Northern Star Resources Ltd

ASX:NST

Earnings Call Transcript 2023-Q2

[Operator]

Thank you for standing by, and welcome to the Northern Star Resources December 2022 Quarterly Results Conference Call. [Operator Instructions]

I would now like to hand the conference over to Mr. Stuart Tonkin, Managing Director and CEO. Please go ahead.

[Stuart Tonkin, executive]

Good morning, and thanks for joining us today. With me is Chief Operating Officer, Simon Jessop; and Chief Financial Officer, Ryan Gurner. I'm pleased to present our December quarter results, marking the midpoint of FY '23. We have continued significant progress on our growth projects in line with our profitable growth strategy to 2 million ounces per annum.

Our December quarterly production of 404,000 ounces at an all-in sustaining cost of AUD 1,746 an ounce demonstrates our capability to operate at 1.6 million ounces per annum. And for the second half, higher forecast production is expected to drive unit costs lower as Thunderbox delivers expanded nameplate capacity and grade improves at Pogo. We maintain our full year guidance of 1.56 million to 1.68 million ounces at an all-in sustaining cost of AUD 1,630 to AUD 1,690 an ounce.

Our safety performance is sector leading with a lost time injury frequency rate of 0.9%, but we continue to see numerous incidents. So a concerted focus on training, competency and safety leadership is ongoing. This is reflective across the sector, with staff turnover and skill shortages continuing to challenge improvement in safety performance. Simon will speak to the Australian operations shortly.

At Pogo, we continue to meet the mill throughput rate of 1.3 million tonnes per annum with an increased percentage of stoping tonnes now at 72% of the blend. Overall grade improved quarter-on-quarter, but some stope mining dilution on the margins of the deposits saw a reduced average mill grade and ounces sold at $65,000 for the quarter at an all-in sustaining cost of USD 1,362 an ounce. The second half focus at Pogo is improving mined grade to deliver our full year guidance.

While it is very pleasing to see unit costs improve at Pogo and the operation generated mine operating cash flow of USD 30 million in the quarter, we have more optimization work to do at Pogo in the remainder of the year.

During the quarter, we released an exploration update, highlighting continued new discoveries as well as in mine extensions across the group. The new Joplin deposit at Kanowna Belle underground provides mine life extension there and the regional drilling at Red Hill discovered a significant mineralized system, providing growth optionality for the Kalgoorlie region. Wonder North and Golden Wonder are in close proximity to the newly expanded Thunderbox plant. And in Alaska, we continue to extend the good part to deposit beyond the existing high-grade resource.

Our financial position remains very strong, which Ryan will talk to you shortly, and we are well leveraged to capitalize on the strengthening gold price with fully funded growth commitments advancing. We have growing cash earnings, which enables prudent capital allocation, including organic growth, dividends and share buyback, all with a focus on delivering superior shareholder returns.

In regards to the Fimiston mill expansion study, our team continues to evaluate the most compelling design options and actions to derisk execution to present a case towards final investment decision.

Now over to Simon for the Australian operations.

[Simon Jessop, executive]

Thank you, Stu. For the Kalgoorlie Production Center, including KCGM, Carosue Dam, Kanowna Belle and South Kalgoorlie, we sold 210,000 ounces of gold at an all-in sustaining cost of AUD 1,738 an ounce, down on gold sales from the September quarter, while $24 an ounce lower on cost. This production delivered a mine operating cash flow of AUD 177 million, while we spent AUD 99 million on significant growth capital projects. Of this, major growth capital of total AUD 62 million was spent on KCGM open pit mine development. At KCGM open pit material movement increased to 21.1 million tonnes, in line with our material movement plan. Pleasingly, truck hours increased 13% as we take advantage of the new open pit fleet.

Grade of mined ore was higher due to increased volumes and higher grade ore from Golden Pike South. The open pit physicals have now delivered 41.5 million tonnes of total material movement for H1, which is delivering into our strategic goal of 80 million to 100 million tonnes per annum of annualized movements. This is an amazing effort from the team.

Progress in the East wall remediation area continued and remains on track for reestablishing FY '24 access back into Golden Pike North's high grade ounces. Underground mining volumes for the Kalgoorlie region increased 5% compared to the September quarter to deliver 115,000 ounces. KCGM's underground Mt Charlotte operations lifted volumes by 19% to 470,000 tonnes as access to greater stoping areas came online. This was very pleasing and is part of growing this operation to 3.5 million tonnes per annum by FY '26.

Carosue Dam increased ore tonnes while grade was lower due to sequence constraints at Karari. The porphyry underground mine commenced during the quarter and is well established after 3 months of development. Kalgoorlie operations, Kanowna Belle and South Kalgoorlie produced consistent volumes quarter-on-quarter, while all-in sustaining costs reduced to $114 an ounce with margin focus was a key driver for the team.

Processing volumes in the Kalgoorlie region was 4.8 million tonnes or 2% higher than September quarter despite no processing activities at the South Kalgoorlie mill, which was moved into care and maintenance during quarter 1. The revised processing strategy of 3 plants in the Kalgoorlie Production Center has been successfully established, grade and recoveries consistent quarter-on-quarter.

At our Yandal Production Center, including Jundee, Thunderbox and Bronzewing, we sold 128,000 ounces of gold at an Australian all-in sustaining cost of $1,591 an ounce, up 26% on gold from the September quarter and flat on all-in sustained costs. This production delivered a mine operating cash flow of $112 million, up 38% from September quarter, while we spent $56 million on growth capital projects, $11 million lower quarter-on-quarter. Bronzewing spent $8 million on major growth capital during the quarter as we developed this mine for the expanded process plant. Our Jundee operation achieved a new record quarterly underground ore mined with a 39% increase in ore at an average mine grade of 4.1 grams per tonne. As a result, mined ounces increased 93,000 ounces for the quarter, up 31% from the September quarter.

Total jumbo development for this operation was steady at 8 kilometers for the quarter and will continue to be a key enabler, both on drill platforms and increased stoping areas. Processing throughput was steady at 740,000 tonnes, back to nameplate volumes.

Thunderbox underground operation continues to increase the stope mining fronts with 503,000 tonnes of ore mined in the quarter. All tonnes mined from both underground and the open pits increased to 1.7 million tonnes, up 30% on September quarter and exceeded the processing volume by 50%. Open pit mining volumes more than doubled to 4.6 million BCMs mined during the December quarter. The substantial increase in material movement is very pleasing and will provide future access to ore sources at Thunderbox. The total mined ounces were 62,000 ounces, increasing 15%.

Processing volumes in the Yandal region increased significantly quarter-on-quarter to 1.95 million tonnes. As previously mentioned, Jundee was steady with the throughput growth coming from the Thunderbox mill expansion. The new process plant continued to successfully ramp up, milling 1.2 million tonnes for the quarter. We will systematically be ramping up processing volumes as it stabilized running the new plant over the course of the second half.

It is pleasing to see spring capacity at or above nameplate run rate of 6 million tonnes per annum already, while our focus is on bedding in the new operational processes for this expanded plan. The Thunderbox project remains a key focus in the second half as consistent throughput will drive lower costs.

I would now like to pass over to Ryan, our Chief Financial Officer, to discuss the financials.

[Ryan Gurner, executive]

Thanks, Simon, and good morning, all. As demonstrated in today's quarterly results, Northern Star remains in a robust financial position. Our balance sheet remains strong as set out in Table 4 on Page 8, with cash and bullion of $495 million at 31 December. And we remain in a net cash position of $145 million with corporate bank debt of $350 million.

The company has recorded strong cash earnings for the first half of FY '23, which is estimated to be in the range of $460 million to $475 million. A reminder is that our dividend policy is based on 20% to 30% of cash earnings.

Pleasingly, all 3 production centers generated positive free cash flow with capital expenditure fully funded. Figure 6 on Page 9 sets out the company's cash and bullion and investment movements for the quarter with key elements being the company recording $354 million of operating cash flow. Looking ahead to the remaining quarters, this is forecast to rise with TBO positioned to operate at an annualized rate of 6 million tonne capacity during the second half of FY '23 and stronger margin from Pogo through higher-grade stope contribution across the remainder of the year.

Quarterly investment in sustaining capital, growth capital and exploration are tracking to plan. Growth capital investment during the quarter included waste material movement at KCGM, establishment of Porphyry Underground at CDO, Ramone underground at Jundee, Orelia open pit development, Otto Bore pit development and TBO mill expansion.

In respect of the company's on-market share buyback. During the quarter, 9.4 million Northern Star shares totaling $82 million were purchased and canceled. Since initiation, 42% of the 300 mil program has been completed with 15.5 million units being purchased at an average of $8.21 per share. The 12-month program remains open until September 23.

On other financial matters, depreciation and amortization are in line with company guidance provided of $600 to $700 per ounce. First half depreciation is at the upper end of the guidance range at approximately $680 per ounce. And for the quarter, noncash inventory charges for the group are $57 million or $140 per ounce. As mentioned previously, the majority of these noncash inventory charges relate to the milling of acquired stockpiles at KCGM. And for FY '23, this charge will likely be approximately 50% to 60% higher than FY '22.

In respect of costs, our business, like all others, is experiencing pressures. The size, scale and flexibility within our portfolio positions us to maximize efficiencies and productivities in the business, which provide opportunities to reduce costs. In addition to this, our fleet investment program at KCGM and planned expansion at TBO, which is now complete, means we are well placed to navigate the current challenging cost environment.

We remain confident in a stronger second half of the year in terms of both production and costs from maintaining mining and processing volumes at Pogo with a focus on high-grade stope delivery, ramp-up in throughput at Thunderbox to 6 million tonne per annum and increased ore volumes from Mt Charlotte and greater contribution from the lower cost ounces of Golden Pike at KCGM.

Lastly, in respect to hedging, Table 5 on Page 9 sets out the company's committed hedge position at 31 December. During the quarter, the company delivered 174,000 ounces into contracts and placed 145,000 ounces in FY '26 at an average price of $2,954 per ounce. The overall hedge book being 1.28 million ounces at an average price of AUD 2,673 per ounce.

I'll now hand back to Ashley for the Q&A session. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Levi Spry with UBS.

[Levi Spry, analyst]

Just a question on the KCGM plant expansion FID. Can you just update us on timing there? And just remind us around the -- I think in the last press release, you mentioned a 3-year build from FID. Is there any change to sort of timing and scope on that?

[Stuart Tonkin, executive]

So yes, we're still working into the final detail. And the 2 elements of that is getting much firmer engineering final designs for the expanded case and tighter accuracy on that pricing. And the second part is that derisking element for the execution phase. So ensuring some of the long-lead items and/or frameworks could be advanced or progressed. So we haven't given a date as to when FID would be reviewed, but we're certainly in the second half charging ahead with information in light of our Board to give consideration. So I think it's more likely in the next guidance here for us to look at what we're doing there. But it's still very compelling and we're still advancing it.

[Levi Spry, analyst]

Right. All right. And just on the South Kal mill, a few clients are telling me that gold is going much higher in the next few months. What is the sort of status there? Is there -- is it about people? Or if you're comfortable that gold's a couple of hundred bucks an ounce higher by the end of the year, can you turn it back on? Is it really an optimization game? Or is it still constrained by people?

[Stuart Tonkin, executive]

It's probably linked to your first question in that if we move it from -- Fimiston from 13 million to 24 million tonnes the catch up capacity for that extra 1 million that SKO offers, we'll get gold up a lot quick, right? So it's not about trying to go on for 1 million tonne in fortune, it's the margin in cash because it was one of our higher cost mills in the region. And as you point, people, get back to -- the 3 mills at Kanowna, Fim and obviously Carosue, they've got great stability, full teams, good focus. So the strategy was the right one. It's worked and we're happy with it.

And as far as divesting it -- otherwise -- we're happy for it to sit there not operating because it doesn't compete with us as well. So it's certainly contributing to the cash generation in the region, not [indiscernible] to turn it on anytime soon.

[Operator]

Your next question comes from Daniel Morgan with Barrenjoey.

[Daniel Morgan, analyst]

You just highlight Golden Pike access being steadily regained in FY '24. Is that going to be material in terms of ore access? Or is it merely just a steady growth over time from FY '25 onwards?

[Stuart Tonkin, executive]

Yes. Simon will answer it, I think.

[Simon Jessop, executive]

Daniel, Simon here. In terms of access back into Golden Pike North, that's part of our growth in ounces at KCGM, up to 650,000 ounces in --by FY '26. So Golden Pike North is a key driver of those increased ounces over the next few years. So we're remaining on track with the wall in terms of that capital to pull that down. And during FY '24, we'll start to regain access back into Golden Pike North. So totally in the current plan as we've outlined for the growth in ounces of KCGM.

[Daniel Morgan, analyst]

Okay. Just switching to Pogo and the grade, which was 6.6 in the quarter. I know it was telegraphed that you'd be a lot weaker in the first half and stronger in the second. What are your expectations on grade in the next couple of quarters, if you could go on to that, please?

[Stuart Tonkin, executive]

So look, north of 8 grams is -- obviously, the reserve grade at 8.5. That's our ultimate landing point. But with what we're seeing in the near-term plan, there's some mining dilution in those stopes that we're addressing some of the legacy development in that place. But yes, we're certainly just relooking at where that is. But our current plan forecast that we can deliver into the guidance that's there for the full year to achieve that. There is some capacity to mill a bit harder than the 1.3, but that's more linked around the shutdown timings, and essentially above 8 grams delivers that.

So yes, it's a real focus on quality over quantity, but the real impressive thing at Pogo is really the unit costs keep coming down and there's still plenty of work to optimize that in the second half that the team are focusing on.

[Daniel Morgan, analyst]

Okay. And an accounting question. When you define cash earnings, one element of that is cash tax paid. I presume that stamp duty payments that I think were made in the September quarter is not included in that. Can you just confirm?

[Ryan Gurner, executive]

Yes, that's right, Dan. Yes. So it's not included in the cash earnings for this half.

[Operator]

Your next question comes from Al Harvey with JPMorgan.

[Alistair Harvey, analyst]

Just a quick one on Thunderbox just on the part about 6 million tonnes per annum rate. Do we get that from pretty much now? Or is that rate more like the final quarter of 2023? And maybe you can just provide us with an estimate of the exit rate into the end of 2022?

[Simon Jessop, executive]

Al, Simon here. Obviously, last quarter, we started the commissioning and changeover and did the major tie-in. So that was a big quarter for us. During the second half, we'll progressively ramp up the process plant. So it's just getting in everything to consistent high utilization, high run rates. So our plan is that the exit rate of FY '23 is at nameplate.

[Alistair Harvey, analyst]

And just looking at the buyback, obviously, the cadence picked up in the quarter. I was just wondering to understand whether that can be sustained. I assume there's a few blackout periods into reporting. And just how you guys are thinking about, I guess, the returns from a buyback. I mean, obviously, the average price you've achieved so far has been pretty good and the stock is now trading a fair bit higher. What other options are there to deploy that capital? I know you've got the stated dividend policy, but is there any upside to special dividends or any other things we should think about from a capital management perspective?

[Stuart Tonkin, executive]

Yes. So you're right in as much as 40% of that buyback is complete, but we averaged it at $8.21. So we're still looking at all of those things, those instruments through the lens of superior returns. So when we compare it to exactly that -- your dividend calculated at 20% to 30% of cash earnings, decisions to come up in the year around Fimiston expansion and capital allocation, those type of things, we weigh it all up. So yes, we're in a blackout at the moment on the buyback. It's open through till September this calendar year. So these things also fly where gold price is at and where valuations sit. So it's an instrument in the toolbox. And we'll keep it alive and keep evaluating returns on it.

[Operator]

The next question comes from Matt Greene with Credit Suisse.

[Matthew Greene, analyst]

Simon, I've got a couple on Thunderbox. Just firstly, can you give us an indication of the volume and grade profile you're expecting in the second half from the open pit?

[Simon Jessop, executive]

Yes. Fairly consistent. You're not going to see - you've obviously got increasing volumes. So you're not seeing huge changes in the grade profile. And the reserve profile for the Thunderbox operations is 1.6 grams per tonne. Last quarter, we milled 1.5. So it's not going to change a great deal over the journey. It's more increased contribution from the Thunderbox underground. D Zone, we're starting to get into slightly better grade as we get deeper into the pit there. So it's fairly consistent around what we delivered in the last quarter.

[Matthew Greene, analyst]

That's helpful. And then just secondly, you mentioned you're testing the spring capacity at the mill as you're commissioning it. Has this given you any early indications what throughput rates you think the mill could settle on a more sustained basis relative to the 6 million tonne nameplate?

[Simon Jessop, executive]

Look, we certainly have seen short periods where we're in excess of 6 million tonnes. But our real focus is just around getting that consistency at that rate. And then obviously, like most process plant over time, you optimize things and gradually push it up. So first focus for us in FY '23 is just bedding in at the exit rate at nameplate. And then over the next 6 months, we'll really stress test that as to going into FY '24 and beyond.

[Matthew Greene, analyst]

Okay. That's great. And my last question is just going on to Pogo. Stu, you mentioned with maintenance, you could push that mill beyond 1.3 million tonnes. And I guess the last few quarters, you've been able to reach nameplates of the expanded mills. But do you feel this is the ultimate capacity? Or is there scope to push it harder if you can deliver the higher mining grades? And if so, what does that involve in terms of permitting and sort of any sort of upgrades in front of the mill? What would you look to do? What do you see 1.3 million has really being the sweet spot here?

[Stuart Tonkin, executive]

Yes. So we haven't -- there's no permitting constraints really on tonne throughput, things that you see like in Canada and otherwise. But it's -- in that regard, it's available, drives that target of capacity, all of those things are there to run it. It really comes down to -- I don't necessarily want to fill it up with 1.4 or 1.5, add a lot of grade. The reserve grade is 8.5. We're focused on the quality. That will get us the best unit cost. So that's really key.

But I guess we're giving the confidence that for the second half, part of it can be throughput, part of it can be grade. But it's around timing of shutdowns and the uptime on that plant. We kind of know where its Achilles heels are so that when things -- where its bottlenecks basically stop us from that throughput. So some of the things are oversized. Some things are right to limit in pumps and motors and those type of rating -- side of things.

[Operator]

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

[David Radclyffe, analyst]

So my question is on really the trend in costs for the business and whether you think that they have peaked now? And then how sticky you think higher industry costs could be? Whether you're seeing any downward pressure yet in any of the cost elements of the business? And maybe within that, if you could provide some color, I guess, on WA labor pressures and current staffing levels.

[Stuart Tonkin, executive]

Yes. So probably the only cost we've seen come off is in fuel, and all the rest are fairly steady, fairly sticky. And it really depends on, I guess, what all the commodities are doing in the same space. So we've seen some relief in staff turnover and stability there post sort of COVID border opening. But we certainly haven't -- every quarter we even ask ourselves if have we peaked, is it coming down. We don't see material signals for it to -- those unit costs to come down.

So yes, we've relate it against our strategy, which is growing profitably, the unit cost derived by economies of scale, the larger plants on same fixed cost base. That's really how we're getting our unit cost down. But the inputs we haven't seen lining up with your materials and/or your labor.

[David Radclyffe, analyst]

Okay. And then maybe I had a similar question actually on Thunderbox and the profile going forward. Specifically, maybe, I guess, on -- in terms of the open pit material, because you're currently processing around a gram, but the reserves for sort of Otto and Orelia were a lot higher. So is it still correct that we should start to see that open pit material grade going into the mill? Is that sort of the larger function, I guess, of the expanded capacity start to lift and come up?

[Simon Jessop, executive]

Yes. Dave, it's Simon. You will see the grade sort of start to come up, just depending on which parts of the pit you're accessing. So Otto Bore is a higher grade. Thunderbox is -- D Zone is better grade at depth. And then really a grade will come in sort of FY '24 and beyond. So yes, you'll see some better grades from the open pits as we get deeper into the pits, but it's not going to materially move on the large volume. So you might see 0.1, 0.2 gram sort of changes over some quarters or halves.

[Operator]

Your next question comes from Andrew Bowler with Macquarie.

[Andrew Bowler, analyst]

Just a couple of questions on Jundee. You talked about the power plant upgrades -- or potential power plant upgrades. You mentioned pretty handy emissions reductions by 2030. Is that also expected to bring power costs down? Or is that purely an ESG exercise?

[Stuart Tonkin, executive]

Well, it should -- depending on what energy costs do, it certainly could give us that saving. But I guess we're working with the incumbent energy provider that provides that gas-fired power, and we'll be able to switch between -- that gas is a backup and then the solar with battery storage and eventually wind turbines. So it will derisk energy costs. At the moment, it's probably neutral on operating costs. But the way gas prices have gone, it will certainly protect us from escalation in energy costs. And remembering there's limited capital there. It's all related to the PPA. And that there just a provider putting that capital in.

[Andrew Bowler, analyst]

And obviously, in terms of mine output at Jundee, a big uptick quarter-on-quarter and obviously a record for the mine itself. Is that just a function of scheduling? Or is that sort of 2 million tonne per annum rough underground output looking a little bit low now? Or will that turn back down back to that 2 million tonnes per annum in the near future?

[Stuart Tonkin, executive]

Yes. So look, it was a fantastic result for the team. And you know, Andrew, with Jundee, it's got those moments where you've got -- it's probably heading for the stoping fronts. And obviously, the team trying to do it, deliver it. And we build the stockpile for future milling.

But essentially, it's the same -- similar -- the last question on Thunderbox in the South is keeping these 2 centers at sort of 300,000 ounces, Jundee in the north, 300,000 ounces; TBO on the South for that 600 at Yandal. There's always different sources that are underground open pit that feed into that mine plan, that milling throughput. So you have 2 million tonnes coming from Jundee underground, adding 1 million to 1.5 million of open pit material on top of that, to get to 300,000 ounces from satellite pits. And the same thing at Thunderbox. There's different sources, different grades. But ultimately running at that 6 million tonnes gets you 300,000 ounces. And that's the go forward plans.

[Operator]

Your next question comes from Kate McCutcheon with Citi.

[Kate McCutcheon, analyst]

A quick question for Ryan. Can you just remind me how we should think about cash tax for the half? Are there still some receivables or refunds to come through?

[Ryan Gurner, executive]

Yes. Now look, for the half it's going to be pretty light. So we're going through our -- what is FY '22 tax return now. So it looks like it's probably going to be neutral to a small refund. So you might see -- yes, so there's not much cash tax payable this half.

[Kate McCutcheon, analyst]

Okay. Perfect. And if you will, Simon. At KCGM, 80 to 100 million tonnes target. Still an effort to get that TMM up above 80%. What are the key levers to pull now to go higher? Is it purely access to bases here, fleet utilization, optimization?

[Simon Jessop, executive]

Yes. It's really around opening up Fimiston South area. So as we're really leveling out that part of the open pit, we're getting bigger benches, more access and the efficiency -- the efficiencies then go up on our deals as well as utilizing the new fleet. So Golden Pike South takes a lot of trucking hours to move that in the deepest part of the pit. You'll see that finish over FY '23, and then we'll gradually ramp up in FY '24 into Golden Pike North.

But it's really around better access to larger bench space higher in the pit. So it's using the new equipment. And we'll get an increase in material movement just where we are on the schedule over the next few years.

[Kate McCutcheon, analyst]

Yes. Okay. That makes sense. And you've got all your new fleet now, don't you at the dump?

[Simon Jessop, executive]

Correct. Yes. We finished that at the end of FY '22. So really, we've had sort of 6 months so far of the full fleet embedded. And it's just continuing to increase those trucking hours, get more material movement and realize the efficiencies of a fleet that's new versus 20 years old.

[Operator]

Your next question comes from Mitch Ryan with Jefferies.

[Mitch Ryan, analyst]

Just one quick question for me just with regards to the KCGM mill study. I guess that's ongoing. But I thought we would have had that quite now. Can you remind me when that's due? And is the fact that you're continuing to study it because the return metrics don't stack up, which sort of would surprise me? Or is it that you're waiting for certainty of inflation sort of peaking? Or is it a third factor that I haven't considered?

[Stuart Tonkin, executive]

We hadn't forecasted it would be out by now. It's really the work to be done this year, and we're still continuing on those final engineering designs. So it's really getting into the nuts and bolts of the final design and getting the engineering companies to give us hard numbers on all of that work. So yes, from what was produced last June was pre-visibility level. Now we're going right down to the feasibility level to make a final investment decision, and that's continuing at the moment. So there's been no retraction on timing or effort to get this done as prudently as it can be.

Obviously, we're watching what's happening out there in the market in regard to other projects and timing and execution risks. But at the moment, we don't see that as a reason to not do it. Financial results are still very compelling. It's derisked by the large stockpile that's sitting there. We've got great visibility of the mine plan going forward. So it's a really important enabler, but it's not currently in our 5-year plan. But we'll make a decision this year on what we'll do there.

[Operator]

Your next question comes from Neil Watkinson with Kalgoorlie Miner.

[Neil Watkinson]

I'm interested in just the more specifics on what's happening underground at Mt Charlotte out here in Kalgoorlie. There's some sort of -- you've got some sort of project going to ramp up production from underground. Can you just give me a few details about how far through that is when you expect it to reach its objective and what production figure do you have in mind for that?

[Stuart Tonkin, executive]

Yes. So essentially, the Mt Charlotte operation when we acquired it, it had a very short mine life. It was producing at about 1.2 million to 1.4 million tonnes per annum. So we've been moving it towards 2 million tonnes per annum, running at 24/7 and building out the volumes, reestablishing drill platforms at the bottom levels and really proving up the extension of mineralization in that system. It's a significant operation, and we see huge opportunity to be able to grow volumes from Mt Charlotte to 3.5 million tonnes per annum over the next couple of years.

So the plans at the moment continue exploration, drilling, conversion of that resource to reserve, the development activity to open up those stoping fronts and obviously start to increase volumes that basically get trucked to the super pit and then haul with the big trucks to the mill.

[Neil Watkinson]

When do think you'll get to 2 million tonnes per annum?

[Stuart Tonkin, executive]

Essentially, at those rates now at the $2 million and some fuel truck haulage. And for the next couple of years is really the ramp up in the volumes.

[Neil Watkinson]

Ramp up to 3.5?

[Stuart Tonkin, executive]

Correct.

[Neil Watkinson]

Yes. So in terms of how that contributes to the overall sort of super pit type operation, how does it fit in to the -- what's happening in the open pit? Obviously, you're expanding there as well. It's all sort of part of -- did I understand correctly that you're aiming for about -- what was it? -- about 650,000 ounces out of that whole sort of -- is that just a super pit? Or is that Mt Charlotte as well?

[Stuart Tonkin, executive]

Yes. So all of the -- the whole, what we call, KCGM operation by FY '26, that 650,000 to 700,000 ounces to -- that 480,000 to 500,000 ounces presently, growing it out to 650,000 to 700,000 ounces by FY '26. That usually comes from the super pit, Mt Charlotte Underground and the stockpiles. So that's the answer to that. And so we see a huge opportunity in growing Mt Charlotte. It presently doesn't have an underground on the super pit, and there's an opportunity there. And that's part of what we're considering when we evaluate the Fimiston mill expansion study for those new portals and drill drives that we put in a couple of years ago, what we're proving out there. We've got 5 million ounces of inferred resource under the super pit, and that's a potential future large underground.

[Operator]

[Operator Instructions] Your next question comes from Sean Smith with The West Australian.

[Sean Smith]

I'm just wondering really the safety record. You know better than me that mining safety in WA particularly has become a bit of a community and political issue. I'm just wondering if you could just flesh out why that safety record is still not where you want it to be. And just perhaps is it more around the training of peps? You can't get the pep, you've had to dig deeper for staff. Appreciate any sort of comment.

[Stuart Tonkin, executive]

Look, our lag indexes sort of sit around half or below half of the state averages. So we're pleased with that performance. But it did deteriorate in the quarter-on-quarter and we're still seeing high potentials and misses in that regard, which is reflective of dilution of skills, a high turnover, and ultimately, those vacancies across the last couple of years.

So it will take a number of years to restore that. So in the meantime, it's increasing supervision, having patients and prioritizing and slowing things down in the operations to make sure it's done well once -- well and safe. They are the things that all of the industry are focused on to ensure that we're not harming people.

[Operator]

There are no further questions at this time. I'll now hand back to Mr. Tonkin for any closing remarks.

[Stuart Tonkin, executive]

Okay. Thanks for joining us on the call today. As you've heard this morning, our growth projects are progressing well to deliver strong production in half 2 with unit cost reduction underway as we deliver growth across Pogo and Yandal in the near term and obviously KCGM over the subsequent years. Have a good day.

[Operator]

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