Northern Star Resources Ltd

ASX:NST

Earnings Call Transcript 2022-Q3

[Operator]

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

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

[Stuart Tonkin, executive]

Good morning, and thanks for joining us today.

With me today is Chief Operating Officer of Australia, Simon Jessop; and Chief Financial Officer, Ryan Gurner.

We have delivered another foundation quarter to progress our growth projects at Kalgoorlie, Yandal and Pogo. And through this capital investment, we'll grow cash flows and return to the shareholders in the near term. Our sector-leading safety performance remains a highlight, whilst we responsibly manage the impacts of COVID disruption across our operations. I thank our team -- our people and our team for their continued effort and attention to keeping our teams and communities safe.

In the March quarter, we sold 380,000 ounces at an all-in sustaining cost of AUD 1,656 an ounce. Our Australian operations are on track to deliver full year production and cost guidance. Whilst Pogo has elevated costs, whilst we increased mining physicals to meet the expanded 1.3 million tonne per annum mill capacity in FY '23.

Our full year group production guidance of 1.55 million to 1.65 million ounces remains unchanged. But due to the lower production and higher costs at Pogo, we now lift our FY '22 group cost guidance to AUD 1,600 to AUD 1,640 an ounce from $1,575.

What is pleasing to see at Pogo is continued reward for the investment made, with gold sold up 26% from the previous quarter. Our development averaged 1,450 meters for the month during the quarter, with a record month in March of 1,650 meters. And elevated development above 1,500 meters a month is integral to accessing new and multiple stoping zones. And to increase these development physicals, we have added 2 jumbos to the fleet of now 7 to provide added capacity. And once these operating restrictions ease, we will reduce costs through optimizing fleet to the sustaining levels.

Our progress at Pogo in the second half of this financial year chose an annualized production rate of 240,000 ounces per annum. And with continued increased underground physicals, we are well positioned to meet the 1.3 million tonne per annum mill capacity in FY '23. So although we currently have elevated unit costs at Pogo, it is heavily driven by the denominator of gold sold. And as we grow production to a steady rate and optimize fleet, we will expand margin at Pogo.

Simon now -- will now speak to the Australian operations that are performing well and which underpins significant organic growth in the near term. Thanks, Simon.

[Simon Jessop, executive]

Thank you, Stu.

The Kalgoorlie production center, including KCGM, Carosue Dam, Kanowna Belle and South Kalgoorlie. We sold 213,000 ounces of gold at an Australian all-in sustaining cost of $1,659 an ounce, down 14% on gold from the December quarter. This production produced a mine operating cash flow of $179 million, while we also spent $83 million on significant growth capital projects. Of this major growth capital, a total of $34 million was spent on open pit mine development and $7 million on long-term tails dam works at KCGM.

At KCGM, open pit material movement was 7% higher than the December quarter at 16.4 million tonnes, with mining of the Golden Pike South area a key focus when available. It was also pleasing to see good progress -- good mining progress and preparation works underway for when we commence mining through the historic 2018 [ failed ] zone. This key growth area remains on track to reestablishing FY '24 access back into Golden Pike North's low-cost ounces.

The open pit fleet replacement program is tracking extremely well. We have now successfully commissioned 24 of the new 793F open pit mining trucks or approximately 75% of the fleet has been changed out. The remainder of the truck fleet will be commissioned in the June quarter, which allows for an optimization phase to begin in FY '23.

Underground mining for the Kalgoorlie region was 12% less than the December quarter of 1.42 million tonnes for 105,000 ounces. Carosue Dam has the largest impact to the reduced underground mine physicals with less stoping fronts available. As this asset increased production, drilling resources were brought online to return volumes and optionality to the mine going forward.

Mt Charlotte underground ore tonnes were also slightly lower than the December quarter at 344,000 tonnes with bank constraints impacting the trucking capacity as we continue to grow and advance this exciting reserve base. A new raisebore hole bench shaft is well advanced to increase the pressure intake for the Mt Charlotte mine.

Kalgoorlie Operations, Kanowna Belle mine continue targeting the bulk mining areas as top-up to the high-grade ore sequence. This mine also produced a new monthly record since Northern Star acquired the asset in 2014, producing 150,000 ore tonnes and 930,000 tonne kilometers, setting a new benchmark for that operation.

Processing volumes in the Kalgoorlie region was 4.6 million tonnes or 12% less than the December quarter driven by mechanical availability at KCGM, crushing and conveyor issues at Carosue Dam and a block tails line at the South Kalgoorlie operations.

The principal driver of the production center's lower throughput quarter was at KCGM with impacts to the Fimiston milling circuit, both on run time and throughput rates due to downstream ball mill issues. The majority of these issues have been addressed in the recent Q4 shutdown, while some longer lead items will be replaced during FY '23.

At our Yandal production center, including Jundee, Thunderbox and Bronzewing, we sold 110,000 ounces of gold at an Australian all-in sustaining cost of $1,444 an ounce, up 7% on gold from the December quarter and down 5% on all-in sustaining cost. This production produced a mine operating cash flow of $116 million, while we spent $73 million on significant growth capital projects. The Thunderbox mill expansion itself spent $38 million of major growth capital during the quarter.

Our Jundee operation continued with another strong underground performance of 5.9 kilometers of development and a higher mined ore grade that was up 18% quarter-on-quarter. Ramone underground mine achieved 1,200 meters of development on a partial quarter of work, which is operated by Northern Star's mine -- Northern Star Mining Services in-house division and will bring with it production options forward into FY '23. Total jumbo development for Jundee was 7.1 kilometers for the quarter and will continue to be a key enabler both on drill platforms and increased areas to produce stope ore tonnes.

Thunderbox [ underground ] operation continued to increase the stope mining fronts with 407,000 tonnes mined in March quarter. This is 2 quarters in a row above 400,000 tonnes per quarter, giving an annualized 1.65 million tonne per annum run rate. Increased ore tonnes are expected from the underground mine as we continue to open up more of the ore body growing to greater than 2 million tonnes per annum. The open pit D Zone mine continues to expose further ore and lowers the strip ratio with 18,000 ounces mined in the quarter.

The Thunderbox mill expansion is progressing well with commissioning still expected in the first half of FY '23. The bulk of the civils and the coarse ore stockpile is complete. SAG mill shells are delivered and installed with activities to erect the associated steel work and electrical infrastructure well underway. This material growth project remains on track and budget as a key project of Northern Star's 5-year strategic plan.

I would now like to pass on to Ryan, our CFO, to join the -- 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 very robust financial position entering the last quarter of FY '22. Our balance sheet remains strong as set out in Table 4 on Page 8, with cash and bullion of $533 million at 31 March. And we remain in a net cash position of $433 million, up from $288 million last quarter.

Figure 7 on Page 9 sets out the company's cash movement for the quarter with key highlights being the company recording $541 million of operating cash flow, which included the FY '21 corporate tax refund of $163 million.

As mentioned in previous quarters, the company is currently anticipating new monthly tax installment obligations for the remainder of the calendar year.

After deducting sustaining and growth CapEx of $232 million and $25 million in exploration investment, quarterly free cash flow generation was a very healthy $284 million for the quarter.

On the back of this strong free cash flow result, $200 million of corporate bank debt was repaid, resulting in the company having only $100 million of drawn bank debt at 31 March. And during the quarter, the company paid its interim FY '22 dividend of $0.10 per share, totaling $111 million.

As an update on other financial matters. In respect of stamp duty payable on the merger, we currently expect this to be paid in half 1 of FY '23 and have provided an estimate of $225 million in the accounts. Depreciation and amortization are in line with expectations at the upper end of the guidance range at approximately $700 per ounce sold and for the quarter, noncash inventory charges for the group of $30 million. As mentioned previously, the majority of these noncash inventory charges relate to the milling of acquired stockpiles at KCGM, which were uplifted to fair value on acquisition.

In relation to costs, Northern Star, along with the industry, is experiencing -- currently experiencing cost escalation in some parts of our business. We continue to apply sharp focus and drive cost savings initiatives by leveraging our global supply chain and relationships with suppliers to source lowest cost items and receive best terms.

The company is not currently experiencing shortages or disruptions to its supply chain. Input cost increases experienced during the quarter have been notably in respect of diesel fuel. Selected processing reagents, notably cyanide, caustic, consumable parts, ground support and freight, which have all increased the cost of production during the quarter.

In respect to fuel, the increase in costs realized against our expectations during quarter 3 and reforecasted for quarter 4, so over the second half, are anticipated to add approximately $15 to $18 per ounce to the group's full year all-in sustaining cost. This is included in the updated group FY '22 cost guidance of $1,600 to $1,640 per ounce sold.

The company's FY '22 growth capital guidance remains unchanged at $682 million. As required by accounting standards, receipts from preproduction gold sales are accounted for as an offset to capital spent. Lower-than-budgeted preproduction sales at Thunderbox over the first half, which was due to an acceleration to commercial production at TBO underground and D Zone have resulted in lower preproduction receipts for the year. Exploration guidance also remains unchanged for FY '22.

And finally, in respect of hedging, Table 5 on Page 9 sets out the company's committed hedge position at 31 March. The overall hedge book now stands at 1.1 million ounces at an average price of $2,446 per ounce, which reflects approximately 20% of our forward 3-year production profile. The average hedge book has increased $41 per ounce quarter-on-quarter.

I'd like to now hand back to Harmony for the Q&A session. Thank you.

[Operator]

[Operator Instructions] Your first question comes from Peter O'Connor from Shaw and Partners.

[Peter O'Connor, analyst]

I just wanted to drill into the cost comments you just made a little bit more, if I could, and just understand, firstly, diesel. You've talked about the full year change to guidance on the back of the fuel cost. But can you give a little bit more color on what percentage change that is for the period half, first half -- or second half or the first half? And then likewise, with your other components of ground support and freight, how material are they in that cost increase that you just guided to?

[Stuart Tonkin, executive]

Thanks, Peter. It's Stuart here. So look, the cost increase or rerate is more related to Pogo and where Pogo really delivered in the first half. So we really like to see the run rate in the second half and the improvements that are made there. But as a group, the change to the group cost guidance isn't just driven by fuel. The fuel impact at the moment is nearly $40 an ounce. So over the year, I think it's about [ 18 ] for the group, but that's not the reason for the [ recut ] of the cost guidance. We absolutely had buffer within the Australian operations within the guidance to absorb that. It's really the change of Pogo and where we expected -- it's the overinvestment in Pogo at the moment to catch up on the physicals now that we have some easy restrictions on getting people and equipment in there. So yes, the fuel at the moment is -- we don't -- we see it relatively short-lived, but it's about $40 an ounce. Given gold prices up, but royalty as well is about an added $8 an ounce to current cost base.

[Peter O'Connor, analyst]

And just on the other components, ground support and freight, how significant are they in terms of Australian cost base, the changes?

[Ryan Gurner, executive]

Yes. Look, Peter, they're not. As I mentioned, I mentioned reagents there too around processing, so cyanide and caustic being examples. They're probably -- in terms of the impact on Q3 for all those elements, it's probably sort of $10 an ounce. So it's not significant. Diesel has been -- as Stu said, diesel has been the larger change and the stand-alone single element there. So the other components collectively are not huge, but they have added to the cost base.

[Peter O'Connor, analyst]

And Stu, just on COVID, we're getting mixed messages from the WA companies so far over the last week or 2 reporting about the impact. It sounds like yours are improving. Is that the way I read your comment?

[Stuart Tonkin, executive]

We're incurring exactly the same impact as everyone else with mainly Kalgoorlie affected with lots of absences. And just I guess we have contingency, we have good stockpiles. We're prioritizing immediate works and working through that. So yes, we're mitigating what those issues are, and our controls that are in place are very solid given our learnings from Pogo over the last couple of years. So we're not immune to those challenges. It just -- it's not a reason for the impact throughout the quarter. We've had some downtime on the mill at KCGM that Simon highlighted and we're in growth phase pretty much everywhere. So yes, we're still seeing that labor pressure, the cost pressure, some COVID impacts. But they're not reasons -- the fundamentals of our business are very, very strong, and we're still prioritizing and delivering to our growth plans.

[Peter O'Connor, analyst]

And Stu, just a comment on the heat in the WA labor market? Is it getting tighter and hotter?

[Stuart Tonkin, executive]

Interestingly we predicted it would get easier, but we think that borders relaxing flight of capital out of Western Australia has probably been compounding that issue. I've got the lowest percentage of vacancies we've ever had at the moment, but we still got plenty of vacancies. So if anyone wants to jump on the stack under Kalgoorlie, we've got plenty of work.

[Operator]

Your next question comes from Levi Spry from UBS.

[Levi Spry, analyst]

Just a question on the KCGM mill issues. Simon, maybe I think you mentioned something about the issues mostly addressed by the shut. What's left to do? Can you just sort of talk us through that and maybe leading to the mill expansion studies, I believe, due this quarter. What can we expect there?

[Stuart Tonkin, executive]

Yes. Thanks, Levi. Look, most of the issues at KCGM was in the Fimiston side of the circuit, which is the majority of the tonnes milled at KCGM. So we had some ball mill [indiscernible] issues on one of the ball mills so that restricted that part of the circuit in terms of tonnes and throughput on and off throughout the quarter.

Most of those issues in terms of contamination to the system, et cetera, we'll all address recently in the Q4 shut. And the only sort of outstanding item we've got is some downstream Trunnion bearing housings which will be changed early in FY '23. So pretty confident we've nailed that issue over the quarter.

In terms of KCGM and the mill expansion, look, it is progressing certainly on track. We've explored all the options from sort of 15 million tonnes through to 23 million tonnes. I suppose the high-level comments, we do see any expansion that we put in there is technically low risk. The geology is well understood. We have a large stockpile in reserves of over 120 million tonnes already mined sitting on the surface ready for processing. And we're currently completing all of the detailed front-end engineering designs just to really understand the various capital costs and the time for all of those options. So pretty excited around the KCGM mill expansion. We've got some more hurdles to get through, but the project remains on track for a market update sometime in this quarter.

[Levi Spry, analyst]

Are there any more? [indiscernible]. Seems like a pretty big...

[Simon Jessop, executive]

That's all of the quarter until June 30, thanks, Levi.

[Levi Spry, analyst]

All right. Sounds good. And Ryan, the decreased development [indiscernible], just so I understand that properly, was that all associated with Thunderbox? Is there really any element of that being less material moved to the pit, i.e. how much of it is actually doing less and costing more as opposed to just moving straight -- moving quicker to commercial production?

[Ryan Gurner, executive]

Yes. Look, there's a little bit at Kalgoorlie, Levi, it's good pickup. I didn't know it because it wasn't significant. But yes, so depending on where Simon's putting the traction, what they're doing, of course, makes a difference there. So there's probably less at KCGM, but the overwhelming majority has been because we accelerated production or commercial production, I guess, at the underground and D zone at TBO. But they're all ounces. It comes with cash flow. So it's just simply an accounting change, I guess.

[Levi Spry, analyst]

Yes, yes. So no element of inflation in that, though?

[Ryan Gurner, executive]

Say again?

[Levi Spry, analyst]

No element of inflation in the capital number?

[Ryan Gurner, executive]

No.

[Simon Jessop, executive]

At a gross level, that capital is maintained.

[Levi Spry, analyst]

Yes, yes. Okay. And just the last one on Pogo. So exit run rates for the, I guess, the 300,000-ounce FY '23 production. Can you talk to that a little bit, please, Stuart? Like you mentioned second half running at 240,000. What we can expect there over this quarter?

[Stuart Tonkin, executive]

Yes, sure. And look, I'll answer the question that wasn't asked just relating to the capital. So that is looking to maintain capital on the full year guidance, and that's due to us securing those long lead items, the fleet vacation and the engineering execution TBO expansion. And so we absolutely have those long lead items and that secured and pinned it and that's why there's no inflation on those capital numbers, very low risk. On why we're really spending that time on that front end engineering and the capital assumptions around the Fimiston mill upgrade study is because the different environment than what we secured a year ago when we committed to those capital projects. So we want to be very thorough in understanding what all the options are in that Fim study so I want to use all the time available to make sure our movements [indiscernible] on that is well understood because low technical risk, as Simon highlighted, but really comes down to fixed hard money costs and the execution phase of building that. So we're working hard to understand it.

So on the Pogo. Look, very, very pleased with where we landed in the quarter 3 and month-to-date in April at Pogo, absolutely with the second half being at 240,000 and quarter 4 being much stronger than quarter 3. So we're working hard to overinvest and get the development in place and the stopes online to be able to deliver the 1.3 million tonnes in FY '23, which ultimately delivers the 300,000 ounces. If you kind of look at the tables at the back of the report on Page 16, Pogo has a good start to see the physicals filled. So when you go back to the December quarter, we only mined 200,000 tonnes and milled 250,000 because we were bringing the low-grade development stockpiles into that mill. Then you see development -- sorry ore produced or mined from the underground has increased 21% to 258,000. And then we're working to get that up, obviously, to 325,000 tonnes in a quarter to fill up the mill.

So the milling, steady. You see the grade increase because it doesn't have the low grade in it. You see the ounces, obviously, in turn, increased 26% quarter-on-quarter. But ultimately, we need to lift the mining physicals another 25% from the mine and directly fill that mill, and that ultimately gives you that uplift on last quarter's ounces, gives you a 75,000 ounce run rate, which is that 300,000.

So we're very pleased with the signs and signals that we've got there. We're doing it at an elevated cost because we're putting sprint capacity into the mine with people and equipment to catch up when we've got the activity available.

The key thing, when I was there in February, we had sort of around about 40 to 50 development headings available for the jumbos. We're targeting over 100 development headings, which just opens up and enables more meters in that to be developed. So -- and we've been able to get the moving away by the expats and not back home from Australia since the start of the year.

So all of those signs and signals say that the exit run rate of Pogo is going to be strong. It also then affects the all-in sustaining costs driving that down. But then when you look at the all-in cost versus the all-in sustaining cost, we've still got a very healthy cash U.S. dollar margin at Pogo, and we're not there yet. So pretty pleased with what we're seeing.

[Operator]

Your next question comes from Daniel Morgan from Barrenjoey.

[Daniel Morgan, analyst]

Maybe just expanding slightly just on Pogo. Could you just update us on how many mining fronts you have now, where do you need to get to? And the new equipment that you're bringing in, can that be fully utilized without creating congestion in the mine?

[Stuart Tonkin, executive]

So it's against conventional thinking to add more gearing more physicals when you got the congestion, so you're right, but we've done it such that we've got that [ rig ] capacity. So again, we've said we're trying to target 100 working areas, 100 working headings, more than 10 per jumbo, and ideally targeting more meters than the 1,500 meters a month or reduce the jumbos, reduce the cost and keep -- maintain the 1,500.

So presently, I think we're sitting at about nearly 70 working fronts, between 70 and 80. And again, we need to just basically [ approve ] designs. We've got new resource and reserve statements coming out next week in those new defined reserves. You'll see again areas that can be now planned, designed, marked up, set up with power vent, et cetera. to feed those extra headings. So that's the technical -- the bottlenecks of that technical planning.

Also appreciate that this year, the reduced drilling because of COVID and getting those rigs manned up has impacted that growth part of it. So getting the drilling and information in front of us, the backbone of assays, all of those things is a bottleneck to technical to get those plans and those headings opened up and designed. But yes, we've got nearly 80 headings at the moment, and you've seen a March month of 1,650 meters. We've been getting to between 50 and 70 meters a day with the jumbo crews at the moment. So they're very strong signals. They can do the work when it's in front of them. So we've just got to get that consistency into the plan, then start to optimize and bring cost out.

[Daniel Morgan, analyst]

And then over 1,600 meters in the month of March, has that been maintained into April? It sounds like it had from earlier comments.

[Stuart Tonkin, executive]

Yes. So the key thing was the borders for us opened during February, and we couldn't get expats there to work. So there were some that have been living over the U.S. But as far as the freedom of movement of getting those jumbo operators and the new equipment delivered and commissioned those 2 extra jumbos was during the start for the quarter 3. So all of those people and equipment are there at the moment. And on given days, I think they've certainly knocked out some records, so 70-odd meters in a day is a record, consistently getting to 50, which is what you need for the 1,500. So it's really about removing the trough. So yes, we're very pleased with what we're seeing in April today, still much left to run, and we're setting up well for FY '23.

[Daniel Morgan, analyst]

And then switching over to Yandal. You're soon going to have expanded mill capacity at Thunderbox. Can you just outline your confidence in having ore sources to fill that mill? Where is it going to come from? What are those various projects and productivity is doing on the mining side to fill the milling capacity?

[Stuart Tonkin, executive]

Yes. Thanks, Daniel. Certainly, a key driver of the filling the mill there is the continual ramp-up of the underground mine at Thunderbox, which is obviously work in the processing plant. The other key driver there is also D Zone, of which really we've been mining that now for a good probably 18 months or greater. So we've broken the back of the stripping there and really are on the top of generating a lot of ore from D Zone. So we've got those 2 as the major ore sources. And the other areas are [indiscernible] across the road. We're just sort of commencing that particular project. And [ Raleigh ] in FY '23, we will start the pre-strip in [ Raleigh ] so just working through the budget process for that.

But yes, looking good in terms of D Zone underground feed. We do have a lot of stockpiles there as surge capacity at Thunderbox, but it's the 2 major ore sources and then [ Raleigh ], setting up for [ Raleigh ], which is the longer lead project.

[Operator]

Your next question comes from Kate McCutcheon from Citi.

[Kate McCutcheon, analyst]

At KCGM, you said the balance of the new 793 were due this quarter. Are there any products or cost metrics you can talk to that you're expecting on the back of a new fleet that's in that outlook?

[Stuart Tonkin, executive]

Look, we certainly see a faster speed for these trucks. The challenge at the moment is we've got a mixed fleet between C Zone trucks or C class trucks and F class trucks. So the speed is probably 10% to 15% faster. But what we really see as a huge advantage is having the new fleet means we lead less fitters per hour in a really tight labor market. So rather than leading fitter-intensive trucks for the current fleet that we're replacing, we're moving to much like Northern Star Mining Services have new equipment, leads less fitter hours, lower cost and higher efficiencies.

So really, FY '23 is where we've got one consistent fleet in the open pit as well as our shovel fleet had a birthday. So we will see better efficiencies really coming through in FY '23. But early days in terms of -- the truck data shows some very good improvement, especially on the longer hauls.

[Kate McCutcheon, analyst]

Yes, yes. And then just moving to Pogo, recoveries have pulled back from what you were doing in '21. Is there a throughput trade-off you're managing here? Or what are the levers that you're trying to balance? And how should we think about the recovery going forward?

[Stuart Tonkin, executive]

Yes. It's a good point because we see the same, and we're expecting -- well, ultimately, we expect a better recovery. There's a lot of gold going at the back. So it's really around the stability through the float plants. So once we maintain that consistent stability, we're able to control that float tail much better.

So at the moment, it's on our radar. It's not the first thing we're working on. It's still the plant. The throughput itself doesn't trade off recovery. It's purely around the stability through that plant.

So at the moment, when there's bursts in [ room of ] hand to mouth mine to mill at the moment, those peaks and troughs create havoc through the circuits from meeting and catching up from a recoveries perspective. So very aware of it. We see another opportunity to optimize it. There's a few percent in there that we believe we can get back. So yes, please don't take those as the averages going forward. The ultimate thing is 1.3 million tonnes at 8 grams at 85%, and we see opportunities on each of those to get some extra benefits out of it.

[Kate McCutcheon, analyst]

Yes. Okay. I understand. And then just lastly, when are we due for an updated group resource/reserve statement? Did you say next week? Or direct me to that.

[Stuart Tonkin, executive]

Yes. So we've changed it to our March end, so we will be publishing our updated resource/reserves next week.

[Operator]

[Operator Instructions] Your next question comes from Trent Allen from CLSA.

[Trent Allen, analyst]

I'm interested in Carosue Dam. Now it's a profitable mine at the moment. So was it all-in sustaining AUD 80 and AUD 85 for the quarter. But in the scheme of an expanded Kalgoorlie, it's relatively small, sort of 200,000 ounces and the grades are sort of [ 1.2 ]. You probably have stockpiles for those grades at KCGM. Do you consider trucking some other stockpile ore up the road, 100,000 to Carosue? That's my first question. And also, is it still a core asset? Or is the time coming when you move it on to a smaller operator who wants to give it some more attention?

[Stuart Tonkin, executive]

Yes. Thanks, Trent. So look, I mean it's part of our plan to grow to 2 million ounces, and it's about 15% of our production at the moment. So if you look back there from year-to-date, all-in sustaining costs last quarter was an anomaly and based on some of those disruptions that were there, so it will return to the average, in 1,600, so as an all-in sustaining cost perspective.

You're right in saying synergies for Kalgoorlie not necessarily as far as all the ore. We've got 4 million upgraded plant, which is now can achieve about 4 million tonnes per annum. We were sending the Kundana ore, free-milling ore overflow out there, will give you some synergies out of that. But obviously, we sold Kundana.

In our view, it's currently filling with its own sources. There's a new underground being developed next quarter at porphyry. So it's got multiple sources in the pipeline and really good exploration success we're seeing up and down the belt and you'll see again in resource/reserve outlook next week. So in that regard, it's still a meaningful significant contribution to the team, to the group production. It's generating good cash flow, which is obviously funding the growth at KCGM, Yandal and Pogo. So yes, by all means, it's contributing, and it's a significant asset at the moment.

[Operator]

Your next question comes from Daniel Morgan from Barrenjoey.

[Daniel Morgan, analyst]

Just a follow-up question. I think if I heard you correctly, you said Pogo, the longer-term numbers, which was milling grade recovery, did I hear correctly, 85% recovery in -- it just seems a little bit lower than some of the historic recoveries you've been experiencing.

[Stuart Tonkin, executive]

Look, we've been conservative in saying 85%. I expect more on that because there's actually a lot of gold at the back. So on a float circuit and because of the float tail that you receive, we're restricted on cyanide contacted material needs to be filled with paste and backfilled underground. And obviously, all of the float tail goes to the dry stack gets filled abreast and trucked up and put in the dry stack tailings in the valley. So it's different to a scenario that you would intensively [indiscernible] leach or ultrafine grind and take a finer cut of that, like we do at Fimiston. So you can't necessarily get to the 90s but we can certainly get to high 80s with some improvements in the plant.

But at the moment, the focus is on building -- the biggest gain and win at the moment is increasing our underground mining physicals by 25%, get those physicals stable through the plant and then work on optimizing through the plant.

[Daniel Morgan, analyst]

But for the recovery, you've outlined, that's just plant optimization, saying that's not a call on the grade going forward.

[Stuart Tonkin, executive]

Look, you end up at a higher head grade, you can get -- at a fixed tail, you can get higher percentages. But historically, when it -- it had a head grade of 13 grams for the previous 13 years that Northern Star owned it, so recovery sitting up around 88%, 89% were more driven by head grade with a fixed tail. So at an 8-gram head grade with a similar fixed tail, there are some percentages that you struggle to extract.

[Operator]

Your next question comes from Mitch Ryan from Jefferies.

[Mitch Ryan, analyst]

Just wanted a quick comment with regards to Thunderbox's mill expansion. You've guided that that's on track for 1 half '23. Just wondering if you could give any more color around that and if in that you're experiencing any impacts from the labor and supply chain tightness.

[Stuart Tonkin, executive]

Look, we're very, very happy, Mitch, with how it's progressing. [GRES] built -- this is their fourth project with Northern Star. And we're working with those guys very, very closely, but they continue to put the appropriate labor onto that project and managing it at the moment on track and on budget. So look, as far as last quarter, we were still waiting for some of the mill pieces and motors, et cetera, to come into Australia. We've now got all of the major components here in Australia. So now it's pushing through to finishing off the build. Certainly, the civils, 5,000 cubes of concrete we've poured, that's all complete and part of the project, which has been a real pinch point for commissioning new projects. All of those civil works and concrete is all complete. So pretty happy with where that's all sitting. It's now execution through to wet commissioning state.

[Operator]

Your final question comes from Matt Greene from Credit Suisse.

[Matthew Greene, analyst]

A couple for me. Just firstly, on Pogo. The comments on the accelerating productivity and the future cost profile there and the temporary elevated cost structure, just to confirm this, Stu, is this purely adding jumbos and just getting to the 100 working headings? Or are there any other costs coming from businesses that we should be aware of?

[Stuart Tonkin, executive]

Look, that's the lion's share of the elevated costs at the moment. I've got 10 jumbos there and only need 5, and we're doing that to not only train up more U.S. operators to have the ground support and those things that are there but also saturate it. Whilst we can move labor in, try to have that sprint capacity to catch up because we get disrupted and have been disrupted throughout the last year. So rather than just having a ceiling cap on people and equipment, we've got more than that. So if we do for a week have a burst. And when we achieve that you see 1,650 meters delivered in March.

So look, that's the thing there. There's other things at the moment in regard to trying to get more rooms and can and elevate cost just in controls around splitting down crew sizes to mitigate knock-on effect of COVID. So there's absolutely USD 1 million plus a month in all of those actions which, in time, we see stabilizing that pullout. So we really see a focus on growing physical first, then optimizing once we've demonstrated we can achieve those physicals.

[Matthew Greene, analyst]

That's handy. And then sorry, just on the KCGM mill expansion, I appreciate you're finalizing your numbers now. But do you have a sense of just the timing on some of the lead items there? And how long that could take on, I guess, a relative sense versus more normalized timeline?

[Stuart Tonkin, executive]

The overall project could be 2- to 3-year build. So as far as managing it from a cash flow perspective and from service from current operations, that's fine. It's trying to make sure it doesn't disrupt the [ stay-in ] business activity that's already happening there. It's trying to understand where you house, accommodate, build the construction teams and understand what those long lead items are.

So there's no major difference than what we're seeing when all the large mills or motors or different gear that goes into it. There's nothing there that's artificially changing the time line. It's just -- it's a significant project to add 10 million tonnes per annum to an existing [ 30 million ] tonne per annum plant. So we're just going through and really making sure that the assumptions that are based in that and the business case around that and the returns for investors are sound before we kind of move much further forward.

So that's the work that's underway. We'll share that with the market once we've got that there. Simon said it's technically simple, and it's a very compelling opportunity that's organic but pretty -- not many companies would have 120 million tonne stockpile of derisk mined or 3 million ounces sitting on stockpile adjacent to an existing operation township. So we're really looking at this seriously as to what we could do in liberating that value.

[Operator]

That does conclude our time for questions. I'll now hand back to Mr. Tonkin for closing remarks.

[Stuart Tonkin, executive]

Okay. Thanks very much, and thanks for joining us on the call today. As you've heard, we're generating very strong cash flows, which is servicing our balance sheet strength, our organic growth projects, our continued exploration activity and our increased dividends.

I look forward to reporting our resource and reserves next week and continue to update on our key milestones to deliver our growth to 2 million ounces per annum and lower our cost to drive -- continue to drive strong financial returns for shareholders. Thank you, and have a good day.

[Operator]

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