Northern Star Resources Ltd

ASX:NST

Earnings Call Transcript 2022-Q4

[Stuart Tonkin, CEO]

Good morning, and thanks for joining us today. With me is the Chief Operating Officer for Australia, Simon Jessop; and Chief Financial Officer, Ryan Gurner.

I'm delighted to report our June quarterly production of 402,000 ounces and all-in sustaining costs of AUD 1,650 an ounce, delivered safely and with significant progress towards our 5-year profitable growth plan to 2 million ounces. Our safety performance is sector led with total reportable injury frequency of 2, 1/3 of the industry index and the majority of our sites completed the year lost time injury free. The June quarter cemented the achievement of full year guidance of 1.561 million ounces at an all-in sustaining cost of AUD 1,633 an ounce, demonstrating Northern Star's operational resilience to the current challenges the sector faces. We closed the financial year with a very strong balance sheet with net cash of $528 million, supported by full year cash earnings of over $1 billion. Today, we also published our FY '23 guidance with forecast gold sales of 1.56 million to 1.68 million ounces and all-in sustaining costs of AUD 1,630 to AUD 1,690 an ounce.

Our growth capital budget for FY '23 is $650 million, similar to FY '22, and our exploration budget is $125 million across our highly prospective multimillion-ounce deposits at Kalgoorlie, Yandal and Pogo. Simon will talk shortly in the Australian highlights, but first to Pogo, the team there delivered a step change in physical quarter-on-quarter with ore tonnes mined and mills up 24% and gold produced up 20%, with the half 2 annualized run rate at 250,000 ounces per annum.

With the additional equipment, work areas and the lessened personnel impact, Pogo averaged development meters of 1,800 meters mark in the quarter, which is 20% above the sustaining development level that we've been under meters, excellent results. These improved productivities are key to our cost reduction efforts and actions as well as increasing the lower-cost stope production portion of the mill take. The June quarter milling throughput achieved 1.3 million tonnes per annum production level that demonstrates the capacity to deliver 300,000 ounces per annum.

I'd like to thank the North American team for the sustained effort throughout FY '22 to achieve these strategic milestones, which endorses the quality of the global operation and provides a stable platform to build on. Simon will now speak to the Australian operations that are performing well and which underpin significant organic growth in the near term. Thanks, Simon.

[Simon Jessop, COO]

Thank you, Stu. For 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 costs of AUD 1,791 an ounce with the same gold quantum as the March quarter. This production produced a mine operating cash flow of $146 million, while we also spent $70 million on significant growth capital projects. Of this major growth capital, $34 million was spent on KCGM open pit mine development along with $4.5 million on long-term [Indiscernible] works. At KCGM, open pit material movement was 4% lower than the March quarter at 15.8 million tonnes with mining at the Golden Pike South area a key focus. Open pit movement for the full year was 66 million tonnes, up 10% on FY '21, despite deeper and longer halts. FY '23 will see further progress towards our strategic goal of 80 million to 100 million tonnes annualized movements. Progress in the [Indiscernible] has also positively continued for when we commenced mining through the historic 2018 failed zone.

And energy absorption balance created at the base of the Golden Pike area to allow for more continuous mining at the [Indiscernible] and proactive risk reduction to Golden Pike South. This key growth area remains on track to reestablishing FY 2024 access back into Golden Pike North low-cost ounces. The open pit fleet replacement program is now complete. We have now successfully commissioned 39 of the new 793F open pit mining trucks and upgraded 6 older F-series trucks to the latest specifications for a total fleet of 45 state-of-the-art trucks. These are already showing a 15% to 20% improvement of speed on rent with a 5% diesel saving compared to the older fleet.

FY '23 will now focus on optimizing the fleet for the lowest unit cost going forward with consistency. Underground mining in the Kalgoorlie region was 10% higher than the March quarter of 1.56 million tonnes for 108,000 ounces. KCGM's and sale operation in Carosue Dam improved vehicles with development meters and stoping ore tonnes. Kalgoorlie operations, Kanowna Belle and South Kal were consistent on volume, albeit at lower grade due to access to high-grade ore at South Kalgoorlie which was sequence constraint.

Processing volumes in the Kalgoorlie region was 4.9 million tonnes or 6% higher than the March quarter, which was very pleasing given the significant focus of KCGM plant reliability. A decision was made in July to transition the South Kalgoorlie mill into care and maintenance first due to flexibility within the Northern Star portfolio to improve the cash flows. The processing capacity for the Kalgoorlie region will reduce from 20 million tonnes per annum to 19 million tonnes per annum after the South Kalgoorlie mill is put into care and maintenance. With an approximate 30,000 ounces per annum reduction offset by a $20 million cash improvement. KCGM processed a record 13.4 million tonnes throughout the full financial year, highlighting the regional optionality within Northern Star and the Kalgoorlie district.

Moving to our Yandal Production Center, including Jundee, Thunderbox and Bronzewing, we sold 122,000 ounces of gold at an Australian all-in sustaining costs of AUD 1,403 an ounce, up 10% on gold from the March quarter and down 3% on all-in sustaining costs. This production reduced a mine operating cash flow of $121 million, while we spent $94 million on significant growth capital projects. The Thunderbox mill expansion itself spent $46 million on major growth capital during the quarter.

Our Jundee operations continued with another very strong performance of 5.9 kilometers of development and a higher mine ore grade that averaged over 5 grams per tonne, up 16% quarter-over-quarter. Ramone underground mine operated by Northern Star's Mining Services in-house division achieved a record 1,370 meters of development and is preparing to stoping to commence in FY '23. Total Jundee development was consistent at 7.2 kilometers for the quarter and will continue to be a key enabler, both on drill platforms and increased areas to produce [Indiscernible]. Jundee also produced a new Northern Star gold sold record of 311,000 ounces for the full financial year '22 and is a real credit to the on-site team to easily surpass the old record.

Thunderbox underground operation continues to increase the stope mining fronts with 440,000 tonnes of ore mine, up 8% on the March quarter. For the first time in Thunderbox's history, the underground mine delivered more ounces to the [Indiscernible] than the open pits over a full financial year. The open pit diesel and mine continues to reduce its strip ratio and expose further ore with 30,000 ounces mined in the quarter, up 66% from the March quarter.

I'm pleased to say that Thunderbox mill expansion is progressing extremely well, despite COVID and buoyant industry conditions to remain on track and on budget with commissioning expected to commence in quarter 1 and a ramp-up over FY '23. The crushing circuit has started to be commissioned in July, while the milling circuit will commence ramping up later in the quarter. This project remains a key strategic growth item as part of Northern Star's 5-year strategic plan and development of the Yandal region as a low-cost milling hub.

In summary, I would like to sincerely thank the Australian Northern Star operations team, including our important contracting partners, for the full financial year -- first full financial year under Northern Star's balance sheet. Many records were achieved during the year, including meeting guidance under a set of very challenging external conditions, which the team have managed extremely successfully throughout FY '22.

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

[Ryan Gurner, CFO]

Thanks, Simon, and good morning, all. As demonstrated in today's quarterly results, Northern Star remains in a very robust financial position as we enter FY '23. Balance sheet remains strong with a net cash position of $528 million, up from $433 million last quarter. This is set out in Table 4 on Page 10 with cash and bullion of $628 million and $100 million of corporate bank debt drawn at 30 June. The company generated record full year cash earnings of between $1.02 billion to $1.04 billion, and pleasingly, we saw a strong uplift in the second half.

As mentioned, we achieved our group production and our group cost guidance for the full year, and we also came in below our planned expenditure in relation to both growth capital and exploration. Figure 7 on Page 10 sets out the company's cash movements for the quarter with the key highlights being the company recording $419 million of operational cash flow, up 11% on prior quarter. After deducting sustaining and growth CapEx of $263 million and $42 million in exploration investment, quarterly free cash flow generation was $114 million. And the company received $14.5 million proceeds in relation to the sale of its Paulsens and Western Tanami assets. Further proceeds of up to $30 million comprised of deferred and contingent payments are expected in the future as milestones are reached at these projects.

On other financial matters. In respect to stamp-duty payable on the merger, we've recently, in July, paid an interim assessment of $155 million. Depreciation and amortization for the quarter was slightly higher with main guys going into commercial production and additional ounces from D Zone and Julius. For the quarter, noncash inventory charges for the group was a credit balance, which totaled $8 million. This was in part due to all stocks in golden circuit being built across all operations, in particular at Thunderbox in preparation for mill commissioning, and of course, KCGM continues to process stockpiles as planned. And we estimate an additional $25 million to $30 million will be carried over and paid in the first half of FY '23 in respect of the TBO mill expansion. In respect of costs, the company along with the industry is currently experiencing cost escalation in some parts of the business. We continue to apply sharp focus and drive cost saving initiatives by leveraging our global supply chain and relationships with suppliers to source lowest cost items and receive best terms.

Pleasingly, the company is not experiencing shortages or disruptions to the supply chain, input cost of diesel fuel, selected processing agents, consumable parts, ground support explosives remain elevated with focus on optimizing usage as much as possible without impacting production. Importantly, labor, which represents approximately 40% to 45% of our cost base is predominantly variable and centered around safety and productivity-based performance measures. Cost of gas and electricity, which make up 5% of our cost base, whilst modestly higher, our forecast remains stable over the course of the year on a per unit basis. Our diesel prices have increased 114% since July, which have added about $70 to our cost base this year. Importantly, and as Simon noted, the new truck fleet investment at Carosue Dam, which is now complete, will help to offset increases in fuel prices that may be experienced during the year through 5% higher fuel efficiency and 15% to 20% greater ramp speed, improving overall productivity.

In relation to growth capital, we today guided FY '23 to $650 million, which is down from $674 million in FY '22. This, however, is an increase to the previous outlook provided for FY '23, which largely relates to additional waste movement and high unit rates, primarily due to higher fuel price assumptions at Carosue Dam. The carryover amount of $25 million to $30 million we expect to be paid in the first half of FY '23 with respect to the Thunderbox mill expansion. We brought forward the development of Orelia by 6 months to commence in Q1 this year and additional investment in tailings facilities at Fimiston and Thunderbox to support those growing production centers. Notwithstanding this investment, the business still sits well against its Tier 1 group on a capital intensity basis.

And finally, in respect of hedging Table 5, Page 10 sets out the company's committed to hedge position at June. The overall hedge book stands at 1.1 million ounces at an average price of 2,551, which reflects approximately 20% of our forward 3-year production profile and the average hedge book prices increased $105 per ounce quarter-on-quarter.

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

[Operator]

[Operator Instructions] Your first question comes from Daniel Morgan with Barrenjoey.

[Daniel Morgan, Barrenjoey]

My first question is you shut the Jubilee mill. Can you just expand a little bit on this decision that would seem that it's unprofitable in the current environment. And so while your production ounces this year and your guidance is weaker than I think market expectations, some of this is shutting in loss-making production. Have I got that right?

[Stuart Tonkin, CEO]

Less profitable. So still profitable, less profitable. So 30,000 ounces dropped back because we lose 1 million tonnes per annum capacity of that 30,000 ounces which really the offset of the [Indiscernible] material going through that Kalgoorlie network. We just see it as a better -- $20 million better cash position by making that change. So we don't get around to stake. It is around returns, it is around cash flow and margin, and we're doing all the things we can do to offset the impressions that exists that Ryan outlined in regards to the cost escalation. So that mill, we've got 3 mills really feeding Kalgoorlie, 4 to Carosue. We're trucking [Indiscernible] historically. So Fimiston, Pogo, Jubilee with Jubilee on care and maintenance and trucking that actually [Indiscernible] to Kanowna, and we're getting $20 million extra in cash flow versus the 2 plans, and the team has been advised they're going to carefully and gratefully put that in care mine and keep the mine operating synergies across global.

[Daniel Morgan, Barrenjoey]

So there's no difference to mining rate, it's just a milling strategy change.

[Stuart Tonkin, CEO]

Correct. We're also leaning up the operating team across the [Indiscernible] underground to operate with Kanowna Belle with one operation. So it's a satellite mine today. So we're doing all the things we can do across the whole business. That's just one example to make sure that we're getting a few more effective, more productive operations. So you've seen, year-on-year, our cost go fairly flat. We obviously took a step up in all-in sustaining costs in quarter 4 or reguided that quarter -- quarter 3. I think there are levers within our business that allow us to control and maintain that cost.

[Daniel Morgan, Barrenjoey]

Yes, sure. And the growth CapEx guidance, it is higher than, I think, market expectations. Can we break that down a little bit in terms of like there's some carryover it sounds like from Thunderbox. There is -- like are you going to be doing more material movements at Super Pit? We talked about these trucks. You've got 39 new trucks. You've got 6 refurbished, if I've got that right. So you -- would you be doing more material movements in this new plan and the old plan and therefore, that some of the CapEx inflation? And then lastly, some of it's going to be just industry cost inflation. Can you just help me unpick why the CapEx is higher?

[Stuart Tonkin, CEO]

Yes. So one of the biggest drivers that increased material movements to take it from the sort of 60 million, 65 million tonnes up towards 80 million to 100 million tonnes. Yes, the 39 new trucks are there. We're keeping 6 and running 45, and we'll aim to build up and increase those volumes. So it is being brought forward, but we have the equipment and the people to be able to do that. So there is a large year-on-year from the 425 to the 650, there's a material increase in KCGM, but might actually get something for it.

So there was some escalation in fuel costs in that regard, but ultimately getting additional material movement. The other key things we've had a much greater visibility of the plan once we've been 1 year into the combined business and are operating in the outlook is there. We are looking for the multiple year lift on our tailing to down happening this year. So I expect to amortize that in the life of the mine is more efficient, productive to do those single, larger lifts rather than doing multiple price lifts. There's a combination of a few of those across business, the acceleration of the Orelia pit commencement, which is the other material increase. And in last year, we obviously commenced the Ramone underground, which wasn't in those capital numbers. So the offset and the continuation of the capital associated with the Ramone going to the underground development into commercial production this year.

So there's a number of drivers that are in it. It's not just cost escalation, it is increased activity. I won't say, it's discretionary. It's part of our plan to deliver into the 2 million, and it gives us contingency optionality in the growth plans that are there. So we appreciate it's a different number but relative to the scale and sizable business. It's absolutely effect funded and manageable and deliver state great returns in future years.

[Daniel Morgan, Barrenjoey]

And the -- just switching to Pogo for a moment. So development meters of 1,800 obviously substantially higher than that 1,500 target, which you had difficulty meeting, but now this is much higher. Your guidance looks like -- your production looks like this has turned to corner. Your guidance is also saying so. Can I just dig into like have you finally got on top of the development and this is sustainable. Can you just talk through that? And then the decision point to throttle back development at some stage as well, which you highlighted in your notes?

[Stuart Tonkin, CEO]

Yes. The first best time in 4 years, I'm going to enjoy talking about Pogo. Excellent results from the quarter. The 1,800 meters is delivered. We said, we added in January when we can get things [Indiscernible], added 2 extra jumbos and obviously teams associated with that to try to catch up, accelerate the development we had in the previous year. Our balance at the moment is trying to get ahead and then also trying to bring the overall cost structure down. So we will go from 7 jumbos to 6 to 5 throughout the year and drove trucks and loaders out to get the cost base down.

So the great thing in Pogo is we've demonstrated the capacity to run the mill at 1.3 million tonnes, but the grade up a bit is the contribution of developmental. But as we get more stoping contribution that will come back to reserve grade by the [Indiscernible], and obviously, those meters are opening up new work in front to give us contingency in the mine plan. No different than what we've done across any of our other operations in [Indiscernible] and Jundee.

So it's really pleasing to see those results, 71,000 ounces produced at Pogo, 67,000 ounces sold and the second half run rate of 250,000 ounces. We're not yet spending a 300,000 ounce number on FY '23, which I'm guiding 260,000 to 290,000. There's still a lot of opportunities to deliver at our line that will get really underpin that consistent production, but more importantly, start expanding the margin by bringing the cost down and the productivity up. So it's still work in progress, but super pleased we haven't finished the year [Indiscernible].

[Operator]

Your next question comes from Levi Spry with UBS.

[Levi Spry, UBS]

Two questions. Maybe can I just push you a little bit more on the production guidance for Kalgoorlie hub for FY '23. On top of the [Indiscernible] Ounces from Jubilee and [Indiscernible]. Can you just talk us through what else might be a little bit lower than what we've been expecting. I guess, the 900 is done and the fact that it's growing to 1.1.

[Stuart Tonkin, CEO]

Yes. I'll let Simon go through that one.

[Simon Jessop, COO]

Yes. Thanks, Levi. I suppose if you look at across the different assets, Carosue Dam [Indiscernible] fairly flat. We're developing towards the next lot of ounces in Golden Pike North, which is on track for FY '24. We have a slight uptick in Mount Charlotte, but really KCGM is fairly consistent compared to FY '22. Carosue Dam is similar, really flat consistent compared to the last year. And really the delta is the milling reduction at South Kalgoorlie and it's about dropping out the highest cost -- some of the highest cost per ounces as well, which is driven by the mining and obviously, the process plant.

So we leave a little bit more marginal ounces on the stockpile of KCGM. It's the fundamental delta of that sort of 30,000 ounces. So we're very pretty close to this year. And if you think at the start of FY '22, we had some processing of the remainder of the Kundana ore until that asset is sold. So it's pretty consistent, fairly close to this year. The main driver is the 1 million tonnes less processing capacity over the year, and it's about dropping out some of the highest cost ounces, getting a better cash margin result and using those people and resources back into the higher-margin mines at KCGM and Kanowna Belle and driving the growth there.

[Levi Spry, UBS]

And just a quick one for Ryan. Can you just run me through -- I think you mentioned the [Indiscernible] in July. Can you just run me through what are the cash tax [Indiscernible] tax will come down and that we need to be aware of FY '23.

[Ryan Gurner, CFO]

Yes, sure. So you're right. So [Indiscernible] the sort of interest paid. So as I said, that $165 million in this new financial year that has just started. Looking forward, as you know, we sold Kundana around Millennium assets last year. So those will have a capital gains, low tax base, high proceeds. And then we also divested some more important from Western Tanami. So they will feature when we do a return this year. Obviously, there's a large tax yield because of the merger generally on the operation. So we're obviously still -- we will be finalizing our tax return for the end of this calendar year for FY '22. So it's sort of hard to say, Levi, before we do it because there's lots of moving pieces to it.

My expectation is, there could be a small balance component to make, but that likely won't be now potentially until the end of this calendar year or even into the start of the new calendar year. So it could be sort of $50 million, could be 0. It could be $30 million. So again, we've got to do all the work to do that. It's a complicated tax landscape for the business at the moment.

[Operator]

Your next question comes from Kate McCutcheon with Citi.

[Kate McCutcheon, Citi]

Good question so far. Just on Pogo, great physicals for June quarter. You kind of talked about we still got to get to 300,000 ounces. Interested on your take on the pieces of the puzzle still to fall into place here to consistently deliver those typical that we saw in June quarter?

[Stuart Tonkin, CEO]

Yes. So it's mainly the switch or the increased contribution of primary state funds development ratio. So as we're developing up the mine, a lot of the oil feed is coming from that development or is at a lower grade. Once we get that stoping tonnes up to sort of 70-plus percent that have been sitting at 55, 60-odd percent.

So that will be the mid-plus gram head grade through the mill. The mill's demonstrated the 1.3 in ability to go a little bit higher over the year, but we're incorporating some shutdown work to require some change outs on some equipment in this quarter. So yes, the guidance this year [Indiscernible] is with all the knowledge of the things that we're doing to optimize the plan and get stability in it.

Really pleased to see the recoveries up 89%. We still got some improvement to really get back to 90%. Then it comes back to just consistency. So we can't really catch up. It's not sprint capacity at Pogo. So if there's an issue or a shutdown in the mill, it rolls through to the pipes underground, it rolls through to the mining activity and same process for if the mining slows down, the mill [Indiscernible] and stops.

So the organs that we're developing under the stockpiles will be in this quarter. There is some continuity there. And then it just comes to we have saturated it with equipment and people to solve and resolve those bottlenecks. It's now about peeling away that comfort layer because we can demonstrate physical and obviously, get the total cost down and therefore, get the unit cost down. So we're still sitting up around that 30 million a month. We want to push that back on to 25 million a month on a 25,000 ounce month to get the all-in sustaining costs back into that [USD 1,000] in the first instance.

[Kate McCutcheon, Citi]

Yes. Okay. Sorry, so it's still the target of USD 25 million a month.

[Stuart Tonkin, CEO]

It is. In this environment with the energy prices, labor pressures, all the cost inputs across steel and oil, it's a real challenge to pull $5 million a month out of an operation without risk being introduced around delivery. So it's doing it in a structured way that as we get the productivity up, we can take it away. The simplest thing today is drop-downs go back 1,500 meters, we don't feel yet that gives us the best overall long-term plan of continuity. So we're managing through that. We dropped from 7 down 6. I believe within the first 6 months, we drop a jumbo type [Indiscernible] and will bring overall that headcount compression down to bring the optimization into the plan.

[Kate McCutcheon, Citi]

Yes, understood. And so just on that cost inflation, Ryan kind of called out $70 an ounce increase to diesel. Is there anything else you could call out to give us a sense of the magnitude of what you're seeing as labor or consumables?

[Stuart Tonkin, CEO]

Anywhere between 5% and 20% that's being asked from service providers or material suppliers. It makes sense. So the fundamental inputs into the business being oil, steel, labor, which we all know globally are scarce and therefore, price -- supply/demand price drives up. But if you kind of go right back to the fundamentals of oil, we're going into our fuel, our oils, our plastics, our times, steel going into our ground support our equipment the labor generally in service providers and/or our own staff and the turnover and the attraction retention schemes. All those things are embedded.

The $70 to $80 an ounce increase in fuel line, that's an increase, not the total cost, is such a material uplift. So year-on-year, it would be [Indiscernible] just because of that fuel escalation. Now the question is, how long it'll stay out there. We're not projecting -- we're projecting this year's cost on today's terms. We're not escalating, we're deescalating it, but no one knows. So the risk remains to everybody in the sector, how to manage that. And Simon himself and the team, Steve McClare, have gone through one of the levers within the business as the assumptions change. What are the things that we can do and the Jubilee plant is a great example of an immediate action implemented that just gets us $20 million more cash over the year because you could keep running it, fill it up, but there's a better alternative when we're disciplined to make those changes.

[Kate McCutcheon, Citi]

Yes. And to be clear, that's why you've withdrawn FY '24 cost guidance because you're not sure how long this is going to continue.

[Stuart Tonkin, CEO]

Yes, we've got visibility, and I can give you a massive range, which would be kind of meaningless because it's almost a binary where the projects stay in, stay out, get displaced. That's what we're assessing at the moment. So it shows a taper off around the 300. Obviously, there's a step up this year. Some of that is CapEx brought forward, but the other part of [Indiscernible] that's not included in this CapEx is the Fimiston mill expansion. We still need to get a feasibility level assessed on a returns basis, on a risk basis timing, all those things.

So again, it's another material thing that's in and out. I'd also highlight that the extra capital spend to move the waste this year in Super Pit liberates another 400,000 to 500,000 ounces in the mine plan. That's on top of. So it's not a case of just costs go up, and that's it. It's a pit sale increased size and scale that also introduces revenue margins, cash flows related to the extra ounces in the shelf.

[Kate McCutcheon, Citi]

Yes, understood. And then can I just make a final one. Just -- so you're building cash CapEx items coming up like you just spoke about the mill expansion. How are you thinking about shareholder returns here? Are there any plans to change anything, any internal cash balances you want to maintain anything like that?

[Stuart Tonkin, CEO]

The good thing is that cash earnings, and we've just delivered half-on-half and our projections show growth in cash earnings, which, therefore, has dividend 20% and 30% cash earnings, we can see improvements. But at gold post, we can see improvements in increased returns through dividends to shareholders. The other things that we assess in this environment cash flow is share buybacks at a good returns metric and things like capital returns necessarily aren't as effective in that regard.

So great that we have the optionality. We can either fund our exploration efforts, our organic growth efforts and/or interest in mill expansion efforts because we've got that such a strong balance sheet. It is us [Indiscernible] up, is it better to putting back into the operation as a financial return metric or return to the shareholders. We are assessing all of those options on a regular basis. So yes, we're not sitting on our hands and saying, we're stuck on this single part because the year is saying it has thrown up some pretty hectic challenges and the business has just demonstrated huge resilience to be able to manage it. It doesn't mean ounces that takes it a little bit or that costs have come up, but it is still a very, very solid business in our book.

[Kate McCutcheon, Citi]

Yes. But no timing or kind of if you could talk to on, an update on perhaps...

[Stuart Tonkin, CEO]

No timing on.

[Kate McCutcheon, Citi]

Yes. Unlike announcing a buyback or lifting dividend?

[Stuart Tonkin, CEO]

No decision made at this stage.

[Operator]

Your next question comes from Matthew Frydman with MST Financial.

[Matthew Frydman, MST Financial]

I've just got a few questions to unpack, in particular, the KCGM growth CapEx a little bit further and you've given some good detail on it. But in terms of quantum, you've guided to total $650 million of CapEx for FY '23, 43% of KCGM. So that's about $180 million versus the $200 million you spent in FY '22, which including the fleet replacement.

So I guess I'm just trying to, I guess, break that down a little bit and back out maybe the cost of the fleet replacement. You've sort of guided to the fact that you're looking to move maybe 50% more waste total year-on-year. If that's correct, 90 million tonnes versus 60 million tonnes.

So I'm assuming the uplift in capitalized life is also similar. It's maybe that 50%. And so maybe could you give us the same any indication on -- if you look back at FY '22, of that $200 million, maybe can we back out $50 million for fleet replacement and other activities? And similarly, how much coming back out of FY '23 to get an indication of the sort of like-for-like comparison on waste business?

[Simon Jessop, COO]

Matt, Simon here. I'll have the first one and then probably, hand to Ryan. In terms of material movement, yes, we're sort of looking to increase from this year 15 million to 20 million tonnes more in the next 12 months. And a lot of that is really in some south area as well as [Indiscernible] cutback continuing on, which we should finish partly into FY '24.

So there is a step up in more material movement there, which flows straight through to probably $40 million to $50 million additional growth capital in that area. And then the other big one is towards the back of the year, we really start the TSF -- new TSF facility and further work for the life of mine, which is multiyear TSF capacity projects. So they're the big 2 delta. It is a little bit in Mount Charlotte underground. We've got 1.2 million ounces on reserve there.

So we're continuing to increase development at Mount Charlotte. So there is more underground costs going in as we start to accelerate and unlock that reserve base. But the majority of the increase in CapEx is open pit movement in great [Indiscernible] -- sorry, [Indiscernible] and obviously, a slight increase in diesel costs coming through as well.

So they're really the 3 key things at KCGM, which lift the growth CapEx up from this year to next year. And it's all about bringing forward more ounces that we've continued to find underground on the reserves as well as, as Stu mentioned, for the open pit. We saw an increase in our reserves in the March reserve statement that we need to move a bit more waste to unlock more reserves, which is a positive thing. It's purely about timing and accelerating those open pit movements.

[Matthew Frydman, MST Financial]

Right. That's actually really helpful, particularly thanks for breaking up movement cost. That answers my question. And then going into my -- following on from what you're just saying in terms of that [Indiscernible] in reserves. I guess how do we quantify the actual growth by this CapEx. I assume part of it is a pull forward of grade. It's already in the mine plan, but it's more of a timing issue. And then that 400,000 to 500,000 ounces of additional reserves in the updated pit shell, again, is that a factor in this growth CapEx? And I guess, do we consider that -- sorry, let me ask it in a different way, that 400,000 to 500,000 ounces, that's currently in the reserve statement. So that's not additional to the mine plan?

[Stuart Tonkin, CEO]

Correct. So you saw that in the March update and resource reserves that growth and our reserve growth was related to that figure that Simon alluded to. On Page 4, you've got those percentages of ratio of where that 650 growth [Indiscernible] goes to really be largely KCGM. This obviously $280 million guidance, that's a lion's share of the increased activity is coming from that KCGM, but it makes sense.

So it's an asset we know now 12 months more intimate knowledge on that asset. We've got the updated reserve statement. We've got right visibility of the overall plan, the optimal plan there. So we just that we come in. We've also mapped out, but the growth sort of sits around that 500,000 ounces for a few years until we've got the remediated access to the high grade in the [Indiscernible]. And then obviously, the step up of 650,000 at 675,000 ounces by FY '26, and obviously, 700,000 FY '28.

So if they stays into the life of mine and the conversion of resource to reserve. So we still don't have smitten underground in the overall plan. It's 5 million ounces [Indiscernible] resources. We still don't have a resolve the standard Mount Charlotte contribution to that, and we obviously still don't have any thing around capital or production increased cost reduction in relations to mill study. So there's still a lot of moving parts around KCGM, [Indiscernible] savings that they're going to moving in the right direction as far as the value creation and returns focused.

So we're still really getting new information and making sure -- we're not making short-term decisions for the detriment of long-term value.

[Matthew Frydman, MST Financial]

Yes. Yes, I guess the question was maybe bit more philosophical around the delineation between what's growth capital and what's the signing capital if you are not actually adding any new reserve to the [Indiscernible] or any new [Indiscernible] capacity. So may be to put it a different way in terms of the benefit, is there a cash or any signing cost benefit at some point down the track where the operating waste movement is reduced significantly and the strip ratio reduces. And if so, how far is that?

[Stuart Tonkin, CEO]

The reason the strip ratio at the moment, obviously, given the scale and [Indiscernible] the majority of it [Indiscernible]. So if [Indiscernible] year-on-year, year-on-year as you're moving from that high waste consumption, but I think what could be a prep with this asset. We look at the -- and I also [Indiscernible] year-on-year basis. So that year gives that growth in that year that much expansion on that cost reduction. This has to be looked at that multiyear total asset perspective because the benefit, the extremely large early [Indiscernible] multiple years and returns are massive, but they come over multiple years in the future. Whereas any other small [Indiscernible] underground. This seem to develop into commercial production, you can't control in the fiscal period and therefore, it will [Indiscernible] up.

So I fully appreciate that paying on the months going at it or today can't reap the benefit. On KCGM, we have to [Indiscernible] this is the overall plan. So we didn't spend that extra $100 million on that waste movement. It only add [Indiscernible] in FY '28 and '29. You might think in this environment who cares. We want to make sure that we -- the returns are considered and material enough to continue that plan at the moment.

[Matthew Frydman, MST Financial]

Yes. Got it. Simplistically, the waste movement or that you're capitalizing in FY '23 gives you a benefit at the end of Golden Pike and at the end of [Indiscernible].

[Stuart Tonkin, CEO]

It absolutely does. It gives us those extra ounces in the existing [Indiscernible] that's been designed. The optimal plan has been designed, which is still done in a relatively conservative gold price, and it also displaces any like material that would be put into that plant at that time. So delta between the grade of that [Indiscernible] versus the low-grade stockpile that's there. Yes, that's the benefit.

[Operator]

[Operator Instructions] Your next question comes from Matt Greene with Crédit Suisse.

[Matt Greene, Crédit Suisse]

I'll keep it short. Just on KCGM, following on just the waste movement. I think in the past, you've mentioned that FY '22 and '23 were peak stripping years. Is this still the case? Or do you expect FY '24 waste movements to remain quite elevated?

[Simon Jessop, COO]

Yes. Thanks, Matt. It's Simon here. I think you'll see we've got that target of 80 million to 100 million tonnes, and we'll continue to assess that year-on-year. We're still building. We've got all the fleet delivered into the operation now. So that's great, and then we'll work on optimizing the open pit fleet. And obviously, that will move materially a lot faster. So over FY '23, we really came to really stress testing and put that capital to good use, and we'll continue to optimize the mine plan.

We know the ultimate picture that we're working on. It's around really just accessing OBH as their key priority first for FY '24, where we've got nearly 700,000 ounces at the post of the pit, which is very low strip ratio. So we want to get back into that. That's our #1 key priority. The second one is continuing waste stripping on things in South. And while we're doing that stripping, it's continuing to assess what is the best mine plan going forward. Do we need to stay at 80 million to 100 million tonnes or be up there for a couple of years, and then we can start dropping it back as we get access to a lot more ore areas.

We also are pretty excited around some of the resource conversion within that sell, and we get deeper into the pit. It's a very deep pit. So as you can imagine, it's very difficult to drill the whole pit out. You simply can't with that depth of pit and size. So as we're mining through the pit, we're continually growing controlled drilling and prices and delineating more ore, et cetera, which we can ideally look at the strip ratio as we go forward.

So it is a long-term project that will continue to get assessed year-on-year as to what the right stripping number. But rest assured the first year, we feel we can start taking the foot off the gas in terms of waste material movement and generate great returns, increased ounces and cash flow, then we will.

[Matt Greene, Crédit Suisse]

That's helpful. And then I guess just around the Jubilee mill, putting that on care and maintenance. Is this [Indiscernible] ready? I mean what do you -- should we just assume that this is Carosue Dam the medium term? I mean what do you need to see to potentially restart that? Is this just a labor and consumables issue? Or do you think it's -- this is a more permanent move?

[Stuart Tonkin, CEO]

Look, for Northern Star, [Indiscernible] we are starting in the near term. And it doesn't -- there's nothing wrong with that plant. It's just the operating cost at Kanowna and Fimiston is much lower. So it talks to the strength of those plants less to the [Indiscernible]. From a cash business basis, we look at that we can fill it up, but it's at a higher cost, but therefore, overall compresses our margin. At the moment, the decision is driven by a couple of things that unit cost but also the scarcity of labor and the simplicity of fewer moving parts in the business.

So to put that in context, the landscape since January, we've had over 2,200 COVID cases across Western Australia and that's 2,200 weeks out of our business for staff. And we've seen that the impact across the operations. So to take from [Indiscernible] job that we've deployed throughout the business, we ended up having filling those gaps and those [Indiscernible] having less risk and less exposure to those operational disruption.

So it's difficult decisions in the month, but sensible financial improvement. And so that's what we [Indiscernible]. So it sits there on care and maintenance as we also for many years, we sold that just recently, but if there is an option, should you have a disruption or unplanned failure in Kanowna, we could quickly turn it back on and get it running. So it's an insurance policy. It's just at the moment, the right thing this year to target and redeploy the people, keep the mine operating, but the mill itself will be put on a safe care and maintenance point, and then we basically see that they are in good condition.

[Matt Greene, Crédit Suisse]

Yes, that makes sense. And I guess just keeping on the theme of labor. I mean just be challenged and I'm sure things are getting better. But I'm just keen to probably point of view, how long do you think these challenges will persist for? And I guess do you have a time frame in mind when it comes to your medium-term internal planning?

[Stuart Tonkin, CEO]

Sorry, I missed the first part of the question, Matt. So related to labor what challenge?

[Matt Greene, Crédit Suisse]

Yes. I guess just some of these challenges. I mean do you have a time frame in mind when it comes to internal planning as to how long these challenges could persist for particularly in WA?

[Stuart Tonkin, CEO]

Yes. It's a difficult one, but it is -- we've obviously already seen that step up and have managed. In the last 2 years in Western Australia, we've managed a 10% vacancy rate. We've managed 30% turnover of our team. We've managed the COVID impact of 2,200 cases in WA. You wouldn't have scripted this if you'd asked to say. All I'm saying is, we are adaptive with nimble agile. We're working through what those challenges are, and we're triaging what keeps -- what's right business. And we're not compromising on do it with less or compromise on safety or anything that we've maintained and improved the safety output despite those challenges.

So I just feel it's a new norm. We're not relying on it getting better. We hope it does, but we -- our plan and our guidance is probably reflective of how we see, as I said, growth tapering a bit cost staying flat or at an elevated level. These aren't ideal, but they're real, and it's sector-wide. So we're capable to manage through those cycles albeit not the best or most favorable outcome that we could have.

[Operator]

Your next question comes from Stuart McKinnon with WA News.

[Stuart McKinnon, WA News]

So you talked just recently about the pressure on the sector. It does feel like the mid-tier producers have been copped a bit of a battering in the market recently. That seems to be an increased focus on costs and margins. Do you think that's been overdone? I mean you've come off about -- I think about $5 in the past 4 months or so and the other similar. What do you think needs to change in the minds of investors to start thinking more positively about the sector?

[Stuart Tonkin, CEO]

Yes. And I wouldn't say, it's just me, it's everyone [Indiscernible] exchange rate basis certainly had a retracement in share products. And when you say, is it over done? It is disproportionate to whether it's margin compression or changes or outlook on gold prices or otherwise. So -- but it's not for us to sit here and complain about what we think the share price should be. Our job is really to run the business as best we can and articulate to the market where we see the best opportunity to keep those returns strong and we should be able to, and we'll operate our business throughout those cycles.

So it does it mean growth plans get compromised or does it mean margins get compressed over longer term? I think we've got to not just stick on one set of rails. We've got to have a plan, we're following, but continually assess as it's growing. So I guess the question is, what has to change to get the sentiment back delivery? I think, in many cases in the gold sector at the moment is, there's a reset. I mean it's a consistent delivery against that. No surprises and then the general settling. But at the moment, the people go to crypto [Indiscernible] what are the alternatives or where the surplus funds to be invested in the sector. I don't see the flows at the moment really heavily moving into gold. When that changes it change in a hurry, and that's when you have a big step change.

[Operator]

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

[Stuart Tonkin, CEO]

Thank you, and thanks for joining us on the call today. And as you've heard this morning, we've delivered a strong June quarter, and we're well positioned to manage the challenges that face the sector. We maintain a profitable growth strategy to 2 million ounces, whilst measuring success by maximizing shareholder returns through disciplined and responsible investments. Have a good day.