael Slifirski, Managing Director]

A few quick ones for me, please. First of all, the Kanowna Belle grade issue that you encountered during the quarter, can you be a little bit more descriptive of what that was? Is that a dilution issue? Or is it a reconciliation issue? Was there a sort of lack of drilling? I just want to understand sort of how pervasive it is, what's an impact on the September quarter?

[Stuart Peter Tonkin, Chief Executive Officer]

Yes. So look, Michael, Stuart here. So look, we are testing some of that hangingwall zones. Yes, we're obviously mining up in the, A, B, C blocks, and we're still drilling and forming out a view of those secondary and tertiary structures that sit off the [ lowest ] load. So we're basically bulking out areas and doing sort of bulk samples of those. We've done it in previous quarters, and you've seen where the grades reconciled. And we tried to campaign mill that so that we get a good reconciliation on those.So yes, we try to obviously meet an acceptable grade. And, through the month, we hit some 2.5s that clearly probably don't meet what our metrics are. But they're isolated areas that we're mining and basically campaign milling to test those out. But the bulk of the grade there is definitely above 3. And we're really trying to test out that bulk mining for the future of Kanowna for the longer term.

[Michael Slifirski, Managing Director]

Yes. Great. That's helpful. Secondly, with respect to Ramone and the strategy there, mining more than you process, what's that about? Is that just about efficiency of mining? Or is it to provide a stockpile in case of issues at Jundee? Just trying to understand why you mine more than you actually need.

[Stuart Peter Tonkin, Chief Executive Officer]

Yes. So look, the original decision on the Ramone go ahead, we were mining from the underground about 1.6 million tonnes per annum, and it was logical to then supplement that with about 600,000 to 700,000 tonnes of open pit mined over 18 months but milled over a couple of years. We've got the rates that you get for open-pit mining, the more productive you are, the better unit rate you can achieve. So there's no point -- there's no gain in slowing down the contractor to mine that. And given cash flow balance, we are deferring revenue. However, we're getting a good unit rate in stockpiling that material.So it's a credit to the underground team, and it's a good problem to have. But they've obviously lifted the underground mining rate up towards an over 2 million tonne per annum, which means we're putting higher-grade underground material as opposed to the lower-grade open pit material. So it's kind of stretched out the business case for Ramone. We still look at those 2 options. We've regionally used toll treatment. We've also looked at upgrades, capital required at Jundee to operate the plant. But we look -- we want sustainable feed, not just doing those capital upgrades for a single stockpile. So that's why we keep mining, stockpiling. We'll have those contained ounces on stockpile at the end of the financial year, and that really supplements what -- the total ounces coming out of that region.

[Michael Slifirski, Managing Director]

Great. Make sense. Third, with respect to Pogo, how long is it before you're actually out of sort legacy development, that tight development that constrains efficiency? How long does that continue before you get that off your back and you can really get some productivity that's proportionate to what you expect to see longer term?

[Stuart Peter Tonkin, Chief Executive Officer]

Yes. So look, it's really that transition timing we've said from that 18-month, and we've put our guidance there that shows the exit rate for this financial year. So I guess the site visit, you yourself started to see progress and the difference between those older areas and the new areas. We saw -- we're starting to see glimmers of, yes, when we do get a free run at good, fresh developed ore with those stopes online, you see how productive they can be.So it's really about us getting more stopes, the development at that 1,500-meter run rate throughout this year to really open up those areas. And it just gives you multiple production fronts like we've created at Jundee, like we've created across Kanowna Belle. That just gives you the flexibility in your mine schedule to get things to move.But what we are witnessing at the moment is that [ saw tooth ], stopes online, stopes off-line, old legacy areas, areas coupled with the new areas. And they're that productive, as soon as you get these stopes online, they're empty and gone and you see that [ saw tooth ] action intra-quarter, intra-year. So we just maintain our guidance, and the progress that we're seeing at the moment, we're impress with it.

[Michael Slifirski, Managing Director]

Yes. But that legacy development, you basically depleted that within that 18-month period and you're into a nice large straight development.

[Stuart Peter Tonkin, Chief Executive Officer]

I guess the aim is we're prioritizing and the new areas and the new development. We're basically taking the legacy areas that supplement it. So if I can replace and access all the new areas and get stoping there and drag out the old areas even longer, I would do that because then that would be the -- not the base load, that would be supplementary feed. But it's really about getting the capital declines, the level accesses and all your escape ways and power and vent in place so that when you can turn on commercial production in the new areas, you can keep it and maintain it. So those legacy areas will be -- they're basically where we go at the moment just to keep activity busy whilst we're developing -- whilst we got constraints in the new areas.

[Michael Slifirski, Managing Director]

Got it. Two last quick ones. Is it too early to ask about your Bronzewing strategy?

[Stuart Peter Tonkin, Chief Executive Officer]

It is mate, that's still a live transaction. Thanks.

[Michael Slifirski, Managing Director]

Yes. Okay. Fine. Finally, just with respect to -- I can see what your costs are. What I'm trying to really understand when I look at your costs is that to get a representation of what the business might be medium term. Clearly, there's a bit of double-counting if I use all-in sustaining cost, which is including the capital that eventually comes back through the D&A. So how should we think about what that P&L cost might be when you get the business to where it should be? Does it get significantly below the $1,500 an ounce you use for your reserve price?

[Ryan P. Gurner, Chief Financial Officer]

Michael, it's Ryan. Are you talking about as a group or Pogo or...

[Michael Slifirski, Managing Director]

As a group.

[Ryan P. Gurner, Chief Financial Officer]

Well, definitely. I mean like maybe talking about Pogo, I think our mining costs on a per tonne basis in the U.S. has come down from -- in March, it was 140. Now it's 118 for the September quarter. Obviously, that's going to come down more with the movement to more tonnes out of long-hole open stoping. As a collective group, definitely, I mean we put our guidance out there, and that's what we intend to hit.

[Operator]

Your next question comes from Daniel Morgan from UBS.

[Daniel Morgan, Director and Analyst]

I'd just like to hear a little bit more about the milling constraints, which characterizes your -- well, all of your businesses but more so the Australian one. So can you tell us more about over the medium term what you're going to do about milling constraints in both Kalgoorlie and also at Jundee?

[Stuart Peter Tonkin, Chief Executive Officer]

Okay. So in Kalgoorlie, we have 3.2 million tonnes per annum capacity ourselves, of which we're also milling inside that 3.2 million. We're milling 600,000 tonnes of our JV partner's ore. And then we're outsourcing 600,000 tonnes of our ore through a third-party's mill. So we're totally milling 3.8, but we're -- that's inclusive of 600 of our JV partner's EKJV ore. So at the moment, we've got, I guess, the cycle of bottlenecks. We've got all the discovery understood and known and defined. We're mining very productively, and we're able to build stockpiles or accelerate mining. But the engineering constraint really sits with our milling infrastructure.So the options are extend and increase third-party milling agreements, but you're giving away some margin in that regard. And you're just looking at the logistics of trucking and hauling. There are those plants available in the goldfields at the moment. So it's just commercial arrangements there. Or you look at, if it's longer term, you look at the capital upgrades and infrastructure to improve either Kanowna Belle, South Kalgoorlie, Jubilee plant.So mines like the Paradigm/Carbine area Mike spoke about, some of the exploration success around that. You've got a shovel-ready pit with a future underground that could hit the button on straight away subject to a milling solution. We're looking at the business cases at the moment of justifying expansions. But there's no capital committed at this stage, this financial year, to expand our own milling capacity in Kalgoorlie. And we're aware of what the other third parties around the district are doing. Committed up to Jundee. Obviously, we've been milling it sort of 2.2 up to, instantaneous, of up to 2.4, but not stable at those rates. To really get more out of that plant, we need to get a larger ball mill. So we've looked at the options there to basically -- $20 million, $25 million to put a new ball mill in, plus some other -- thinking of some things that could take us up to 2.6 or even up to -- for an extra CapEx up to 3 million tonnes per annum. But we wouldn't do that without continuous view of feed. And really, that's not going to come from the Jundee underground, it's going to come from Ramone-style satellite pits within the region. So you're going to have 2 million tonnes per annum of underground ore, 1 million tonne per annum of low-grade open-pit material still at good cost. So it's around the CapEx decision there.We have trialed third-party bulk samples through third-party plants in the district of [ Millenium ] has worked well. Again, it comes down to commerciality whether we do that or not in the business case to upgrade our own plants. So those options are there. As far as Pogo, we've committed to that 1.3. So we're basically -- they're long-lead items. We'll build some infrastructure in the new summer months in 2020. So it's really committing to that and expectation that yes, we're not mill-constrained at the moment. We're mine-constrained. But we're very soon going to turn that dial, and we're going to be outstripping the plant. That's why we've committed to that upgrade of that plant early. So yes, that's -- has that answered all your queries on milling at the moment?

[Daniel Morgan, Director and Analyst]

Very comprehensive. Just one other question. Is there any update on thoughts about Paulsens restart? Anything new from what we've discussed previously?

[Stuart Peter Tonkin, Chief Executive Officer]

Yes. So that's probably a common question I'm getting asked from investors around the traps. It's really there, the type of opportunities. We dust off those opportunities when you see those elevated gold prices. That -- everything else in our business is business as usual. Yes, we control our cost and productivities. But under this cost price, our revenue environment, you look at -- we've kept Paulsens on care and maintenance. We had put it on care and maintenance at a lower gold price. Yes, the mill is ready to restart. The underground's kept pumped and access is there. So there's meaningful ounces there.We've really got to just look at our team and available resources. There's some decent good cash flow out of that operation should we decide to restart it and then use that cash flow either continue investment into expanding the Tanami or those separate jobs. So there's still really good leverage to go and good development projects that exist inside our portfolio. We're basically dusting off those feasibilities and the view of those.We haven't committed capital at this stage in this financial year because we've got that across -- we've got plenty going on, as you can imagine, with Pogo transition and the exploration expenditure we're putting across the group and the capital expansions in Moonbeam and Kalgoorlie. So we're just making sure we're not stretching ourselves thinly, and that the opportunities still exist in the portfolio.

[Operator]

Your next question comes from David Radclyffe from Global Mining Research.

[David Radclyffe, Managing Director]

I just had a question here in regards to Pogo. I'm interested in your current thoughts on the long-term tailing solution there. I think you're currently doing some studies. But maybe can you just sort of talk us for -- through what needs to be done when you actually submit the permits and what you anticipate the timing to be?

[Stuart Peter Tonkin, Chief Executive Officer]

Thanks, David. Look, there's no shift away from what we're doing at the moment, mate. We're doing a dry stack tail. There's ample capacity there for our current plants. So really it's around just managing that. It's that dry stack tail. So we basically manage -- part of that mill upgrade takes a new filter processing because that's the constraint, getting that filter cake. And then we basically truck that up into the valley and compact it with the mine waste.So that's the current tailings deposit that we do. And then we also take some of the fines from CIL that goes back underground in paste to fill our open voids. So yes, nothing has changed on that front. There's no constraints or restrictions. It's the operation in that regard.

[Operator]

Your next question comes from Sophie Spartalis from Bank of America Merrill Lynch.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Just wanted to focus on the guidance at the operational level, more on the production guidance. If we have a look at, say, for example, Kalgoorlie, just given the softer quarter that we've had this quarter, if we take the midpoint of your FY '20 guidance at 340,000 to 380,000, you basically need to average 95,000 ounces a quarter. I know you've spoken to that grade being a relatively isolated issue. But can you just talk through -- we always hear that the second half is going to be a stronger half. But across the operations, how confident are you given the softer quarter that you'll meet these FY '20 guidance ranges, please?

[Stuart Peter Tonkin, Chief Executive Officer]

Yes. Thanks, Sophie. So look, you see, quarter-on-quarter, we're often having this conversations with the [ saw tooth ] Or hockey sticks ], if you like. You see that in our previous years. We had a sensational quarter 4 out of Kalgoorlie operations, the 100,000. So you can see the performance that the operations can deliver. The key part to Kalgoorlie is increased production. Obviously, we've produced around 40,000 ounces last year there. The increase -- the guidance basically is saying 340,000 to 380,000. It's dependent on us building out the Moonbeam deposit.So the development -- we've got the portal. We've got the access coming in from Pope John. The aim is just to get that into commercial production in the second half, and that really adds those extra ounces into the mine plant. So yes, if you just drag right in the current rate, there's an immediate impact in this quarter due to Kanowna's grade. But we've got lots of dials to turn in the Goldfield there. And often, it's a milling situation where it's catching up the stockpile. So it's really around scheduling, scheduling those stockpiles through our plant.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Yes. So I guess bringing you to the next point just in terms around consistency. You talk about the see-saw quarter-to-quarter. Is that sort of one of the objectives, is to try and get more consistency through some of these mature operations? Or do we have to just, I guess, succumb to the fact that we are going to continue to see this see-saw effect quarter-to-quarter?

[William James Beament, Executive Chairman]

I think that's why you put out yearly guidance. So I think we don't sort of try and get trapped in a quarter-by-quarter basis. I understand you guys have to, but that's not how we look at the business.

[Stuart Peter Tonkin, Chief Executive Officer]

We love to see smooth often, but we'd love to see north, northeast graphs, too. So it's growing pains and that is how you grow operations. So you probably witnessed that over the years with us.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. And then just again, just focusing on Pogo then, again if you just -- the implied math suggests that you have to lift to around 63,000 ounces a quarter for the remaining quarters at Pogo. You haven't done that record -- those rates to date. I understand the operation is improving but it's still pretty significant step-up. And again, where is your confidence sitting at the moment?

[Stuart Peter Tonkin, Chief Executive Officer]

Look, the volumes that we're showing, albeit the material movement, the volumes and the meters can be moved. So the people, the plant, the activity's there, it's around we're moving waste and low grade out of the way to get -- open up those stoping areas for the longer term. So if you appreciate the old mining method basically just is drive after drive after drive inside the orebody. But it was high cost per tonne and paste filling every drive.We're having to get the vertical development in place to open up more, develop more area. And you're basically putting your sublevels in as opposed to putting in adjacent mining levels. So you basically have to put more waste in, get sublevels in, and you can't really start stoping until you've got all that with your escape ways and everything established. And then once you get into production, then you can do that consistently.So we see the challenge that's there. We set the plans. So it's really about building that out. And it's not a case of we've got to do 50 for the next 3 quarters. It's going to be the exit rate that sets us up there for FY '21 and the volumes that we aim for -- to make the mill upgrade. So we're looking at quarter-on-quarter builds. But we're looking at total physicals, the contained gold will come, the reserves are there. It's really about just basically getting all that critical infrastructure built.

[Sophie Spartalis, Vice President and Senior Resources Analyst]

Okay. And then just a quick one for Ryan. Just in terms of the currency impacts at Pogo to that cost line, how much of that increase is currency impacts versus underlying?

[Ryan P. Gurner, Chief Financial Officer]

Look, quarter-on-quarter, not that much, Sophie. I think a year ago perhaps when we bought it because I think when we bought it, it was about $0.73. At the moment, it's about -- trending around on average $0.68, $0.685. That's sort of been that way for the last couple of quarters. So no real impact from a translation from a -- just viewing the announcement as you see in Aussie dollars at the moment.

[Operator]

[Operator Instructions] Your next question comes from Matthew Frydman from Goldman Sachs.

[Matthew Frydman, Research Analyst]

Firstly, on Pogo. It's good that you're growing stoping tonnes, but in the quarter, we've also seen lower stoping grades obviously. Just wondering how those stopes are reconciling on your planned grades and tonnages. Wondering if you're experiencing any issues, potentially on overbreak or unplanned dilution? And also whether you think there's more room to improve on stope design or narrower stopes with the tools you have like [indiscernible] liner. And when I say improve, I mean at Pogo specifically.

[Stuart Peter Tonkin, Chief Executive Officer]

Yes. Thanks, Matt. Look, we've got that 8.6 grams per tonnes through the stoping grade. When you asked about areas for improvement, I would say yes on all fronts. And that's demonstrated at all of our operations every day of the week, we look for -- keep eking out those [ 1%s ] still think there's some low-hanging fruit to gain out of Pogo because it's really the -- it's a new introduced mining method there. So until the whole team get up to curve on every element of that, they're just going to get better and better on that. So around, yes, reducing dilution, yes, drill accuracy, completion of firing and the speed of remote loading, all of that comes and improves on time. And it always comes from practice. So yes, we're going to see that improvement there.Yes, we've really done a few tests. As far as dimensions, ground conditions, when you look at the grade as well, once you get development in, you're on the margins. So you basically go all the way to the end, to the known extent of the orebody. Then you start stoping your [ grade ]. So you're typically not going to your highest grade, you're just going to go to the orebody so you don't sterilize it. And it's like we do at Kundana. You get to the margins and then you start stoping and you retreat back out. So the grade is what it is in the sequence. But when we look at the long-term life of mine, yes, we see that overall guidance to be met.

[Matthew Frydman, Research Analyst]

So, so far, you're comfortable from a reconciliation perspective on the grades that you're achieving relative to plan and dilution, et cetera?

[Stuart Peter Tonkin, Chief Executive Officer]

Yes. Look, it's definitely moving up. We're getting more and more visibility on it. So there's definitely improvement to be made there. And as far as reconciliation, there's areas there that have limited drilling. There's areas that we're doing that have, yes, pretty good understanding of it. So it's really when we get into these new areas and get that blend right. These are all new learnings across that deposit. So it can only get better as the information flows.

[Matthew Frydman, Research Analyst]

Yes. Sure. I mean I guess the question stems from the fact that as we -- the prior discussion with Sophie. And obviously, you guys at the start of the year had set a budget. And presumably, you would have had a pretty good visibility of, I guess, the stopes that were kind of in your immediate future. And with the average grade for the quarter of 7.2 grams a tonne driving certainly part of, I guess, the softer quarter, it seems like that -- there's obviously a lot of work to do, as we've talked about, to recover from that over the remainder of the year. So I guess that's driving the question around how well that's reconciling to your, I guess, budgets at the start of the year or your plans for those stopes.

[Stuart Peter Tonkin, Chief Executive Officer]

Okay. So probably, yes, go for that then, we're spending [ USD 19 million ] a month. [ We're dressed out for a party ]. We've got all the people and equipment to do those physicals and we're doing it. The knowledge or the clarity on the detail in the plan, what we're reconciling it, yes, it's mainly what it is. But we are putting anything that's economic into the plant because we're not -- we're mine-constrained, not mill-constrained.So when you look at that average grade and the lower-grade material that's contributing -- I think it's on Slide 4 of the -- sorry, Slide 3 of the preso, it's basically saying we're putting in that 1.7 gram per tonne material that drags down that average. So when you're reconciling it, any development ore with grade goes in the plant because the plant is empty. And that's the best decision of the day.As we build stoping up in the areas where we do a stope, we understand the grade, it's matching the model, we're basically building those volumes. And that displaces the lower-grade material. And that's where the reconciliations are important, and that's what we're meeting at the moment. But all of the other peripheral low-grade material that's going in isn't going to be in the plan going forward. So as far as reconciling to that, it's kind of a moot point.

[Matthew Frydman, Research Analyst]

Yes. Sure. Again, not to harp too long on this point, but I'm more referring to the stope grade in the quarter, so 7.2 grams a tonne we achieved in stoping grades. Obviously, I understand that the difference is made up by that lower-grade development material. But I guess maybe another way to address the question is, do you expect to see those stope grades lifting, as you described, getting more into the meat of the orebody. And I guess do you have a visibility on when that inflection point is?

[William James Beament, Executive Chairman]

Yes, correct. That's why we put out -- in our guidance, we put out half 1 for Pogo and half 2 since we didn't do it for other operations.

[Matthew Frydman, Research Analyst]

Sure. I understand. And I guess second question, just flipping over to SKO, just the tertiary crusher issues you mentioned there. Wondering if there's any more detail you can provide on that. What was the impact in terms of outage or timing? And I guess did that kind of trigger any thoughts of potentially any additional preventative work that you need to do at that mill or that was just par for the course?

[Stuart Peter Tonkin, Chief Executive Officer]

No, that's right. And look, it's a nice plant. We've committed some capital this year that's in a staged approach to put maintenance in there, which includes tertiary crusher. So yes, they're just -- they're minor impacts but delay -- basically displace, I'll give you details in time. So not a major issue. It's obviously coming in the tables, but it's not material.

[Matthew Frydman, Research Analyst]

Sure. And just maybe a quick one for Ryan. Wondering if you can split out how much you spent during the quarter on acquisition of Echo shares. Is that fully represented in that $2.8 million investment figure in the cash waterfall?

[Ryan P. Gurner, Chief Financial Officer]

So that's just the -- because it's a cash water flow, that's just the -- that's the noncash movement. So yes, so in the September quarter, we spent about $4 million around Echo in cash. So the $2.8 million that you see is just the noncash movement in all our investments.

[Matthew Frydman, Research Analyst]

Okay. So specifically, that cash spent on Echo shares was around $4 million for the quarter?

[Ryan P. Gurner, Chief Financial Officer]

Yes.

[Operator]

Your next question comes from Kate McCutcheon from Citi.

[Kate McCutcheon, Assistant VP & Metals and Mining Analyst]

Just following on from Matt's question about Pogo. I'm just trying to understand the grade moving forward. So if your development tonnes have a lower grade of 4, 6 grams per tonne and that's going to be elevated for the medium term and your stoping ore is 8 to 9 grams per tonne, then blending that kind of comes out lower than reserves. So does the mine plant have you accessing high-grade areas? Or can you just talk me through the grade expectations over the medium term?

[Stuart Peter Tonkin, Chief Executive Officer]

Yes. So Kate, the medium term, quarter-by-quarter, it's going to swing around. So you probably can't use this quarter's contribution in that regard. But yes, longer term, you're sitting at that -- the reserve grade of 7.5 grams. And yes, we've demonstrated blend grades north of 8, so 8.5, 8.6. You're looking at a variety of very high grade to mining width, and there's a lot of variability in that. Average grade to be sitting at that 8-plus grams is likely blend between stoping and development ore. Reserve grade, 6 to 7.5. We've been quite conservative on how we model that and in the price we've used and in the dilution factors we've applied. And that's different to probably how other people would model things. But yes, north of 8 grams as a blend is the right grade that we're tracking towards.

[Kate McCutcheon, Assistant VP & Metals and Mining Analyst]

Okay, so 8 grams per tonne is kind of your medium-term expectations?

[Stuart Peter Tonkin, Chief Executive Officer]

Yes. Look, this improvement projects looking at recoveries. Because if there's lower grades, we get lower recoveries. And obviously, throughput sits -- but it really -- over that period, it's -- if you're getting stopes at 8, 9, 10, you've got development at -- we've got a couple of grades at over 4 grams. So it's really around getting the higher percentage of stoping contributing to that higher average grade.

[Kate McCutcheon, Assistant VP & Metals and Mining Analyst]

Okay. Yes. I guess I'm just trying to do the math on the guidance you've given about development stoping ratios. Okay. Great. And then just with respect to your revenue-linked dividend policy, which is quite different to some of the peers, how do you think about that on the issues of ounces versus margin? Or I guess when you have compressing margins, is there any -- how do you think about your dividend policy?

[Ryan P. Gurner, Chief Financial Officer]

Our dividend policy is paying out 6% of our headline revenue. So we're delivering into record-high Australian gold prices and profitability. If we hit our guidances, it's much, much greater than last year. So don't see compressing margins at all.

[Kate McCutcheon, Assistant VP & Metals and Mining Analyst]

Okay. Okay. And then a final question, I mean you've recently onboarded Pogo and ER. And given there's a few mines or a mine in Ontario [ for sale ] et cetera, do you have the yearning to, I guess, take on more deals? Or is organic growth the focus for now?

[Stuart Peter Tonkin, Chief Executive Officer]

Sorry, I missed the first part of that question.

[Kate McCutcheon, Assistant VP & Metals and Mining Analyst]

Sorry, is organic growth the focus for now? Or do you have the yearning to kind of take on more deals -- there's some other assets [ you're looking ] to sell?

[William James Beament, Executive Chairman]

Value creation at Pogo, as I said earlier in my spiel, it will end up being our best asset in our portfolio. So it's got management's 100% attention because of the value creation there. That is the opportunity, is Pogo. We bought this thing very, very cheap. If it was performing like Jundee, we wouldn't have -- one, it wouldn't have been for sale; and plus 2, we probably would have paid $3.5 billion, $4 billion for it instead of AUD 350 million. So hence we're not going to get distracted in North America on acquisitions. We've got too much value creation for shareholders in Pogo.

[Operator]

There are no further questions at this time. I will now hand back to Mr. Beament for closing remarks.

[William James Beament, Executive Chairman]

Thanks, operator. As you can see, our Australian operations have made a strong start to the new year and are performing well within guidance. They are also delivering production into record-high Australian dollar gold price, which is sensational for our future earnings.At Pogo, the big picture looks very good, the growth strategy is proceeding to plan and the outlook is extremely bright on all fronts. The lower grade seen in the past quarter is an inevitable part of our expansion journey as we develop new mining areas and continue to transition to higher stoping tonnages. But it's a temporary phase, and we will emerge from it a vastly better operation, which reflects the true underlying strength of this world-class mineralized system.Northern Star continues to invest for the future benefit of all our shareholders. One of the key differentiators of the Northern Star story is organic growth, and this investment will continue to see the business generate sector-leading returns on equity and return on invested capital, deliver earnings growth and grow our resource and reserve base, which will further improve the sustainability of our business. Thanks for joining us, and have a great day.