Northern Star Resources Ltd

ASX:NST

Earnings Call Transcript 2019-Q2

[Operator]

Thank you for standing by, and welcome to the Northern Star's December 2018 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 the call today, we also have our CEO, Stuart Tonkin; our CFO, Ryan Gurner; and our Chief Geological Officer, Michael Mulroney.Today's results are a direct reflection of Northern Star's mantra that we are a business first and a mining company second. The degree to which financial returns drive our operational strategy is highlighted by our policy of mining to a margin. Since the start of the financial year, the Australian dollar gold price has risen by over AUD 150 an ounce. This enabled us in the December quarter to mine lower-grade ore, which 6 months ago would've been considered too marginal. This is the great benefit of having underground-only operations.The lower-grade ore does, however, have the effect of reducing production and therefore affect our all-in sustaining cost per ounce. But thanks to the strong gold price, margins at our Australian operation still averaged around 50%. I'll take that margin all day every day rather than sterilize economic material that can be mined at this gold price.There's also a fact that some of our lower grades stem from the mine sequences. Our mine plans show that we will mine some higher-grade areas in the current half, which will have the benefit of increasing production and therefore lowering cost.At Pogo sequencing, particularly ore development grade material played a role in the lower grades. Again, we expect some improvement on this front in the current half. But the grades at Pogo also reflect our strategy to implement more of a bulk mining approach as we increase mechanization and utilize bigger equipment to improve productivity, just like we have converted Jundee over the past 2 years.We are delighted with the huge productivity gain achieved in just 3 months of ownership as well as the exploration results, which are coming through. We invested more in Pogo during the December quarter than budgeted. This was essentially accelerated investment and was made in light of the significant opportunities which are emerging in that mine.Due to the previously mentioned points, group production for 2019 is maintained at 850,000 to 900,000 ounces. All-in sustaining cost guidance is increased by AUD 75, following increased up-front investment to capitalize on growing opportunities at Pogo and a substantially higher Australian gold price.Across the group, our organic growth and expansionary capital for the quarter was $52 million. $20 million of that was a record spend on exploration and $32 million in growth expansionary capital. It's important to note that after the impact of all these factors, including lower grade associated with the mine sequencing, the effect of mining to a margin policy, investments at Pogo and Australian operations, we still increased our cash investments by $17 million in the quarter to $292 million.I'll now ask Stuart Tonkin to elaborate on the operations during the quarter, including what we have been doing at Pogo and the excellent outlook we see there.

[Stuart Peter Tonkin, Chief Executive Officer]

Thanks, Bill. There certainly has been a lot achieved in the December quarter to maintain progress on our strategy to grow production and extend our mine lives. The addition of the high-quality Pogo operation and subsequent integration activity is well underway, which I'll cover shortly in detail.But first, to our domestic Australian operations. Jundee maintained exceptional development and stoping rates during the quarter, with monthly stope production peaking above 130,000 stoped tonnes. In addition to standard capital and operating development, the establishment of future diamond drilling platforms were mined for the Zodiac, Revelation and Armada resource definition drilling locations. The Jundee operation was disrupted during December due to an electrical storm damaging electrical infrastructure, which resulted in 8 days of significant impact to gold production in that month. Our Jundee regional growth plans have advanced, which will see the remaining project commence open pit mining in the second half of FY '19, and our contractor selection and mobilization plans are well underway with that project. Jundee annual production and cost guidance remain unchanged for the full year.To Kalgoorlie now. Our Kanowna stoping trials were performed during the quarter, targeting the halo structures in the upper parts of the mine. This did lower the overall mine grade but can significantly extend mine life whilst maintaining strong margins. Further evaluation of these opportunities will be followed up for immediate reserve estimations, and Mike is going to speak shortly about exciting drill results across the mine, including the Velvet estimations and extensions there.Production at Kundana continues to grow at Millennium and extending into the Pope John deposit, and the East Kundana joint venture mines maintained consistent performance during the quarter. Development tonnes across Kalgoorlie were increased by 41% from the previous quarter, which is also reflected in the overall lower mine grade and further to Bill's comments that show that we're able to bring incremental material into the mine plan that we previously would not have been mined whilst still maintaining margins.At South Kalgoorlie, our expanded confidence of HBJ underground has led to increased underground diamond drilling there and the decision to convert to owner mining during the quarter, with the incumbent contractor demobilizing in December. We see encouraging drilling results from the north ore zone that extends mining fronts in that area and feeds future reduction growth potential.We have restated Kalgoorlie operations all-in sustaining cost guidance to AUD 1,190 to AUD 1,300 an ounce in light of the lower grade of material included in the current plant. At the gold price range that exists, this can still maintain superior margins. This allows us to maintain that margin whilst not sterilizing economic ore. We maintain our annual production guidance for Kalgoorlie at 320,000 to 340,000 ounces.Now to Alaska. Pogo has seen significant activity in the December quarter under Northern Star management. We've increased ore mined by 22% uplift and mining through -- milling throughput up 33% to date. And so these productivity gains have lowered the unit cost per tonne by 23% in this period. And these are excellent, excellent signs and signals in early 3 months of ownership to show those improvements.Pogo mined grade is a reflective of increased development ore to access new mining fronts as we transition the mining method to greater long-haul open stoping. This mining method will further reduce the unit cost per tonne over the second half of the year. We have responded quickly to an increasing diamond drilling with now 8 underground rigs active on site as well as the 4 surface diamond drills. We have taken delivery and are commissioning new underground mining fleet, which will replace the existing aged mobile fleet.Given our long-term view of the mine life, we have committed to an owner-miner operation at Pogo, and we commenced demobilizing the incumbent underground mining contractor during the December quarter. So with this, given the accelerated action of our integration planning, the immediate overall unit costs are high, and we restate cost guidance for Pogo at USD 950 to USD 1,025 an ounce and maintain our annual production guidance of 250,000 to 260,000 ounces. We are confident that with the new fleet brings increased productivity and reduced unit costs, couple this with lower-cost, long-haul mining techniques, and accelerating these actions is the best long-term strategy for the benefit of the Pogo operation.I would now like to pass to Ryan to address the financials.

[Ryan P. Gurner, Chief Financial Officer]

Thanks, Stu. I will now present to you some of the key financial aspects of the company's 2018 December quarterly results.The cash flow waterfall chart on Page 5 outlines that cash bullion and investment movements for the December quarter, which now includes Pogo operations. During the quarter, Northern Star generated $110 million in operating cash flow, which was up 73% from September quarter, and $36 million of underlying free cash flow. This underlying free cash flow was generated after investing a total of $52 million into organic growth across exploration and expansionary capital to set up future production areas. This investment included Pope John development at Millennium operations, drill platforms at Jundee, development drives at South Kalgoorlie operations and exploration and capital investment at Pogo.During the December quarter, the Australian operations sold 153,027 ounces at an all-in sustaining cost per ounce of $1,246. This equates to 306,142 ounces sold at $1,194 per ounce for the half year.For December operations, Kalgoorlie operations sold 83,624 ounces at an all-in sustaining cost of $1,406 per ounce, which is higher than yearly guidance. However, performance was within planned expectations as at December. Kalgoorlie operations all-in sustaining costs are expected to trend lower for the second half of the financial year.At Jundee now, 69,403 ounces were sold during the December quarter at an all-in sustaining cost of $1,052 per ounce, which positions the operation within the full year guidance. During the quarter, Pogo operations sold 57,534 ounces at an all-in sustaining cost of $1,681 and has 3,527 ounces of gold in transit at 31 December, which will be realized in the March quarter.Finally, during the quarter, 188,000 ounces were hedged at an average price of $1,767 per ounce and 22,500 ounces were hedged at USD 1,277 per ounce with delivery dates spread across 2019 and 2020 calendar years.I will now hand over to Mike, who will discuss exploration.

[Michael Geoffrey Mulroney, Chief Geological Officer]

Thanks, Ryan, and good morning, everybody. The increased investment in exploration across the quarter has delivered some outstanding results, many of which were released just pre-Christmas in our announcement on the 20th of September -- of December.Just to highlight very quickly without going through everything. Particularly in the Kalgoorlie region, the outstanding result was from the Kanowna Belle mine pit in particular, where drilling into the hanging wall at Kanowna Belle has delivered a number of new discoveries and exceptional grade results, which indicate much better increases to reserve and resources in the future. At Kanowna Belle in the hanging wall, particularly up around A, B and C block, we achieved some exceptional results with a peak grade of 4.4 meters at 671 grams, which included an outstanding result, which is a record for Northern Star, of 0.3 of a meter at 12,860 grams per tonne.Further down the mine, we have new discoveries in an area called Porphyry Xenoliths. And also across the Velvet, in the gap zone between Velvet and the main Lowes orebody, we've discovered some new mineralization in that area, which appears to link the Velvet production area back to the main Lowes orebody with some outstanding results, the best being some 31.3 meters at 21.7 grams per tonne. We expect come next reserve resource upgrade, we have to put a maiden main resource in this area, which indications are will be substantially higher grade than the average grade at Kanowna Belle.Across at Kundana, we continue to have good results, extend the Millennium mineralization further to the north. But also further south at the Christmas-Moonbeam area, we have carried on further resource infill drilling, which is continuing to expand that area, provide the next mining front after the development of the Pope John mine.Further south of the EKJV, we continue to get good results from the K2 infrastructure across the Pegasus Raleigh -- the Pegasus, Rubicon and Hornet system, but the best results have come further at Raleigh and the Raleigh South area, where extensional drilling around the production areas continue to get good results. But particularly, on the far south on the exploration front towards the Golden Hind area, where recent surface drilling has just finished with the last ore providing the best result on the Raleigh structure down there, some 4.2 meters at 21.5 grams, a much broader result than we normally would see on the Raleigh structure.Further on at South Kal, we're finally hitting our straps down there from an underground drilling point of view with the changeout of drilling contractors. And we've seen a substantial lift in productivity with an increase in the high-grade results coming particularly from the North Ore Zone drilling underground. Regionally, we're starting to push out and see some good results from the regional work with extra results coming from the new Glasswing prospect further to the west of HBJ and also from the Samphire area, where drilling under the existing pit there has outlined high-grade results over 400-meter strike length.Looking towards Jundee. The operational drilling in the mine continues to go well with excellent results coming through from not only Revelation and Armada but new areas around the old Cardassian mining areas have been of particularly high grade. Further at Zodiac, we're in the middle of a wedge program to drill out some of the early Zodiac areas. The first 3 wedge holes were successfully intersected into the Zodiac mineralization. And we just started the fourth wedge hole, and we expect to have assay results for those holes next quarter.Of particular interest down at the new Ramone development is grade control drilling is now about 90% complete across the Ramone pit. And we've seen a significant increase in grades, which we expect to flow on into production grades once the pit moves into full production in the second half of this year.Also around the general area in the Deep Well district, we've now outlined 7 new areas, including the Ziggy-Marley and Mosely areas around the Ramone, which will eventually feed into new resource models and extension to the resource in that area. We've also outlined a further 9 to 10 prospects in that area, so we expect to be developing that area for some time around that new operation.Across at Pogo, as Stu mentioned, we now have 12 rigs operational on the site but underground surface drilling at not only resource extensions underground but the new Strip Vein prospect to the north end of the Pogo development. We expect to be in a position to provide a full update on these results sometime in the coming quarter, and we expect to put this out fairly shortly.I'll pass back to Bill for closing remarks.

[William James Beament, Executive Chairman]

All right. Thanks, Mulroney. Can you open up for questions?

[Operator]

[Operator Instructions] Your first question comes from Hayden Bairstow with Macquarie Group.

[Hayden Bairstow, Analyst]

Just a question on Pogo. I just want to get my sort of head around tonnes and grades. I mean, obviously, the reserve is much higher. And with this sort of strategy you're taking now, do we assume there's sort of more diluted sort of mining inventory with more tonnes at a lower grade? That given your quarter you've just gone is sort of in line with guidance, I guess, but is that -- so is that sort of an indication of what the next 12 months or so looks like?

[Stuart Peter Tonkin, Chief Executive Officer]

Yes. Hayden, it's Stuart. Look, we've only held that operation for 3 months, right. So it's really about trying to accelerate into those new mining fronts. [indiscernible] other assets. Yes, you can see the resource grade is there. You can see the reserve grade is starting to come out of that mine, and that's what we're going to expect going forward. Really what it is, is around accelerating our development ore, which has always traditionally been a lower grade than our stoping grade. And so it's really about getting into those zones, and that's what surprised this quarter, that being about 8 grams. As far as throughput, what we've demonstrated is still mine constrained. So we're able to get the milling for a finite periods of time during the quarter up to that 1.2 million tonnes per annum run rate and obviously achieved at about a 900,000 tonne per annum metric run rate. So we see ability to get the throughput through the plant and keep the feed consistent. And so really, it's around getting this transition across to more efficient, more productive, lower unit cost stoped tonnes versus jumbo tonnes. And obviously, the grade will follow as we get into those new mining fronts. So it's really still early days at Pogo, and we've guided the market that we take 12 to 18 months to really demonstrate what the potential is there. But what we've done is really accelerate the effort. So the drill rigs have turned on hard and full. The changeout of the contractors are underway. The update of the new mining fleet is there. And we're already seeing significant improvements in productivities with, say, 22% increase in development meters and 33% in throughput through the mills. And that's only achieved in 3 months of management. So we see restoring back to that 300,000 ounces per annum, it's just going to take us about 12 to 18 months to show that runway to get there.

[Hayden Bairstow, Analyst]

Okay. So the increased development that you're doing now, that carries on for another couple of quarters? Or is it a whole year? Or what sort of timing before we...

[Stuart Peter Tonkin, Chief Executive Officer]

Definitely, it carries on for a couple of quarters because we're aiming to open up these long-haul mining fronts. So it's around getting into those zones and getting into those areas. So it's accelerated development.

[Hayden Bairstow, Analyst]

Okay. And just quickly on Kal. I mean, you sort of deliberately, I guess, dropped the grade given where gold prices are. So if we assume gold stays where it is, then that sort of the go-forward plan from here is to maintain those sort of rates?

[Stuart Peter Tonkin, Chief Executive Officer]

Look, we make those decisions intra-quarter and as we're developing past this material. The important strength was the underground ability is we have the flexibility to do that. So if along strike we see extension of the ore from the structure, we'll continue to mine on strike whilst that development ore is economic. And obviously, that leads into stoping from that. At any point in time, if gold price did come off, we can make that call without sterilizing that material and leave it in situ. But the opportunity, as Mike spoke about on the drilling results, is there's a significant amount of inventory inside Kanowna Belle that is susceptible to that change in the grade. So gold price at these levels gets us pretty excited about the mine life -- at a mine like Kanowna Belle. Incrementally, you can see us ramping our development ore across the rest of Kundana at 41%, and that's really about taking these opportunity extensions, as we did at Jundee, when we took that mine on, we didn't drop past gold in the wall. We stopped and mined it. It did have an immediate impact to the schedule and the plan, but we never like the word schedule a lot. We mined economic ore at the margin we want and took advantage of that. And that's the strength of the underground versus sort of open pit.

[Hayden Bairstow, Analyst]

Okay. So these -- and these ounces are almost with no development cost, I guess, it's all remnant stuff?

[Stuart Peter Tonkin, Chief Executive Officer]

Yes. It's minimal stuff maybe accessing to some older levels, rehabs alike. But it's literally as you said, the infrastructure corridor is in place at very low capital to get them turned on. And the speed at which you can turn them on and actually get them milled and turn into gold bars, it can be 4 to 6 weeks. So responding to gold price, and as Ryan said, utilizing that hedge in the short term allows us to protect the margin.

[Operator]

Your next question comes from Daniel Morgan with UBS.

[Daniel Morgan, Director and Analyst]

Just a couple of questions going back to Kalgoorlie. I mean, I appreciate that you're going to be very responsive to market conditions, and that's what you're highlighting. If we consider the current gold price as representative of the next couple of quarters, would we see similar milling, similar grades that we're going to be doing at Kalgoorlie in particular?

[Stuart Peter Tonkin, Chief Executive Officer]

Yes. So you do see similar milling throughput. Obviously, that's our constraint in being -- the mills being full and similar grades, but we've maintained gold production guidance. So 320,000 to 340,000 ounces out at Kalgoorlie. It's around that cost list that reguided the market to today, which is that lift of AUD 50 an ounce out of Kal.

[Daniel Morgan, Director and Analyst]

And just maybe a follow-up. This is more corporate. Is there any update on EKJV and what you guys are trying to achieve there?

[Stuart Peter Tonkin, Chief Executive Officer]

Bill?

[William James Beament, Executive Chairman]

No, nothing different to what we've put out at the back end of last year.

[Operator]

Your next question comes from Paul Hissey with RBC Capital Markets.

[Paul Hissey, Analyst]

Three questions from me. Just maybe a little bit more granularity on the change in your guidance at Pogo. I mean, I think you only gave guidance a quarter or so ago on what that would look like. What have you learned over the last quarter or so that's led to that change? I mean, obviously, it arises from a decision to spend more money. But just take us through what's changed.

[Stuart Peter Tonkin, Chief Executive Officer]

Yes, Paul. Look, fundamentally, we've had management and operation of it for 3 months. Accelerating the changeover of the underground contractor, there's some immediate costs there to switch and accelerate the new fleet arriving. And that fleet started to arrive in December. So we expected and were probably modest on some of the changes given that it was in the new jurisdictions. This wasn't about guiding Kalgoorlie. There's a lot of things we can change very, very quickly. We've actually -- to the benefit, we would make movements at Pogo quicker than we probably planned in our strategy there. Now that does lift immediate cost. But really, it has been driven by the denominator, all-in sustaining cost, unit cost by the ounces. And obviously, that lower grade we're developing through the development ore really determines that all-in sustaining cost. We see a much stronger second half, but yes, we've lifted that cost guidance because you're going to need an exceptional second half to bring that back into that guidance. But that's really what's changed. The tap on hard with the diamond drilling, getting -- there's been a bit of information pause. So not holding back -- and this is the strength of the business of ours, having the balance sheet, the cash flow to be able to do that, accelerating the diamond drilling, accelerating the information. This is in parallel, heavy investment for the long-term benefit of that project. So it's really been around accelerating that. But actually, when you look at the cost per tonne, that's what's going down. So the trend is in the right direction. And that's what our aim is to achieve, is to get the unit cost down. That protects the margin. That allows us to determine what the cutoff grades are, and all of those things are in line with the due diligence of that asset.

[Paul Hissey, Analyst]

Yes, yes. That comes through in the quarterly today. Second point on reserves. You say in the note -- you talked about the margins in the release, sorry. You talked about margins, and then you talk about it sort of auguring well for reserves at midyear. Can we take an inference from that, that you might consider using a new perhaps higher gold price assumption in your reserve calculations?

[Stuart Peter Tonkin, Chief Executive Officer]

Look, that's not necessarily the case. What it affects in the reserves is mining this material that's outside of reserves doesn't deploy that reserve. So it means that we still have those on the books come midyear. And obviously, with Mike's expended budget in Australia and Pogo, it fares well for a reserve increase for midyear. So it means that we're just not depleting our reserves at normal mining rate that would occur. As far as gold price assumptions, we've got to be careful because with long mine lives, we have to think of a price that sustains throughout that period. So we currently do it at AUD 1,500, our reserves. It's more around what we can control with that costs and that productivity. But intra-quarter, intra-year, when we can mine and produce that gold whilst gold price is up -- the gold price is presently AUD 300 above our reserve price. So if we can actually mine for a quarter and get them to gold bars and sold, we are literally -- shareholders -- producing a margin that would have not existed under the previous life of mine plans.

[Paul Hissey, Analyst]

Yes, got it. And last question is I guess philosophically, does that mean margins for Northern Star have peaked notionally? If you guys are prepared to manage to a margin, is 50% EBITDA or whatever, is that the right number? And if we saw another $100 an ounce on the gold price, you'd bring in the next round of marginal material, effectively trading away an even higher margin because you're comfortable with where you're at, at the moment? Is that, I mean, fundamentally correct?

[Stuart Peter Tonkin, Chief Executive Officer]

It is the eternal loop that you look at, quantity over quality. But at that 50% all-in sustaining margin, you're extending and adding cash flows that weren't there. So you're right to say gold price goes up another $100 an ounce. There's a number of material. But all of Kalgoorlie lights up when you start getting up to AUD 1,900, AUD 2,000 an ounce. There's significant material that presently is not being mined, not just with our assets but across the gold field that comes into the mine plan. So that everybody's going to be looking for the same area. The flexibility of being underground is if it also drops off, we can drop that out of the plan, protect the margins and not sterilize it, keep it there in the plan for the longer-term view.

[Operator]

Your next question comes from Michael Slifirski with Credit Suisse.

[Michael Slifirski, Managing Director]

I think I've got 3. First of all, the cash flow. I think last quarter, you talked about the fact that the third quarter cash flow was missing any contribution from Pogo. So presumably, December quarter has a double count of Pogo. Can you isolate what Pogo has actually contributed in the December quarter? Is that right, it's 2 quarters in the December quarter?

[Ryan P. Gurner, Chief Financial Officer]

So no. So Pogo's contributed only in the December quarter, that's right. So we obviously have only had it for 90 days. So Pogo is basically breakeven at the moment.

[Stuart Peter Tonkin, Chief Executive Officer]

Not a double quarter we accounted for.

[Ryan P. Gurner, Chief Financial Officer]

It's not a double quarter. So Pogo's cash flows are only relative to the December quarter.

[Michael Slifirski, Managing Director]

But I think last quarter, we were told that you had economic ownership, but the cash flow from the September quarter we'd see in the December quarter. Is that not the case now?

[Ryan P. Gurner, Chief Financial Officer]

No. So we had economic ownership, but it came through as a result of the change in balance sheet. So it doesn't come through as an operating cash flow in the prior quarter. It's just a -- we got the economic ownership as part of the purchase price.

[Michael Slifirski, Managing Director]

Okay, okay. Second question, again with respect to the Pogo outlook. I guess I get a little confused. I can understand accelerated mining if development dilutes your grade. But if you're talking about lower unit costs, reducing the cutoff grade, stoping diluting because you take bigger volumes, how do we think about the sort of direction of the 2 of those with respect to existing reserve grade? Does that mean reserve grade will decline because of lower cutoff grade and bigger bulk stope widths compared to the more selective mine that's been undertaken historically?

[Stuart Peter Tonkin, Chief Executive Officer]

I think when you look at the current reserve, as far as years of mine life, what we intend to grow that to next year, that reserve grade will be recut. But it will be a much more robust and probably larger reserve. So the grade of reserves at Pogo are going to be -- are more reflective grade of what we're going to do going forward. The important thing for us to achieve is to reduce the absolute cost per tonne in mines from USD 250 down to a much smaller number. That allows -- irrespective of the grade being at 10 grams, 9 grams, 8 grams, means that we can maintain a very strong margin. And the cost per tonne therefore flows through the cost per ounce. So currently, the reserves aren't large. There's a large resource. As we grow that and restate that in the midyear, you're going to have a much larger reserve at the future mined grade.

[Michael Slifirski, Managing Director]

Yes. So dummying it down, the aspiration is still 300,000 ounces at a normalized rate when the mill is at capacity. And capacity is, what, I don't know. Is it 1 million or 1.2 million tonnes per annum?

[Stuart Peter Tonkin, Chief Executive Officer]

To get -- look, with some small CapEx in that, we aim to get it to 1.2 million metric tons per annum. We've demonstrated instantaneous ability to get that through in a few days in the last quarter. It's around getting consistent feed to it and maintaining it at those levels. So at that level, 9 -- at 8 grams, 9 grams, you're getting your 300,000 ounces with your 90% recovery. So it's achievable. It's really around understanding where those constraints are. And at the moment, that's where we wanted to be in 12 to 18 months' time, at that run rate. And we've maintained our guidance of 250,000 to 260,000 ounces for this calendar -- for this financial year for Pogo.

[Michael Slifirski, Managing Director]

Okay. And then with respect to your overall Kalgoorlie milling capacity, given that we can see where AU dollar gold is, your strategy during the December quarter to exploit that opportunity, how should we think about what portion of that total capacity, whatever it is, that you might utilize in the December quarter? And why does that not actually grow production guidance?

[Stuart Peter Tonkin, Chief Executive Officer]

Both our mills are full. So Kanowna and South Kalgoorlie are full. And during the quarter, we utilized third-party milling. So whilst we've got access and maintained contractual access to that plant, that's how we're able to top-up that extra material. And that's -- yes, we'll keep managing that throughout the year. But those 2 mills are full with our material. So it's mill constrained.

[Michael Slifirski, Managing Director]

Yes. So that mill constraint includes the contracted milling capacity, so we you should -- if we believe A dollar gold stays where it is, we should annualize your December quarter throughput as what's 100% available?

[Stuart Peter Tonkin, Chief Executive Officer]

Yes, more or less that makes it. And as you find at these gold prices, a lot of those mills in the region get filled up.

[Operator]

Your next question comes from Kristie Batten with MiningNews.

[Kristie Batten]

My question is probably for Bill. I was just wondering if you can comment on the recent gold sector consolidation and what the implications or opportunities might be for yourselves and the broader Australian gold sector.

[William James Beament, Executive Chairman]

Thanks, Kristie. I knew that question was coming. Look, I haven't commented to date. We never comment about M&A activity. I think just point to note is if you look at a couple of big deals, one only completed 3 weeks ago and the second one probably won't complete until May or June this year. So if I was running those companies, I will just be focusing more so on merging the 2 business units and cultures and people and operations and concentrate on that. That's the big value driver and what happens after that, time will tell. But I still think that's a fair way up.

[Kristie Batten]

So you don't think that that will sort of spur more consolidation in the Australian sector?

[William James Beament, Executive Chairman]

I don't necessarily say that. Like I say, they've got to run the course of what they're doing and what comes out of that. But the Australian gold sector is in a very healthy position to capitalize on whatever happens.

[Operator]

Your next question comes from Daniel Morgan with UBS.

[Daniel Morgan, Director and Analyst]

Probably just more soft stuff regarding Pogo. So the workforce, you are trying to change the mining methods, and you have changed out the contractor. I just want to hear about when did you get rid of the contractor? When do they cease? What's the short-term impact? Have we seen all of it? Is there still some of that to come on productivity? And just how is the workforce going with the changeover and what you guys are trying to achieve? Has there been any extra turnover or dissatisfaction or things like that?

[Stuart Peter Tonkin, Chief Executive Officer]

So look, the incumbent contractor was a kind of proxy owner-miner because it was a labor-by-type arrangement. So as far as changing that out, what we're able to do is bring our own skill set, our mining services and our structure regarding that, which really drives and focuses productivity. And we can get them some simple cost-outs by taking that owner-miner in-house. What we have done in the quarter, we've got a number of expatriates as well as obviously the Pogo team. So we've gotten nearly 30 Australians over there at present in those key set of roles, the areas that what we want modified, changed, optimized and the like. We've also had nearly 20 of the U.S. staff at all operating, management levels come across to Australian operations at Kalgoorlie and Jundee for a week at a time at each of those operations to witness the type of activity that we're doing and methods and technologies that we're utilizing here that we intend to implement at Pogo. So there's been a cross-pollination. And look, the general acceptance of the whole team at Pogo has been excellent. Their understanding of what we're wanting to do, the benefits to them, to the state, to the life of Pogo, there's been no resistance in accepting change or understanding what the plan is. In fact, that's why we've accelerated a lot of the moves that we had documented in our due diligence and what we're going to do in those operations. So from that side, it's been fine. As far as the changeout of the contractor, their input -- there are things that we do, do and have done from time to time. We're not traditionally owner-miner or contracting. We look at courses for courses. But at Pogo at present, the rate of change we want to implement and the new technology both in jumbo and long-haul open stoping, we needed quick action. And that's what we're going to do with our skill set in-house. So general acceptance. And I think the site visit that was occurred last year for a lot of analysts and investors that got to see it, we'll run that again this year. We'll see firsthand what the opportunities are and see and speak to the staff that are accepting of that change. So that site has been a lot easier than we're probably prepared for. And hence, while we've been able to accelerate a lot of those changes.

[Daniel Morgan, Director and Analyst]

Just a quick follow-up on the 30 Aussies that are embedded there. Is there any work permit issues in Australians working in the United States that could cause an issue?

[Stuart Peter Tonkin, Chief Executive Officer]

Look, there's not -- there's many varied phases you can achieve to get there, and having businesses in the U.S. and Australia helps the flow of U.S. to Australia and Australia to U.S. It's not our intent to dominate Alaska with Australians, but there are some techniques that Australians have developed and well leading at that we want implemented quickly. And so people going across in Australian capacity to demonstrate that is why we've got them there. The strength really, the interest internally and externally for staff to join on the staff and seek towards going to Pogo has been exceptional. So again, attraction, retention, it's not Africa. It's an excellent asset. And really, we've got no issue in getting high-quality talent to want to go there. And this also allows the opportunity to provide succession and promotion of our Australian operations as some of those staff have left Jundee and Kalgoorlie to go to Pogo.

[Operator]

There are no further questions at this time. I'll now hand back to Bill Beament for closing remarks.

[William James Beament, Executive Chairman]

As I said at the outset, this business is focused on financials, and margins are a key part of that equation. I have no issue with costs rising provided the margin is not squeezed. As I have said previously, if the gold price falls sharply, we will do the opposite by increasing gold price to protect our margins. And that's the benefit of having underground operations. Our focus is on getting the balance between margin and production right. And in the current pricing environment, I think we are pretty close. And certainly, the higher grades we will encounter in the current half should ensure that balance is spot on. The higher gold price also augurs well for our reserve update in the middle of this year. Reserves of our Australian operations are currently calculated at AUD 1,500 an ounce. The higher gold price, substantial productivity gains and significant lowering of total cost per ore tonne will also be welcome when we calculate our maiden JORC reserve estimate at Pogo in the middle of this year. Thanks for joining us today.

[Operator]

That does conclude our conference for today. Thank you for participating. You may now disconnect.