In a recent earnings call, the company announced strong financial performance in the March quarter, with a sale of 401,000 ounces of gold and a significant increase in underlying free cash flow. The KCGM production center stood out with the highest free cash flow per ounce, attributed to access to high-grade material.
The company also highlighted its confidence in production, cost reduction, and cash flow generation despite weather challenges at the Thunderbox operation. The KCGM mill expansion is on track, promising to boost production significantly by FY '29. With a solid net cash position and substantial liquidity, the company is well-poised for future growth and is actively managing its assets to optimize cash flow.
Key Takeaways
- The company sold 401,000 ounces of gold in the March quarter, generating an underlying free cash flow of AUD 143 million, a 40% increase from the previous quarter.
- KCGM production center delivered the highest free cash flow per ounce, thanks to high-grade material access.
- The KCGM mill expansion is expected to double throughput by FY '29, with a production target of 900,000 ounces per annum.
- FY '24 gold production forecast: 1.6 million to 1.75 million ounces at an all-in sustaining cost of AUD 1,810 to AUD 1,860 per ounce.
- Net cash position of AUD 174 million and liquidity of $2.5 billion.
- Thunderbox operation faced weather-related challenges, but the Wonder underground mine is performing well.
- Noncash inventory charges for the quarter were $12 million, mainly due to KCGM historical stockpiles milling.
- Reduction in forecasted CapEx for KCGM Mill Expansion from $525 million to $415 million.
- Ongoing discussions about potential divestment of higher-cost assets.
- KCGM Underground project and Fimiston Underground project are progressing with good potential for cash flow generation.
- Pogo mine faced a power outage, expected to be resolved by late June quarter.
- The company maintains a hedging policy of around 20% of production, viewing it as a prudent capital management strategy.
Company Outlook
- The company is optimistic about its production and cash flow prospects.
- KCGM mill expansion is on schedule, aiming to enhance production capabilities.
- Focus on optimizing cash flow from the current portfolio and potential divestment of higher-cost assets.
- Anticipation of publishing resource reserve estimates for the KCGM Underground project soon.
Bearish Highlights
- Thunderbox operation's mill throughput and availability were impacted by weather conditions.
- KCGM's noncash inventory charges and the need for capital to address Thunderbox mill design issues.
- Power outage at the Pogo mine, requiring heavy gas purchases to maintain operations.
Bullish Highlights
- High-grade material from the Wonder underground mine contributing to mill performance.
- Reduction in forecasted capital expenditure for the KCGM Mill Expansion project.
- Confidence in resolving the Pogo mine's power outage and exploring high-grade material at the Star target.
Misses
- Weather challenges at Thunderbox and Pogo mines affected operations.
- Lower grade profile at Jundee mine due to environmental factors.
Q&A Highlights
- Discussion of the KCGM and Fimiston Underground projects' progress and potential.
- Consideration of transitioning to bulk operations in the future.
- The company's selective approach to acquisitions in North America.
- Hedging strategy as a tool for managing capital and securing investment returns.
The company's ticker was not provided in the context. However, throughout the article, it is clear that the company is focused on maximizing its current assets and navigating industry challenges with strategic hedging and capital management. Despite some operational setbacks, the company's outlook remains positive, with significant growth and expansion on the horizon.
InvestingPro Insights
In light of the company's recent earnings call, InvestingPro provides valuable metrics and tips that can help investors understand the company's financial health and investment potential. The company's Market Cap stands at a robust $11.15B, reflecting its significant presence in the market. With a P/E Ratio of 23.18 and an adjusted P/E Ratio for the last twelve months as of Q2 2024 at 23.15, the company is trading at a low price to earnings ratio relative to its near-term earnings growth. This indicates that the stock may be undervalued given its growth prospects.
The company has also demonstrated commendable financial discipline, as evidenced by a PEG Ratio of just 0.1 for the last twelve months as of Q2 2024, suggesting that its earnings growth rate is significantly higher than its P/E ratio. This is an attractive signal for investors looking for growth at a reasonable price. Additionally, the Revenue Growth for the same period was 13.87%, indicating a strong upward trajectory in the company’s earnings capability.
InvestingPro Tips highlight that the company's stock generally trades with low price volatility, providing a level of stability for investors. Furthermore, cash flows have been sufficient to cover interest payments, demonstrating financial resilience. Notably, the company has maintained dividend payments for 13 consecutive years, which could be a key consideration for income-focused investors.
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Full transcript - Northern Star Resources (ASX:NST) Ltd (NESRF) Q3 2024:
Stuart Tonkin: Good morning, and thanks for joining us. With me today is Chief Operating Officer, Simon Jessop; and Chief Financial Officer, Ryan Gurner. I am pleased to present the group's March quarter performance despite adverse weather having an impact. With these events now behind us, we are focused on maintaining the strong operational momentum so far seen in the June quarter. And I'm particularly proud of our people who demonstrated resilience during the period and delivered our results in a safe manner. Thank you. For the March quarter, we sold 401,000 ounces of gold at an all-in sustaining cost of AUD 1,844 an ounce, generating underlying free cash flow of AUD 143 million, which is up 40% from the December quarter. Each of our production centers remains in a positive free cash flow position. And as a group, we remain financially resilient in net cash position of AUD 174 million, with strong liquidity of $2.5 billion. This financial strength allows us to fund all of our growth investments, exploration activities and capital management initiatives. As you can see in our results, KCGM stands out this quarter providing a glimpse of what's in store for this asset going forward. KCGM, our largest and lowest cost asset, delivered a positive step change operationally and financially with the Kalgoorlie production center generating the group's highest free cash flow per ounce. This performance is driven by increased access to the high-grade Golden Pike North Material, an area we'll be mining for the next 5 years. Getting access to this material was a multiyear effort, but the financial returns have been exceptional, and the 3-year effort is well worth it. For the KCGM mill expansion, the enabling works were completed and on-site construction advancing to plan. It is exciting to see this activity underway at KCGM, which will double the plant's throughput to 27 million tonnes per annum and lift production to 900,000 ounces per annum by FY '29. And this will establish KCGM as a top 5 global gold mine. For FY '24, we expect to produce 1.6 million to 1.75 million ounces of gold at an all-in sustaining cost of AUD 1,810 to AUD 1,860 an ounce into a very healthy gold price, which is currently above AUD 3,600 per ounce. Before I hand to Simon, Pogo continued to perform well with net mine cash flow of $21 million, bringing its full year contribution to date of $90 million. Quarterly gold sales were 59,000 ounces at an all-in sustaining cost of USD 1,567 an ounce. During the quarter, Pogo had a planned shut as well as experienced some unplanned downtime, which has since been resolved. Grades were lower than expected due to stope mine sequencing, although grades have increased so far during the June quarter. And pleasingly, mine development rates continue to strengthen, averaging a monthly rate of around 1,600 meters a month from 5 development jumbos. Simon will now speak to the Australian operations.
Simon Jessop: Thank you, Stuart. The Kalgoorlie production center, including KCGM, Carosue Dam, Kanowna Belle and South Kalgoorlie, we sold 227,000 ounces of gold, up 3% at an Australian all-in sustaining cost of $1,592 an ounce, down 5%. This production delivered a mine operating cash flow of $302 million, up 5% quarter-on-quarter. The region also spent $200 million on significant growth capital projects. This included $95 million on the KCGM mill expansion, plus $32 million on KCGM open pit mine development and the new tail storage facility, which has a 147 million tonne capacity. At KCGM, open pit material movement was slightly lower than our planned movements at 15.8 million tonnes in the quarter due to rain and prioritization of the movement to Golden Pike North, Oroya Brownhill and the East Wall. The open pit team has been successfully managing the priorities well with another 30,000 ounces mined in Golden Pike North. We remain on track to regain full access to Golden Pike North in FY '25. Underground mining volumes for the Kalgoorlie region were flat at 1.51 million tonnes and 2.5 grams to deliver 123,000 ounces. The higher grade was driven from KCGM and Carosue Dam as we regained access to improved scheduled areas. KCGM's underground operations increased development 16% to 3.8 kilometers for the quarter, with the Fim underground area achieving its first mined ore during the quarter. The development will continue to ramp up quarter-on-quarter as a key lead indicator for opening up new mining fronts followed by production increases. The Carosue Dam underground mines all performed well with 53,000 ounces mined in the quarter. Open pit movements increased 10% to 1.1 million BCMs despite significant and constant rain impacting results. The Kalgoorlie operations increased mine ore volumes, while the paste plant at South Kalgoorlie was successfully commissioned during the quarter to ensure maximum extraction of the high-grade plus 5 grams per tonne Mutooroo North area. Processing volumes in the Kalgoorlie production center reduced 15% from a combination of planned major mill shutdowns, unplanned regional power interruptions in Kalgoorlie and significant rain across the region, causing interruptions to maintenance and the supply chain. Despite these challenges, KCGM's gold increased 13% quarter-on-quarter to 127,000 ounces as underground and open pit mine grades improved. Pleasingly, the recovery at KCGM also improved 2% from a range of improvements across the plant. Kanowna Belle had significant power outages during the quarter from the group, while Carosue Dam milling was also impacted by rain. The KCGM mill expansion spent the $95 million with staged handover work areas to the major contractor. The primary crusher excavation was completed with the first concrete poll completed during April. The new mill footprint and core source stockpile areas are on track to be handed over in the June quarter. The engineering design works are progressing well, with 35% complete and remain on track. We are very pleased with the on-ground construction activities, which have commenced on time and to plan. At our Yandal production center, including Jundee, Thunderbox and Bronzewing, we sold 114,000 ounces of gold at an Australian all-in sustaining costs of $2,070 an ounce. This production delivered a mine operating cash flow of $101 million, while we spent $64 million on growth capital projects, primarily $21 million was spent on the Orelia open pit. At our Jundee operation, development advance was 6.9 kilometers, with 780,000 tonnes of ore mined and 73,000 ounces. Processing achieved above nameplate mill throughput despite significant rain impacts, which meant reagents to site were impacted. The mill head grade was lower due to a drawdown of low-grade stocks and mine head growth. The Jundee renewable project progressed well, with the 16-megawatt solar farm and 12-megawatt battery to be commissioned early in the June quarter. The 24-megawatt wind farm foundations have all been poured, and we are waiting for large crane to install the 2 lines during H1 of FY '25. The Thunderbox underground operation achieved 490,000 tonnes of ore mined at a slightly higher head grade of 1.8 grams per tonne. The one underground mine ramped up throughout its first full quarter of operation, averaging 292 meters a month and will be on ore during the June quarter. This is a great start by Northern Star Mining Services and is already putting this mine well ahead of budget. For the quarter, the underground and open pit operations successfully mined 1.37 million tonnes of ore above what Thunderbox process plant milled. At the Thunderbox process plant, we milled 1.13 million tonnes for the quarter and sold 45,000 ounces of gold. The throughput averaged 735 tonnes per hour for the quarter. Availability was a low 70% for the quarter, with a major shutdown completed in February, followed by significant conveyor belt issues and a lack of ability to rectify with the major lightening and rain events. Our borefield was also flooded leading to a lack of water getting to the process plant. The focus is on achieving a step change in mill availability. With positive signs during April to date as the improvements made in Q3 are resulting in increased run time. Our goal is to stabilize throughput above 5 million tonnes per annum, while we address availability across the plant. I would now like to pass over to Ryan, our Chief Financial Officer, to discuss the financials.
Ryan Gurner: Thanks, Simon. 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, Page 9, with cash and bullion of $1.1 billion and remain in a net cash position of $174 million at 31 March. Despite the challenges faced during the quarter, our assets continue to generate positive free cash, with the group's growth capital being funded from operations. Figure 9 on Page 10 sets out the company's cash and bullion investments movement for the quarter, with the key elements being quarter-on-quarter total cost reduction of both the cash cost and all-in sustaining cost level, resulting in the business generating $524 million of cash flow from operations. Prudent capital expenditure totaling $298 million, $38 million of exploration investment and $45 million of lease payments resulted in banking $143 million of free cash flow for the quarter. Importantly, all production centers continue to generate positive net mine cash flow. Growth capital investment during the quarter related to key growth projects, including waste removal at Fim South and the East Wall at KCGM, development at Fim underground, development at porphyry underground and Wallbrook open pit at Carosue, development at Orelia open pit and Wonder underground and $95 million for the [KCGM] plant expansion, which includes work performed and commitments in respect of the enabling works, which are now completed, with construction activities at the site being progressed. Total spend for FY '24 is expected to be approximately $415 million with the reduced spend relating to the timing of some procurement packages being finalized. It is important to note that this is not expected to impact the date for practical completion, with engineering design and construction remaining on track as planned. Also during the quarter, the company paid its interim FY '24 dividend of $0.15 per share, totaling $169 million during the quarter. On other financial matters, year-to-date depreciation and amortization of $695 per ounce is at the midpoint of the guidance range of $650 to $750 an ounce and is expected to remain within our guidance range for the full year. For the quarter, noncash inventory charges for the group $12 million, with the majority of these noncash inventory charges relating to the milling of historical stockpiles at KCGM and are a component of EBITDA. In the March quarter, we commenced allocating mining costs associated with additions to the long-term inventory stockpiles at KCGM. Prior to the approval for the development of the KCGM Mill Expansion project, which was made in June 2023, these stockpiles were carried at nil book value. As previously communicated, processing of this material is scheduled to commence post completion of the mill expansion in FY '26 and will generate significant cash flows for the business. The effect of this change has resulted in a $9 million net credit to cash cost per ounce in respect of Q1 and Q2, which has been recorded in the March quarter. Physicals relating to these long-term stockpiles over the last 3 quarters of the financial year are provided on Page 12 of the report. In respect to the company's on-market share buyback, no additional shares were purchased on market following the company's half year results release. Up to $131 million remains outstanding with the program opened until September this year. Notwithstanding the challenges during the quarter, we are confident of a strong finish to the year in respect of production, lower costs and robust free cash generation. From the delivery of higher mill tonnes and grade from KCGM, higher grades at Jundee and increased processing output at Thunderbox and Pogo, positioning our portfolio for significant cash flow generation aligning to our company's purpose of delivering superior returns to our shareholders. I will now pass you back to the moderator for Q&A. Thanks very much.
Operator: [Operator Instructions] Your first question comes from Levi Spry with UBS.
Levi Spry: Maybe 1 question for Simon. Just the issues at Thunderbox, maybe a bit of information today to absorb, so I'm still catching , I'm sorry. But can you step us through the issues there and what the plans are over this quarter and how we think about I guess, 600,000 ounces from that hub for the next year?
Simon Jessop: Thanks, Levi. Certainly, a very challenging quarter at Thunderbox, with probably the best way to think about it is weather probably impacted us 5% to 7% over the quarter, and this is a combination of not being able to get order to the process plant, reagents and a few things like that. So that was the sort of one-off anomaly that we've certainly seen post that or rectified and back on. And then really, the rest of the downtime that we saw is probably mostly around the crushing circuit of about 5% to 7% impacting the mill throughput and just the availability to run. We did have a lot of conveyor belt groups, which impacted us over the quarter and just lightning and storms and couldn't rectify that. What I was really pleased about at Thunderbox, though, was the -- over the same period, we actually got the Wonder underground mine up into full production and will certainly be on ore during the June quarter, which is ahead of plan, really thanks to a great start by the Northern Star and NSMS mining teams to bring that project on time and ahead of plan. So that will give us a high-grade boost, and Wonder underground sort of has 3.2 grams average reserve grade. So we're looking forward to getting high grade into the mill.
Levi Spry: Yes. But just so I understand the milling capacity, I thought you said something about 5 million tonnes you're targeting now as opposed to the 6. Can you just talk me through the program there?
Stuart Tonkin: Yes. Levi, that will literally be the run rate in quarter 4. So really, it's a great driver to get those ounces. But you've seen that obviously reflected across the groups and where those ounces have fallen back. So our attitude at that plant, there still is work required to ensure that the availability is maximized, and we can maintain at or above the 6 million tonne. We won't get that right this quarter. So the outlook is really on FY '25, what's required to be done this quarter. We know the work. We know the planned activity is really around the CapEx associated with futureproofing that asset to be reliable at 6 million.
Levi Spry: Yes, got it. And just one last one. Ryan mentioned the $415 million CapEx number. Sorry, can you just calibrate that? What's that compared to?
Ryan Gurner: You talking about the expansion project, Levi?
Levi Spry: Yes.
Ryan Gurner: So that's right. So the forecast for the full year on expansion rate is $415 million. We initially guided $525 million. So there's been, as I was sort of saying in the -- in my call or in my talk, there's been some delay to the awarding of procurement packages by the contractor. And so they're quite lumpy milestone payments. So they've been delayed. There's no delay to engineering, design and construction. That's all on plan. So yes. So we guided initially $525 million. What we're saying now is it's more likely going $415 million for the year, Levi.
Operator: The next question comes from Kate McCutcheon with Citi.
Kate McCutcheon: Just at Pogo, you're running a reserve grade there of 8.5 grams per tonne, which is inclusive of dilution and recovery by definition. Should we think about the mine grade over time getting to this level? And what are the key things that have that has to happen there? Or is there a piece of work still to be worked through on head grade over the long?
Stuart Tonkin: Yes. Thanks, Kate. Absolutely, it's something we're working through. We will be -- we are recutting presently as we're talking everything across the group on resource reserves. Obviously, with relation to cutoff grades, in relation to revenue side of things, which is only modest changes to those, but we're looking at the actuals of Pogo. So how we've achieved development grades, how we've achieved the stoping grades with the mining factors applied. We're literally iterating all that through the current plan at the moment. What we do see at Pogo, given you've got a 7 million ounce resource above 10 grams, moving cut-off grades brings a lot of material in or out depending on how that's treated. And then we're looking at the 1.3 million tonnes. We've been able to achieve, obviously, 1.4, 1.5 million tonnes through that plant, what's the right happy place for that. So we still got 300,000 ounces in our head. The head grade would have been dependent on what that throughput needs to be in the recoveries. I'm not hanging on 8.5 as a number for reserves. I'm hanging on costs and margin and productivities. So I think there's probably some compromise on that reserve grade, but it doesn't diminish the quality of the deposit. It's really just the factors we apply.
Kate McCutcheon: Okay. So tonnes versus grade?
Stuart Tonkin: It is. With that, it is a large cost base. Yes, we're spending USD 30 million a month at Pogo. We're obviously targeting to get that down to USD 25 million. It's going to take a lot of effort with that with the energy costs and a few external forces on us, but it's really that denominator of gold sold. And so the economies of scale of that plant ramping up throughput, you're seeing some great throughput through it. And it's really some planned shuts that are in place to rectify some things. The mill motor still needs to be replaced. So all that planned work ahead is a security of throughput. I think whether the reserve has an 8 handle on it, that's indifferent to what the margin and the quality of the asset is going to be. I can make it 9 grams and shorten the life. I can make it 7 grams and extend the life, and that's what we're balancing at the moment.
Kate McCutcheon: Okay. Got it. And more a strategic question. If I look across the portfolio, you've got a few assets, which are higher cost and are a bit lighter on free cash flow. You've got Aussie dollar gold at almost a record 3,600. How are you thinking about any divestments here? Are there conversations that are happening? Or is this the go-forward portfolio that you've got now for the next -- for the short term, I guess?
Stuart Tonkin: Yes. I mean all assets are contributing. And on the front page there, we've got all-in costs of AUD 2,600 an ounce. That's spot is AUD 1,000 an ounce above the all-in cost. So all assets are generating strong cash and obviously, servicing and funding exploration, our organic growth, dividends, all those things are benefiting from it. And the asset portfolio we have today is our strategy, our 5-year strategy to deliver our 2 million ounces by FY '26. So they're important, they're key. We're using them. It's a decent gold price, and people are asking us about M&A, selling assets at this price is great, but who can afford them or who will pay for them. We're not here to sell things just for the sake of it. You need to really have good discipline around those things and all these assets matter to us at the moment.
Kate McCutcheon: Okay. Got it. And then just super quickly, you're spending $100 million less on KCGM this year. CapEx guidance has stayed the same. Is that just rounding in the wash? Or is there more CapEx going in elsewhere like Thunderbox?
Stuart Tonkin: Yes, around our allocation. So when we see these things, whether slipping over a month or so, it's reallocation of funds that we have surplus to that. So absolutely, things like Wonder coming on early and ramping there, where you'll put your effort. It's more a reporting of where things are going as opposed to not having the money or having excess money to then reapply I think the planning around it. We understand that there's a 3-year build, $1.5 billion, which has 10% contingency in it. It's all around the timing. The other benefit is that, that East Wall remediation is essentially complete this financial year. So the expenditure around that works on the East Wall, again, falls away and then the reapplication of that cash flow can be either on to the selling cutback or the direct operating costs and pulling Golden Pike North up.
Operator: The next question comes from Matthew Frydman with MST Financial.
Matthew Frydman: Sure. Great to see first all from Fimiston Underground during the quarter. I'm sure the team would be excited about that. Can you remind us, please, of your plans around, I guess, a more holistic scoping study or feasibility study on the KCGM Underground piece? And I guess, the second question to that is similar to what Kate was just asking around the group holistically, you've got a high gold price. At KCGM, specifically, you've got -- you're going to have ample mill capacity post the expansion and probably a very significant underground endowment in terms of resources and reserves. So how do you constrain that underground study to balance NPV risk of executing and capital that you need to deploy? How do you constrain your sort of option set around that study?
Stuart Tonkin: Yes. So I think I'll start with just backwards on the resource reserves. We'll obviously get into the finalization of that now and we guess in the next month. So we'll be publishing those resource reserves, and they will show the quality and scale and the opportunities around the Kalgoorlie district that feeds into that expanded mill. And it's not just Fim Underground. There's lots of other great things that are regionally able to be brought through to that plant. So that's pretty exciting. We'd be pretty pleased to be able to publish and talk about those things. On the current underground Fim, I'll just let Simon speak about progress there in the attitude, but it's -- there's 2 parts to this. That's the current immediate access, but the overall larger underground I've sort of spoken about below the pit will come in post the pit mining so that it doesn't disturb any of the pit activity. But the current Fim Underground is kind of independent of that pit activity.
Simon Jessop: Yes, Matt, what you'll see with the Fim Underground is it's very small capital outlay to incrementally just keep bringing on more development, more access and more stops. You can see the reserve grade is around 2 grams a tonne for KCGM underground. So we see good cash flow generation as we start to really ramp up the mine. But you're not going to see a massive capital investment for no ore production. Very, very quickly, you'll see the ore production keep ramping up at KCGM Underground. And then it becomes just a broader grade displacement piece for the KCGM mill. So over FY '25 and '26, we'll displace 1 gram per tonne material, and we'll put in 2 grams from the underground. But first ore at Fimiston underground is really great. We will certainly be adding new portals in the next FY '25. And we've got a lot of plans underway to ramp up the production areas at KCGM. So super exciting. We're seeing plenty of growth every time we drill a hole there. So looking forward to getting out the resource and reserves in the June quarter, and we're seeing good growth at KCGM Underground.
Stuart Tonkin: ` And Matt, we were adding resources for less than $10 an ounce. So this is the organic opportunity here to grow and expand and to generate cash from these ounces. They are essentially on our doorstep and very effective and efficient organic growth.
Matthew Frydman: Yes. Got it. I guess what you described is, as Simon said, a fairly sort of incremental growing stoping operation. How do we think about longer-dated future plans to transition that to something more of a bulk operation, like a sublevel cave or something? Is that still on the cards? And is that likely to sort of come out when you present updated reserves and resources, as you said, slated for the June quarter? I think you said, sorry, Simon.
Stuart Tonkin: Yes. So the works that's happening that's incremental is also establishing drill platforms, and the work is required for a large-scale cave style mine below the open pit will be first need to be drilled out. We're talking about multiyear drill-outs and assessments and talking about multimillion ounce targets that are coming into that plan. So now we're trying to talk about what's the CapEx number that we should be looking at. What's the size of the price from a scale and quality of the resource and then the drill density to make that resource reserve. Firstly, we don't want too expensive deep timely directional drilling that was occurring before we owned it. We want to get down with truck accessible decline drill drives and basically drill this out to the level that we're confident to put shapes around and mine designs, and it will be concurrent with the mining activity at Golden Pike, which is the next 4 to 5 years, pulling the Golden Pike floor out, or will not start a large underground and create or disturb the activity in the pit whilst that's being mined. So don't double dip on Golden Pipe North being mined and a large underground coming on top. Talk about the expansion of Mount Charlotte, the mining between the Super Pit and Mount Charlotte expanding and adjacent to those works, which is independent to the Super Pit.
Matthew Frydman: Got it. That's pretty clear...
Stuart Tonkin: So the 900,000 ounces essentially coming from those blended ore from open pit underground and stockpile sources. That's what we're essentially leveling to, and the current outlook and forecast on CapEx is with that.
Matthew Frydman: Yes. Got it. And then an exciting sort of longer-dated opportunity to go bigger in the underground.
Stuart Tonkin: Yes. You know our plan, how we iterate. Once those things are done, we don't stop. We'll really look at that. Steve McClare's team will be assessing those opportunities.
Operator: The next question comes from Mitch Ryan with Jefferies.
Mitch Ryan: You've called out a revision of the one-half costs at KCGM of $71 an ounce. Just making sure my back of the envelope is sort of right. I'm going $71 an ounce times all the one-half ounces to get $15 million of costs. So I guess my question is, one, is that calculation correct? And then I'm assuming that wasn't in the prior cost guidance of $1,730 to $1,790, but it is in the $1,810 to $1,860. So if you hadn't had that $71 an ounce revision, the cost guidance actually would have been about $10 an ounce higher at a company level. Is that correct?
Ryan Gurner: Yes, Mitch, it's Ryan. You're right. I mean the $71 that relates to ounces sold in this quarter. So it's an adjustment in this quarter. So if you're looking at -- that's what I said in my note, it's dollar value, sort of like $9 million. So as I mentioned, it's because ultimately, there were costs going to the other ore sources that actually ended up on a stockpile from a material perspective. And so that's why we like -- well, we're going to mill this material. We've got to allocate cost to it. And so that's why we've revised those numbers.
Mitch Ryan: Okay. Okay. So -- and it is in the revised company-wide guidance of $1,810 to $1,860.
Ryan Gurner: Yes, that's right. That's right.
Stuart Tonkin: So there are a number costs that were in our direct control, and there are a number that were outside of our control related to the elevated gold price. So obviously, a lot of our wages and salaries are linked to cost mechanisms, up and down. Royalties are linked to gold price up and down, so above our assumptions. But then there were hard money costs related to increases inflation as everyone is experiencing, they're real. So we don't like it ourself. And gold price -- sorry, our cost going up $40, $50 an ounce. But when you zoom back out, gold price has gone up 10x that $400 to $500 an ounce in the same period. So the two are somewhat linked. It's going the wrong direction for us, but gold price has covered up a lot of that in cash flow generation and margin expansion has occurred.
Operator: Your next question comes from Al Harvey with JPMorgan (NYSE:JPM).
Al Harvey: Maybe just on Pogo. Can you kind of elaborate a bit more on the impact of the power outage there. I know you said it's not expected to normalize until late in the June quarter. So just wondering how you get comfort in that kind of time line to get things sorted out and what kind of risk we have into 2025 there?
Stuart Tonkin: Yes, no worries. Thanks, Al. Yes, so there's a few things there that have disrupted us on power, but all the power is generated through a cooperative. So costs to that cooperative, whether they come from our asset or come from the state, basically get divvied back out to the suppliers. So energy costs go up and down. And then obviously, when we have power disruptions there during the winter season, you've got lots of issues around your heating in your -- and freezing and locking up of those things. So basically, when the plant goes down, we're buying heavy gas into the winter to generate the heat to keep things warm, keep moving. And those costs are extraordinary, but because of not doing it. And there are other parties in the state where they've got their mills frozen. You've got to wait for the season to floor out. So we're just -- when you jammed in those corners, you run gas and heat your stuff up so that doesn't freeze.
Al Harvey: Sure. And maybe just back on the resource and reserve update in May. I think last exploration update, we had there were some good results coming out of Pogo, like Star. Just wondering how we think about production growth potential at Pogo? What are kind of the constraints on scale, how you're thinking about opportunities further afield in North America? And I guess, how you balance up that growth in terms of opportunities around the Super Pit and all the mines?
Stuart Tonkin: Yes. Before we put our eyes further afield in North America, we see huge value in really proving out what's there at Pogo. And so Star, as an example, is a great target. We're continuing to drill. Pretty excited about being able to show people more step-outs from that. It's still early stages. So as far as to get shapes and things around it, we've got to get the density into it. And then obviously, good parts are still sitting on the back burner, but we're drilling between the main mine and Goodpaster to fill in gaps that go in under the river and essentially give us a pathway to get to Pogo -- sorry, get from Pogo to Goodpaster economically. And then Hill 4021, the other side is also pretty exciting extension. So we like all of the results we're getting there. I guess what we're finding is a lot of the same material, [10 gram] resource. Ideally, we found an [indiscernible] load, where it's 1 ounce material, but we're still testing for those things. So at the moment, it's about life going on to the end of the asset as opposed to something being accelerated and brought forward and supplementing higher grade. Prior to our ownership, the head grade of Pogo was 13 grams. So we're obviously talking about putting through around 8 grams a tonne. There is material that can be found there, that is a superior grade. If we can find it through the same mill throughput, we can really drive value and margin out of it. So that's what we're trying to target. And that is our focus before we step out away from the Pogo Mine, North America.
Al Harvey: Great. So basically, anything -- any material step change that's going to need a pretty chunky exploration hit around that ounce per tonne mark. Is that kind of the crux of it?
Stuart Tonkin: No, no. Finding exactly what we have there is fine. The question is whether we accelerate it, whether we kind of put extra effort and expenditure to accelerate it is if it appears greater than the average grade that's sitting there. So if Goodpaster was there of 15 grams per tonne, it would be my priority target, developing across, drilling it out, bringing into the mine plant earlier. It's exactly the same as what we have. And I've got 7 million ounces of 10-gram material. Goodpaster is 1 million ounces on it. So it's the same grade. So I guess what I'm saying is, unless it's better and it's the same attitude at every other mine we operate, if something is better, Wonder Underground, it gets ramped up, accelerated, put into Thunderbox mill before another underground that's 3 grams or 2 grams, et cetera. So it's just the same attitude of trying to -- it's not high grading, it's prioritizing your cash flows and maximizing NPV.
Al Harvey: Sure. And I guess, just to round it out. So just broadly growth options in North America, you're pretty happy just ticking away at Pogo. Is there any plans further afield? Things that you're looking at on notes, some peers have been looking at a few bits and pieces out that way?
Stuart Tonkin: You've seen us test the water with the Cisco (NASDAQ:CSCO) evaluation with Windfall, and we didn't get there. So anything we look at is always disciplined. I think it's going to be a challenge in this wet environment to find value in North America. So it doesn't mean we won't look at things, but I think it's a challenge for anybody, anyone in Australia with our currency at the moment. I'd like to reiterate that our organic opportunities are phenomenal, and that's where our effort and energy in focus, and that's what's in our control that we can determine and deliver into.
Operator: Your next question comes from Ben Lyons with Jarden.
Ben Lyons: Just want to talk about the grade profile at Jundee, please. Pretty sure I asked the same question following the December quarterly stats. But we've got a new low -- new 5-year low in mine grade at Jundee, about 2.9 grams well below reserve grade. So firstly, maybe you can just elaborate on your confidence and lifting the grade into the June quarter, talking to stope sequencing, open faces, et cetera. But more importantly, on a sustainable basis going forward what we should expect for the grade coming out of the Jundee Underground?
Stuart Tonkin: Yes, I'll throw it to Simon. Yes, mine to mill grades can alter and obviously, when we get a record milling throughput, you're going to have -- it's going to be supplemented with lower-grade material that averages it down. But I'll it to Simon, just general outlook, there's quite a blend of sources for material from Jundee.
Simon Jessop: Yes. So certainly, yes, low for the quarter, but the impacts for getting the dirt from the ROM pads and from Ramone, a lot of high-grade ore stranded out of Ramone, and Ramone on average is lower grade than Jundee. But during the quarter, we had -- couldn't truck it across due to the 190 mil rain up there versus the average of sort of 19. So 10 times the normal amount of rain meant it was -- we couldn't move things. And even within our current Jundee operations, we had to not mine some of the better grades at the bottom of the mines, just while we part of our flood management plan. So we're certainly kicked out of areas that we wanted to mine during the quarter. And then you've got to flow on into the mill with milling low-grade stocks due to crusher, wet dirt that we can't crush as well as just not being able to get the right dirt into the mill. So in terms of quarter 4, yes, Jundee is going to have a big quarter. We're confident of that and tracking well leading into the end of the year. So we're confident, Ben.
Ben Lyons: Yes. Cool, I'm picking that up. Sorry, can I just tease out one of those comments, Simon. Your inability to access some of the deeper ore sources underground due to your flood management plans, I think, to paraphrase what you said. Sorry, can you just possibly elaborate on how the underground sequencing was impacted by what was going on with a bit of rainfall at the surface?
Simon Jessop: It's just looking after the safety of our employees. So when you get 100 mil rain in sort of 10, 12 hours, for that part of the world, there's obviously a lot of water that flows into some big historic open pits. So you get a buildup of water in the open pit fairly quickly. And it's just good management that we won't operate the bottom areas of that particular mine for a period. And then the pumps catch up and you get on top of it again and go forward. So it's just those short-term interruptions well managed by the site team, and then we go back to business as usual.
Stuart Tonkin: It sounds dramatic, Ben, but it's 101 for underground miners. There's clouds in the sky and rain coming in the northern parts of Australia, that dump it on you in hurry. You just bring all your equipment and your people back up above your bottom few levels, because where does water go? So the amount of people that have flooded jumbos and boxes and fans and done this is you just pull back and operate in high levels until it dries out as a precaution pretty much basic underground 101.
Operator: Your next question comes from Alex Barkley with RBC.
Alex Barkley: Just a quick follow-up on Pogo grade. You called out that there was an improvement there in your pre-release announcement. Just wondering exactly what that was about, something to do with maybe stope development ratio or reconciliation? Or would that positive later in the quarter into April? Just trying to understand what the positive aspect was there?
Stuart Tonkin: Yes. Thanks, Alex. Look, it's just where we sit in the cycle. We're looking for any glimmer of what's good, what's bad, what's average, what's expected, what's not. And so the best thing at Pogo really on the development rate nearly averaging 1,600 meters a month through the quarter means we're opening up new mining areas. We're getting very productive at doing that. Usually, that gives us a lower average grade because there's more development material, which has been tracked, which is getting milled at a lower grade. We don't see that as a negative. We see that as opening up new areas and giving us options in the future. And then we look at reconciled grades from our stoping activity. And is it planned? Is it on track? Is it above? So our highlights were basically on improving grade and getting -- you get 1,000 ounce days, you'll end up a 1,500-ounce day. You can't times by 30, and you can't times by 365. But that's what you look for at a high-quality, high-grade asset when it kicks out like Jundee can do. When it can knock out 1,000 ounce days and 1,500-ounce days, that you've got these high-grade pockets that excite us. So I guess that's where we're buy into better. You all look at averages and three months and trends, we're right on the face of the data looking at deposits and reconciling and understanding what's in front of us.
Alex Barkley: Yes. Sorry, could you remind me again what the sort of life of mine, stope development ratio for ore is? And when do you expect to get there?
Stuart Tonkin: We're trying to be at around 65% to 70% staple. So...
Alex Barkley: Pretty close...
Stuart Tonkin: Yes, we've been at that, and we've highlighted that our mining dilution is excessive for what we've designed. I think back to Kate's question on, will we adjust those factors for the reserve grade because it sits at 8.5 grams likely, yes, because controlling -- so when you're in an underground mine, you've got stresses that help you and it holds the ground together. When you're mining in a mountain, there aren't confining stresses, and you have excessive dilution because it's not held up. And so there's a calibration at Pogo when we're at a certain [RL], at a certain height in the mountain or if we're level with the valley, or if we're below the valley floor, the factors, just gravity doesn't help us with the confining stresses in that mountain or if you're actually in confined. So I'm getting into detail here, but this is not an easy answer, and we're going to have to come up with one number and there's actually 10 numbers that drive that average. So yes, it's going to flip around. It's going to go up and down. It's going to be multiple factors for multiple mining zones, but you're going to see one number at the back end, and it's going to be a very profitable mine.
Operator: [Operator Instructions] Your next question comes from David Radclyffe with Global Mining Research.
David Radclyffe: So my question is on hedging and the hedge book. And if given spot prices where they are, you've given any thoughts to changing the policy given the mark-to-market is obviously not great today. I saw you added another 160,000 ounces of about $1,000 higher than we delivered to, which is obviously positive, but affords really the right way to go. And what is the thought here, given that the balance sheet is obviously strong. And you're now adding out just past sort of when the KCGM expansion is expected to be delivered.
Stuart Tonkin: Yes. Thanks, David. The mark-to-market doesn't look good, but it doesn't mean it's wrong because the mark-to-market is purely -- it's never going to be realized as far as you've got a 4-year profile against the spot, and you can't deliver into spot. So we understand it, but it's -- our mark-to-market number is relevant, really. The policy is being maintained. So as we deliver into, we potentially add, but we do it strategically. And as you see the profile of pricing lift, I mean, you can get forwards that are well in excess of $4,000 an ounce currently. It doesn't mean we fill our boots up. It just means we methodically go through and replace that we stay at or around that 20% of our production profile whilst we're spending capital, whilst we have debt drawn, that's a prudent capital management strategy. We always will look at that policy and view whether that's the right blend going forward. But essentially, at the moment, it's achieving what we needed to achieve. Yes, so sort of sits around -- I think the minimum is around 8%, the maximum around 35%. We're sitting around that 20% of our forward production hedged over the 4 years.
David Radclyffe: Okay. So the -- so it continues on, I guess, post the need for capital at a similar rate or so what you're saying?
Stuart Tonkin: Yes, that's the policy, and we've still got 2.5 years of our Fim build. And some questions earlier asked around a large underground at KCGM that will need capital. All these things are viewed in the thoughts of secured returns. This is a very, very unique circumstance with where the current spot goal is and where it's come from in the time frame. And we are so well positioned and leveraged to gold price lifts, irrespective of that hedge profile. 80% of the gold is being delivered into spot and generating significant cash flows. So our all-in cost was AUD 2,600 and the spot is AUD 3,600 an ounce. And I think there will be a lot of gold miners dusting off plants or pits or how do they bring material in at these levels. We already made these decisions years ago, and we're already advancing and have spent the capital to develop the mines and have to tap a fair way on throughout this investment process when people are still evaluating it. And the only way they're going to make those commitments, to make those investments is to either draw debt, raise equity. And to do that, they're going to need to put some hedges on to guarantee outcomes or financial returns because this all was not economic at other levels. And it's very economic at these levels. And hedging for gold miners is an absolute outstanding tool, not offered to other commodities, and we use it appropriately to secure payback periods, guarantee investment returns. You run spot price through our current Fimiston mill expansion. It takes the IRR to 30%. These outstanding returns and outstanding outcomes and forward hedging secures those for gold miners that's not affording to other quantities. So we love it, and we'll continue to use them as we need. Thanks.
Operator: Your next question comes from Daniel Morgan with Barrenjoey.
Daniel Morgan: Just coming back to Thunderbox. Is there anything at the mill, which suggests an overall design floor that needs rectification. Do you think like -- will you be able to run it at 6 million tonnes per annum in 2025? Or might ratifications be needed in '25?
Stuart Tonkin: Yes, to both. I think, Daniel, we see things that we want to address. Yes, we'll need some modest capital to do that, and that will guarantee us those throughput rates. So that assessment, those works now, and it reduces risk effectively to deliver that 6 million tonne per annum. So yes, we're working through what that work is required, committing to that scope, and we'll give that guidance in FY '25.
Daniel Morgan: And big June quarter as is the way, how much of the drivers of this travel into FY '25? So obviously, this quarter, you'll have an absence of planned mill shutdowns, but you've also got very high grades. Is the high-grade portion temporary? Or might it continue?
Stuart Tonkin: We still have shuts planned as you see us in usually quarter 1 and quarter 3. Whether that's by design or by that -- those mills every 6 months need a plan. As far as grades, if we're talking about things like KCGM, Golden Pike North, we just end up with more and more material as we free up that and open up the pit fall as the East Wall remediation work is absolutely completed by the end of June, and we've got free access into that Golden Pike North. So that's where that grade there continues. And Pogo, Jundee, Wonder Underground, all these things are within the cycle. There's no homogeneous average grade. It's up and down and it's sporadic, and it's in the mine plan. And ultimately, it will deliver on average. But that's where the grade is being driven.
Operator: There are no further questions at this time. And I'll now hand it back to Mr. Tonkin for closing remarks.
Stuart Tonkin: Great. Thank you very much, everyone, for joining us on the call today, and I look forward to updating you as we continue to advance our profitable organic growth strategy. Have a great day.
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