Northern Star Resources (ASX:NST), an Australian gold mining company, reported a strong quarter on September 30, 2024, during its earnings call. The company's CEO, Stuart Tonkin, announced that Northern Star is on track to achieve 2 million ounces of production by FY '26, with a robust net cash position of $148 million.
The solid operational performance, driven by higher gold prices, resulted in a net mine cash flow of $122 million and operational cash flow of $585 million. Northern Star also declared a $280 million final dividend for FY '24 and expects an increase in free cash as production rises.
Key Takeaways
- Northern Star Resources reaffirmed its production cost and capital expenditure guidance for FY '25.
- The company is progressing with strategic projects, including the KCGM expansion, underground development at Jundee, and throughput increases at Thunderbox.
- Pogo Mine production exceeded guidance, contributing to the company's strong cash flow.
- The firm plans to begin paying corporate tax on Australian operations in Q3.
- A hedge position of 1.8 million ounces at an average price of A$3,200 ensures investment security, while the flexibility for unhedged production capitalizes on spot prices.
Company Outlook
- Northern Star targets 2 million ounces of gold production in the next financial year, with a long-term market outlook suggesting an average gold price of A$2,900 per ounce.
- KCGM mine production is expected to rise from 450,000 ounces to 650,000 ounces in two years.
- The company is considering capital management options, including buybacks, and is confident in its operational efficiency and long-term strategy.
Bearish Highlights
- There were pauses in material movement at KCGM as new access portals were developed.
- Some mine areas, like Thunderbox, have underperformed relative to reserve grades.
Bullish Highlights
- The company benefits from higher gold prices, which have improved margins and strengthened the balance sheet.
- The mill expansion project is ahead of schedule and on budget, with labor productivity enhancements contributing to cost management.
Misses
- There were no significant misses reported during the earnings call.
Q&A Highlights
- The company is finalizing hardware design and expects material cost benefits in the near term.
- An exploration budget of $180 million is set, with updates on the five-year production outlook expected in November.
- Northern Star maintains a conservative approach to resource calculations, focusing on production growth and cost reduction.
In summary, Northern Star Resources is leveraging rising gold prices to deliver value to shareholders while maintaining a disciplined approach to capital management and operational efficiency. The company's strategic projects and improvements in production and labor productivity signal a robust outlook for the coming financial years. With a significant gold resource base and prudent hedging strategies, Northern Star is well-positioned to navigate market fluctuations and sustain its growth trajectory.
InvestingPro Insights
Northern Star Resources' strong quarterly performance aligns with several key metrics and insights from InvestingPro. The company's robust operational cash flow of $585 million and net mine cash flow of $122 million are reflected in InvestingPro's data, which shows a healthy revenue growth of 19.13% over the last twelve months as of Q4 2024. This growth trajectory supports Northern Star's ambitious target of reaching 2 million ounces of production by FY '26.
The company's solid financial position is further underscored by InvestingPro Tips, which indicate that Northern Star "operates with a moderate level of debt" and that its "cash flows can sufficiently cover interest payments." These factors contribute to the company's ability to declare a $280 million final dividend for FY '24, aligning with the InvestingPro Tip that Northern Star "has maintained dividend payments for 13 consecutive years."
Moreover, the company's strong market performance is evident in its stock price, which is "trading near 52-week high" according to InvestingPro Tips. This is consistent with the reported "strong return over the last three months" of 19.54%, as well as an impressive one-year price total return of 48.05% as of the latest data.
While Northern Star's outlook remains positive, investors should note that the stock is "trading at a high earnings multiple" and has a P/E ratio of 31.3, which may suggest a premium valuation. This could be justified by the company's growth prospects and operational improvements, but it's an important consideration for potential investors.
For those seeking a more comprehensive analysis, InvestingPro offers 14 additional tips for Northern Star Resources, providing a deeper understanding of the company's financial health and market position.
Full transcript - Northern Star Resources Ltd (NESRF) Q1 2025:
Operator: Thank you for standing by and welcome to the Northern Star Resources September 2024 Quarterly Results. [Operator Instructions] I would now like to hand the conference over to Mr. Stuart Tonkin, Managing Director and Chief Executive Officer. Please go ahead.
Stuart Tonkin: Good morning and thank you for joining us today. With me, I have our Chief Financial Officer, Ryan Gurner. We are very excited to be reporting another strong quarter and to share with you the progress of the many projects across the business the team is working on to create additional value. We continue to deliver reliable and consistent operational results, safely and responsibly in the most prospective and the most desirable jurisdictions. With our first quarter results, a great start to the year, we are well-positioned to reiterate our production costs and CapEx guidance for FY '25. The business is in good shape to deliver for our shareholders significant leverage to the increased gold prices, translating to increasing cash flows. Financially, Northern Star is in an exceptional position, with an investment-grade balance sheet that remains net cash at the end of the quarter. I am pleased with our prudent and measured approach to our returns-focused capital investment program in the fourth of our 5-year strategic plan to deliver 2 million ounces in FY '26. At KCGM, our mill expansion work is on track and the project to deliver ore feed and infrastructure for the expanded Fimiston Mill is progressing well. At Jundee, underground mine development commenced at Cook-Griffin while the ramp-up of mill feed sources continued at Thunderbox. At Pogo, major mill works were performed successfully to enable us to continue delivering high-margin ounces. At Dundee, underground mine development commenced at Cook Griffin, while the ramp up of mill feed sources continued at Thunderbox. And at Pago, major mill works were performed successfully to enable us to continue delivering high margin ounces and above the quarterly guidance provided to the market. I will now hand over to Ryan Gurner, our Chief Financial Officer.
Ryan Gurner: Thanks, Stu. Good morning all. As demonstrated in today's results, the company is in a great financial position. Firstly, our balance sheet remains strong in a net cash position of $148 million, with cash and bullion of $1 billion at 30 September. Secondly, free cash generation across the business is strong. With our capital investment program fully funded, we expect free cash to increase over the year as production lifts. And finally, we are focused on capital management, dividends and buyback so our shareholders can benefit from increased gold prices. The company has been a regular dividend payer since 2012 and it underpins our company purpose of delivering returns to shareholders. And now to the details. On a net mine cash flow basis, the business generated $122 million. Thanks to higher gold prices and operational performance. Figure 8 on Page 9 sets out the company's cash and bullion movements for the quarter with key elements being the company recording $585 million of operational cash flow. Looking ahead, this is forecast [technical difficulty] at Jundee, continued throughput increases and recovery at Thunderbox with increasing grade planned and increasing throughput at Pogo. After deducting CapEx of $423 million relating to plant and equipment and mine development, $60 million in expiration and $50 million in equipment leases. Quarterly free cash generation was $52 million. Also during the quarter, the company paid its FY '24 final dividend, totaling $280 million to shareholders. Quarterly investment in sustaining capital, growth capital and expiration are tracking to plan. Growth capital investment includes at KCGM, open pit development at [indiscernible] and the East Wall which will give us full access to Golden Pike North and underground development at Fimiston and Mt Charlotte which is enabling us to lift production in those areas. At Jundee, underground development and infrastructure at the Cook-Griffin Mine and our renewables project which will be fully commissioned in Q2. At Thunderbox, development of the high-grade Wonder underground and open pit development at Orelia. The KCGM expansion project remains on track with spend of A$130 million during the quarter. This included work performed and commitments in respect of engineering and design, on-site construction including bulk earthworks and major concrete pours and the major equipment package. Whilst operational free cash flow is expected to increase in Q2, the company will pay its semi-annual coupon payment on the U.S notes and the FY '25 annual group insurance premiums. As previously mentioned, the company is not expected to begin paying corporate tax on its Australian operations until Q3. On other financial matters, depreciation and amortization is slightly under the low end of guidance range at approximately 710 per ounce sold and for the quarter non-cash inventory charges for the group are a credit of 11 million. After the quarter end, the company converted its debenture with Osisko Mining for 38.5 million common shares. Shareholder approval for the [indiscernible] arrangement was obtained on the 17th of October as expected to become effective 25th of October. Shortly after Northern Star is expecting to receive proceeds of CAD$189 million resulting in a A$32 million pre-tax gain during Q2. Lastly in respect of hedging, Table 4, Page 9 sets out the company's committed hedge position at 30 September with the overall book being 1.8 million ounces at an average price just over A$3,200. The company replaced the 120,000 ounces of volume delivered during the quarter at an average price above A$4,000 per ounce. These commitments were permanently placed across calendar year '26, aligned to the final period of capital investment for the KCGM plant expansion and commissioning start. I'll now hand back to Stu to cover the operations.
Stuart Tonkin: Thanks, Ryan. And today I will be covering the operations section as Simon Jessop is travelling. So as you can see in our results, we delivered strong operational and cost performance, starting with the Kalgoorlie production center, which includes KCGM, Carosue Dam and Kalgoorlie Operations, and accounts for 52% of the group gold sales and 56% of mine operating cash flow. Net mine cash was an outflow of A$11 million due to the major planned works and $304 million of capital spent largely at the KCGM Mill expansion. At KCGM, the East Wall remediation works were temporarily paused to build a platform for the new [indiscernible] underground portal locations which had been filed subsequent to the quarter. Full access to the Golden Pike high-grade zone is delivered from the second half of FY '25, growing production of KCGM. Open pit material movement achieved an annualized rate of 80 million tonnes per annum, in line with the guidance above 80 million tonnes. Pleasingly, the underground mines delivered a second consecutive quarter of increased activity, realizing the benefit of increased resourcing. Underground ore mine was 20% higher compared to the June quarter due to the increased production from Mt Charlotte and ongoing development ore from the Fimiston underground, with the first stopes fired during the quarter. Development meters increased 50% for the quarter to 6.3 kilometers versus 4.2 kilometers in the previous quarter. Mill ore volumes were lower than the June quarter due to planned major maintenance shutdown activity with mine grades reflective of the greater proportion of stockpile material processed and gold volumes and grades are scheduled to increase along with recoveries in the following quarters. At Carosue Dam, gold sales were lower given a planned mill shut and lower gold grades from the underground mining sequence. And at Kalgoorlie Operations it continues to perform very well with strong milling performance at the Kanowna Belle mill. The KCGM mill expansion spent $130 million over the quarter and remains on track with on-site construction slightly ahead of schedule. Stage 1 engineering and design is now 71% complete with minimal changes to the original design and major concrete pours are on track with 39% of total concrete poured to date. Shipping of all bulk steel has commenced and all major equipment has been fabricated and has been progressively freighted to site. We expect to receive all the major equipment by early calendar year 2025. Turning now to Yandal Production Center, which includes Jundee and Thunderbox, where the quarterly highlight was the Thunderbox Mill delivering nameplate throughput of 6 million tonnes per annum run rate for two consecutive quarters. A fantastic outcome by the team and I thank them for their efforts. Yandal delivered positive net mine cash flow of $86 million, a record since the beginning of our profitable growth strategy commenced in FY '22, demonstrating our returns focused approach for this production center. At Jundee, Northern Star Mining Services mobilized and commenced mining at Jundee's newest underground mine, the Cook-Griffin, a recent exploration success. And gold sold benefited from a drawdown in Gold in Circuit, offsetting lower milled grades and longer than planned mill shut. Milling performance has significantly improved so far this quarter, with grades expected to modestly increase throughout. And as I mentioned previously, Thunderbox was a standout, delivering a record mill throughput, including a planned mill shut and pleasingly at our new satellite mine, Wonder underground, production stoping commenced whilst our NSMS team continued to deliver industry leading development rates there. We are continuing to work on improving the reliability of the processing plant and work focusing on milling and crushing circuits in the December quarter will continue. This work is expected to deliver targeted stable mill performance there at Thunderbox and lower cost base from the second half of this year. And finally to Pogo, a fantastic achievement by our Alaskan team to deliver 60,000 ounces for the quarter whilst also delivering the planned major millworks that were significant there and above our previous guidance of 50,000 ounces for the quarter. During the quarter, the underground mine operated at a 1.3 million tonne per annum rate and it was constrained by stockpiling capacity, but certainly ahead of the total mill volumes in the quarter. And that underground stockpiled ore now provides future contingency and increased confidence to deliver our annual guidance at Pogo. The Pogo mill continues to operate at very good rates this quarter on the outset of the completed millworks, and we have established our guidance for the plant to operate at a targeted throughput now above 1.4 million metric tonnes per annum. So that concludes our operational highlights, and I would now like to hand over to the moderator, Ashley, for Q&A. Thank you.
Operator: [Operator Instructions] Your first question comes from Daniel Morgan with Barrenjoey. Please go ahead.
Daniel Morgan: Hi, Stu and team. Simple question with regard to your operational performance. Like, could you just do a quick around the grounds, as a simple snapshot of where your businesses, various businesses were versus your expectations in the quarter, like with each business, was it ahead or behind? And just to give us an overall sense of how we're tracking. Thank you.
Stuart Tonkin: Yes, thanks, Daniel. We -- look, largely we delivered as a Group, right in line, I think that's probably reflected in our consensus view as well. We'd already flagged early that there was a significant amount of major works across all our plants within the quarter and we explained that on the onset of the guidance, so I think that was anticipated. Pleasingly, Pogo really came out the gate strong. We pulled out that mill motor [ph], fully rewound it, we did a lot of other major works at Pogo on the course ore bin and a lot of other circuit upgrades that were done in that sort of 5-week major project and pleasingly came out very strong whilst the mine still continued to operate there. So that delivered 60,000 ounces and we forecast 50 for the quarter. So very pleased with where Pogo has positioned and it's continued run rate into this quarter, generating really good U.S cash flow. I said in my opening remarks around the pause of the movement of the material for the bottom of Golden Pike at KCGM. Essentially we've got that large big platform built with waste where the new creaseless [ph] portals have been cut and that's the new access into that OVH cutback area. This new portal has been established and developed there that gives us neutral platforms and access to Fimiston. So, yes, very pleased with that work and we'll essentially catch up the material movements throughout the next couple of quarters and really go hard into KCGM lower part of that mine for the second half of the year. So I'd say that was set off in ounces in the quarter at KCGM, but across the rest of the sites, Jundee had a great sequencing delay, but the rest are pretty much bang on where we expected them to be this time of the year.
Daniel Morgan: So just following up a little bit on Thunderbox, I'm surprised to see the [indiscernible] nameplate despite the big rectifications. I know it's early, but have you got a sense for how much you might be able to push that nameplate for the rest of the year, and do you have confidence in the -- that the rectifications now mean that the mill can deliver?
Stuart Tonkin: Yes, so if you recall, we spoke about on the onset of that expansion, it was really mechanical availability of the plant. So, yes, the issue was we absolutely could deliver at the 6 million tonne rate, but the availability was sort of in the 70s, low 70%. We've got that up mid 80s, and that's what's giving us the 6 million run rate, which says that if we get it in line with most plants around Australia -- at other plants, it look like 90% utilization availability, we will get in excess of 6 million tonnes. So we're just very pleased that that's the minimum and we've got a lot of material in and around Thunderbox that can feed, that's stockpiled and can feed that in excess. We're not mine constrained there or source constrained. So if we can operate above 6 million tonnes, that's an opportunity upside for us.
Daniel Morgan: And then, I mean, just pivoting over to Pogo, again, the operation seemed to deal very well with a big mill rectification during the period. You built some stockpiles, you're talking about operating at 1.4 million tonnes or above. Does that mean potentially this asset could deliver towards the upper end of your guidance? So could you just unpick what the rest of the year looks like in your confidence from here?
Stuart Tonkin: Look, yes, that's what we see and we know that the mill can operate at that 1.5 million tonne rate. It's really around the planned shuts and the unplanned shuts I guess that impact away from that. Hence why we've said now that the floor is not 1.3, it's 1.4 million tonnes through the plant and we're obviously mining to match to that. You'll see the difference in the quarter table there showing that we were -- we mined 60,000 ore tons more than we milled during the quarter, which is stockpiled effectively to be buffer. We won't necessarily be able to maintain that level underground because we're pretty snowed in with real estate, but it is a good, something we've never been able to do is create a lot of stockpile between mine and mill and allows us through thinking and planning to disconnect the two, so it can work independently. So it's pleasing with the outlook of Pogo, pleasing where they started in quarter two on all things throughput through consistency through the mill, head grade and mining matching those volumes. And obviously the development has been always ahead of schedule so we're opening up new areas underground. So it is -- yes, it's -- watch this space with Pogo. You've seen great U.S cash flow generation. You've seen great resource outlook at that deposit and expiration upside. So I think people start to really cast their eye to the valuation on it.
Daniel Morgan: Thank you so much, Stu and team.
Stuart Tonkin: Thanks, Dan.
Operator: Your next question comes from Mitch Ryan with Jefferies. Please go ahead.
Mitch Ryan: Good morning all. So just want to have some commentary, at Yandal you pulled out that satellite feed sources are expected to double to 4 million tons in FY '26. In light of that I'm just wondering if you can sort of help us think about growth CapEx into FY '26. I know the guidance for this year is A$285 million to A$307 million. We sort of expect that to be maintained given the capital [indiscernible] infrastructure to maintain that satellite feed?
Stuart Tonkin: Yes, thanks Mitch. Look, it's capital-related to building undergrounds, taking them to commercial production, which include things like Wonder, and it will also be the pit capital that went into things like Orelia. It's now been trucking its ore source and that down. So, yes, that capital, Bannockburn is probably the only next future pit in a number of years, but ultimately it's pretty flat to reducing across the southern part of Yandal, because we've already started those mines, spent that capital, bringing them to commercial production and then building stockpiles. So it's really whether, back to Dan's question, whether we increase throughput through Thunderbox, whether we need to accelerate any capital to match that extra milling throughput. But we won't give that capital guidance out till next year because there's still decisions to be made on whether that is or isn't. The thing at the moment is the Wonder underground is in production and we've got, it's an underground mine that's been developed and that's really been fed in as that high-grade material, and then to the north, the Cook-Griffin portals are being cut, so there's capital this year. Essentially, that will be ready for commercial production in FY '26 with limited other major capital at Jundee region in the north part of Yandal. So, yes, I think it's relatively flat to reducing into '26, but you've always got some capital in turning on satellite operations at Yandal.
Mitch Ryan: Yes. Thank you for that commentary. My second question just relates to you've called out that Pogo is going from two to three shut down the year. You may have given timings, but I've missed it if you have. Can you just give some commentary around which quarters we should expect those to fall in and will it be the same quarters every financial year?
Stuart Tonkin: Yes, so I guess one thing that happens with increased throughput is [indiscernible] quicker and we did do this sort of two shuts per annum and the risk is you call them early and you're unplanned for it. So we've strategically gone to three. Ideally they are more compact and we can do other works. We could back all these other works up so that we also don't have the on-plant shut. So we'll get to trial, we'll plan it that way, we'll run it that way. We still believe we'll have sprint capacity either side of those shuts to catch up, but I guess we'll guide the market to make sure that they look at the full year, not the -- pick a point and draw a line. It's -- there'll be lumpy points within, depending on those shuts. And then on other operations where we've tried to, we've always been asked about why do you do all your shuts in one period? We usually did one major shut in Q1 and we do a half shut in Q3. And obviously that's reflected in the output for the Group. And then when you line all those things up across all your operations, we’ve a seesaw [ph]. We will -- it's also around booking and planning that major works and labor a long way up. And once you're getting close to that, it's quite rigid to be able to move it. So we'll aim to smooth it, but I think as long as we just tell people to expect it, they're not surprised if there's a bit of a trough and then they'll expect to see a peak that nets it off.
Mitch Ryan: Okay. Thank you.
Operator: Your next question comes from David Radclyffe with Global Mining Research. Please go ahead.
David Radclyffe: Hi, good morning, Stu and team. So the first question is a bit of a high-level one. Just maybe if you could give us sort of your thoughts on the impact of what the sort of $4,000 an ounce gold price actually means for the business day to day now. So really thinking about near-term opportunities, do you consider accelerating some of the stripping or pushing some extra development? Or do you think about even bringing forward some of the sustaining capital projects?
Stuart Tonkin: Thanks, David. I guess what it means for us right now is we are enjoying significantly improved cash flows from production we're doing today and delivering into spot sales. So you'll absolutely see that in strengthening of balance sheet and compression of payback periods on investments that we made decisions on and committed to in previous years that are on the back end of execution, these were very robust investments and returns generated from assumptions around 2,700 oz gold, certainly not 2,700 U.S gold. So the thing at the moment is we don't need to change our plan. We're in our fourth year of our 5-year strategic plan delivering into 2 million ounces next financial year. We're well-positioned and ahead of that, that we don't have to scramble. What we're seeing across the gold fields is all of that thinking at these higher gold prices and what typically happens in this environment, you end up with all these pop-up shops that start new mines that are only economic at these levels. That does put a bit of pressure on resources and potentially costs at a time, but right now we are producing, we have gold, we can physically sell into those spot levels and are enjoying those improved margins. So, yes, we don't have to change behaviors and it's really a question for when we get to March, April, when we assess our resource and reserves that are done at 2,000 oz, 2,500 oz, what numbers should we be using on our resource reserve for our long-term outlook. Because the market's long-term outlook is about A$2,900 oz an ounce in consensus, but if you wanted to put forward hedges today, you can get 4.5 to high A$4,000 oz an ounce. There's a massive disconnect at the moment on sentiment outlook and ability to -- for producers to generate cash.
David Radclyffe: Okay, thanks. Well, it's good to hear. Obviously, you're sticking to plan, but maybe to follow-up on that hedging comment, could you just clarify again what the hedging strategy is? Last quarter, no hedging. This quarter, we seem to be back to hedging and rolling that forward program. Obviously, as you say, the $4,000 an ounce is a great and very attractive price, but the forward strategy hasn't worked so well in the short-term. So it's just a bit of clarification will be good.
Stuart Tonkin: The forward strategy of hedging never works on a rising gold price. But if you put our mark-to-market, if you put that against the forward consensus, it's well and truly in the money. So we do it for purpose on our investment decisions to guarantee those returns and guarantee those paybacks, and then we fall off after that. So our hedge book does tail off and we're not adding at the back end of it because we are off CapEx and we have significant production and we're generating a massive buffer of cash earnings as well as having no debt. So we're less concerned now on the other side of the Capital Hill [ph]. And it's just the near-term where we do have, 20% odd of our production hedged, which was put in place for a prudent decision around the investments at the time. So, yes, that's what we're able to do and why we've done it. We've been pretty clear on articulating that. It's worked and I think at the moment it's the attitude is you can get those forwards, but we will be able to deliver into these spot levels with unhedged production that is double the next producer's ounce profile and 4x or 5x the next producer after that, leveraged to gold price, and all the star has it in [indiscernible].
David Radclyffe: Brilliant. Thank you. I will pass it on.
Operator: The next question comes from Al Harvey with JPMorgan (NYSE:JPM). Please go ahead.
Al Harvey: Yes, good morning, Stu and Ryan. Just on the Osisko convertible conversion, I guess just trying to get a sense of what the plans are for the 188 mill Canadian. Could that come back through the buyback and maybe just a more general one just how you're weighing up capital management options across growth versus capital returns at present?
Ryan Gurner: Yes, thanks. Thanks, Al. Yes, that's right. So I mean, we've got to -- obviously we're expected to receive the funds later this month. So looking forward to getting them with a small gain there. Yes, look, there -- yes, look, it will be considered. I haven't thought through just yet what we're going to do with it. Once we see it in the account we'll start considering it. There's 125 mill left back on the buyback. It's not a great deal left to do. That can be executed quite quickly. So there's plenty of time for us to execute that and the gain, I guess, from Osisko will weigh up what to do with it and sort of go from there. But as sort of Stu was mentioning or spoke about in the question around do you change behaviors, obviously we're not changing behaviors from an operational sense, so we see good returns in what we've done. We've done a lot of the hard work now, so just really looking forward to the margins and the earnings growing from here under these gold price levels.
Al Harvey: Sure. And I suppose maybe just to follow-up, I mean, I think you've kind of answered it with discipline, et cetera, but just thinking, I guess the Osisko convertible was kind of entered in as another option as further progress into North America. Are they how we're thinking about potential growth M&A in that space?
Stuart Tonkin: Yes, you're right. It was established as exclusivity to do [indiscernible] and assess the [indiscernible] deposit. That's where it was established. So, view and appetite is to always look. We don't need things and we've got a great organic delivery and plan and strategy. So -- and look at the exchange rate, it's difficult to see value offshore at the moment. So, yes, we'll just keep focusing on pointed out the disciplined approach to it. Greatest returns right now in our organic delivery and we consistently deliver into that. But yes, over the next couple of years, it's a pretty exciting position when we've built the balance sheet we've got today and it's only improving. There'll be options in front of us.
Al Harvey: Yes. Thanks, Stu. Thanks, Ryan.
Operator: Your next question comes from Matthew Frydman with MST Financial. Please go ahead.
Matthew Frydman: Sure. Thanks. Good morning Stu and Ryan. Firstly, on KCGM, and I think you might have alluded to this already in your response to Dan's question, so apologies if I'm going over old ground, but I just wanted to understand the lower feed grade during the quarter. Obviously, you said more stockpiles, and that was -- it appears to be as a result of that lower open pit ore mined. Is that just as a result of, I guess, lumpy access to those high-grade zones as a function of the mine plan? Is there anything we should be reading into there in terms of the lower open pit ore mined during the quarter and the higher stockpile feeds, obviously, despite the fact that you had a plant shut? And I guess, ultimately, is the expectation that ore mine volumes are going to pick up in the following quarter? Thanks.
Stuart Tonkin: Yes, thanks, Matt. So, you're right, I think it's the stockpile's contribution still getting 13 million tonne right through the plant, it's just what blend and what grade. If you kind of think of last year out of KCGM ultimately, that 450 odd thousand ounces, this year around 550 odd and then next year the 650,000. So you've got these step changes and we said it's largely that second half when we're accessing the higher grade Golden Pike sort of undisturbed. So the rate in 2 years going from 450 to 650, if you kind of cut the middle year in half, which we're in at the moment, we're seeing extension of last year's rate going into Q1, maybe Q2, and then the second half basically being at the run rate into FY '26. So it's just where we're positioned at KCGM. But once we've got all of the waste from that East Wall off those bottom shelves, benches down the bottom and open up and destack those levels, we'll have good access to that grade, which then comes into the feed. Standing off a bit of that is the improved underground performance at Mt Charlotte particularly and the development all coming out of Fim and I expect to see that continuing to improve as well. So there is a bit of a lever and buffer there that not only are we relying on the high grade from the pit, we will likely get some better material, the same material but more of it from underground sources throughout the year as well.
Matthew Frydman: Yes, understood. Thanks, Stu. And then maybe just a bit more of a fulsome update on the mill expansion. If I look at the capital spend there, I guess in terms of the run rate relative to your guidance for the year, everything appears on track, but is there anything maybe at a more granular level that's moving around? How's progress on the ground relative to your timelines and your project expectations? And is there any sort of challenges or opportunities that are presenting themselves given the, I guess, the broader industry backdrop? Commentary's been that engineering services are a little bit easier to come by and maybe labors -- skilled labors are a little bit easier to secure. So is that kind of being reflected in how that project is progressing? Thanks.
Stuart Tonkin: Yes, so we're very happy with its progress and we're ahead on some of the items in the schedule. We're actually ahead of plan, which is pleasing because we catch that up and it's -- we're derisking it each quarter we go forward. So yes, we're very pleased with that activity. You can appreciate there's still a lot going on. So the [indiscernible] team and the contracting teams that are there and then we start to get all of the physical items being freighted and delivered to site. So we always like to say we'd rather be looking at it than for it. So it'll all be laid out in sequence ready to be erected. By pretty much early calendar year, all the hardware will be there and then we'll be slowly sequencing or just checking Q&A and making sure there's no issues with any of that. But historically when things are still coming on the water, or they've got with the Suez Canal issues or all that sort of stuff, or going the long way around or ports not accessing it, all those sort of things, you've just got to -- it's all going to plan, it's all theory. We're really getting past those really critical items or events to make sure that they're not going to hold us up. So, yes, very pleased with where we're at. I wouldn't say there's massive opportunities on savings. I think when we look at the contingency, we're probably eating into it at the rate we would expect that it was there to achieve, and it's really around this labor productivity rate going into it with the contractors. So, yes, we're working closer with them. We are seeing some rate processing savings, but we are also seeing some small movements. But we're very happy it's on time and on budget and derisking every quarter, by the way.
Matthew Frydman: That's helpful. Thanks for the commentary, Stu.
Matthew Frydman: Thanks, Matt.
Operator: The next question comes from Jonathan Sharp (OTC:SHCAY) with CLSA. Please go ahead.
Jonathan Sharp: Yes, good morning, Stu and team. Just a follow-up question from Mitch's question about the Pogo shutdown. Has the maintenance strategy changed in terms of planned maintenance time over a yearly basis or over a per tonnes basis, or has that actually stayed the same and it's just you're producing more so more maintenance?
Stuart Tonkin: Yes so stretching it out to the two shuts what we've looked even when we kind of -- we upgraded the plant from a 1 million to 1.3 million tonnes per annum we seem to be still keeping to the two shuts and trying to stretch out, relines and works. And what, obviously, we're not experiencing, we saw throughout the last few years, these unplanned issues that things just wore out at a higher rate. And so we've gone now on a bit more of a conservative side. And it's not as simple as saying two or three in a year. It's taking weeks off, gaps between, so we look at meantime between failures, we look at which items can be upgraded so that they can last, align with a major shut so they're not small pumps or something like that can't have to be brought down to replace or put in duty spares that can, one can fail and you have a second one there that gets you through to the next shot. So all of that overarching maintenance planning, thinking, alignment of all these things. So it's a bit more like a F1 car coming into the pit and getting everything done at once. That's the attitude as opposed to driving with [indiscernible] around Australia and fixing your car piece by piece. This is sort of a different maintenance regime. Again, we'll see how it goes and we still expect it to give us a better planned result over the year and absolutely deliver that consistent guidance that we've marked. So it's a natural maturing of the view at the asset and we've got a very long-term multi-decade outlook there. So we're not just trying to tie it up with wire, we're certainly making sure that the investment we're making is for the longer term.
Jonathan Sharp: Okay, great. So could I summarize it as an increase in planned maintenance to decrease unplanned maintenance?
Stuart Tonkin: Absolutely and that is the eternal balance of investing capital versus operating and that's I guess where -- yes, we may have got criticism at the time for Fimiston building a $1.5 billion plant, but it was going to be there for 50 years. You're going to get the absolute lowest OpEx and the highest uptime and the reliability because of that investment. You can certainly have done it cheaper and it will break along the way and not give you consistency. So it's the exact approach to whether it's building mines or running infrastructure. It is that eternal balance. These aren't aircraft you've got to keep in the air. There's a balance between OpEx, CapEx uptime. So it is that fine line.
Jonathan Sharp: Yes, makes sense. And just another question on KCGM mill expansion. I mean it appears things are going pretty well, at least on paper, but as you know, as we all know, there's always issues to manage. What do you see as the key risk or challenges in the next 6 months?
Stuart Tonkin: Look, it's probably, we're very pleased with the visibility on all of the elements, the quality of the work, the rate of the work. So we're very happy with that. In my view it's really the coordination or the overlap of activities and making sure that someone's great work isn't undoing someone else's adjacent to them and that there's not that, because we're obviously, we're running a 13 million tonne per annum plant. We've got a fence around it and building a 27 million tonne per annum plant adjacent to it. And so we've just got to make sure that those interactions don't compete or that it's already in advance risk assessed and planned ahead. So that's the only part, but we've got a large owners team really looking carefully at all this. We've got a very highly competent contractor there in [indiscernible] managing the build, doing great work. So yes, very, very confident with what we're seeing at the moment and it's been derisked.
Jonathan Sharp: Okay, great. I'll pass it on.
Operator: The next question comes from Hugo Nicolaci with Goldman Sachs (NYSE:GS). Please go ahead.
Hugo Nicolaci: Hi, Stuart and Ryan. Thanks for the update and congrats to the team at Pogo for the performance there. A number of questions on the quarter have already been asked, so I wanted to try and come back to the mine grade outlook across the portfolio, particularly at Yandal. I appreciate we've tried to touch on this one before and you've historically guided to the outlook for grade across most assets being in line with reserve grade. Though if I take Thunderbox as an example, mine grade there has been below reserve grade since 2021. Are you able to give us a bit more color across the portfolio on how you expect grade to track over the coming years relative to reserve grade maybe and also just with regard to the timing of new pits and new areas being opened up?
Stuart Tonkin: Yes, I don't think it's departed too greatly there, Hugo. So I think there's a recovered grade, there's mining factors that have been applied as we've opened new mines. But I think relative to reserve grade, it's around sequencing. So, I think we’ve -- Jundee always historically had quite a lumpy profile because of the nuggety ore body and the sequencing of higher grade that comes in. It's less of an issue down the south because you've got more consistent grades and therefore it is around, I guess, how much of that material goes into that now expanded 6 million tonne blend. So I think the Thunderbox Underground originally at the higher parts or middle of the ore body was around those 2.2 grams and on the periphery sort of gets down to 1.7, 1.8. So I don't know whether we're anchoring back to original reserve grades there, but it's certainly very productive, very profitable at those lower grades, but that is reality of that ore body. And then it's just the sequencing of Orelia or obviously Otto Bores come in. We really haven't seen a huge contribution from Orelia pit to see whether it's meeting or matching reserve, but we certainly put in very conservative numbers on that to make sure it was economic. And then it's just the Wonder underground coming in as well. So, D Zone has been consistent. So I don't know the reference to the setup against reserves, but we're guiding essentially plus or minus about 300,000 ounces in the north of Jundee, 300,000 ounces in the south at Thunderbox. It'll swing around about, but ultimately that's what we're working to give us a 600,000 ounce production center across that Yandal system with multiple ore sources, or by satellite mines being fed into those plants.
Hugo Nicolaci: Thanks for that color. So maybe in the near-term, just depending on where you are on that sequencing piece and maybe grades kind of track a bit below reserve grade and then come back up as you start to see a bit more contribution from the higher grade zones. Is that fair?
Stuart Tonkin: Yes. The two things will happen. If we're over reserve grade, there is a time in the future we'll potentially be under it to average into it, but we will secondly every year when we cut our reserves, we'll be looking at our metal core factors and making sure we're reconciling those models closely. So there's either two things happen. You either downgrade, upgrade your reserve on an annualized basis with that model feedback, or you're looking at your mining factors, which obviously being dilution, that's from your resource to your reserve grades. So they're very iterative things. I would not be macro discounting any of our numbers based on a quarter outcome at any of our operations because they have swings and roundabouts. You just go back through all the historic quarters there's pluses and minuses, because you’ve Jundee will knock out an 85,000 ounce quarter and then it will knock out a 60,000 ounce quarter doing exactly the same activity in very similar areas and reliably over 10 years it'll have this seesawing to do that.
Hugo Nicolaci: Great. Thanks for that color, Stu. I will pass it on.
Operator: Your next question comes from Hayden Bairstow with Argonaut. Please go ahead.
Hayden Bairstow: Yes, morning guys. Just a quick one on KCGM. So you just noticed there's a Stage 1, Stage 2 engineering work and Stage 2 is only 30% done. How much of that is the CapEx? Is there any sort of concern that that's where we might get some CapEx variability as that engineering work's tidied up?
Ryan Gurner: Yes, good question. We broke, because it was a very big project, we actually broke it into two stages. We originally worked to try to tender them separately and have them in separable portions to see if there was any benefit in breaking up the project. It was also around the leveling of the resources. So the engineering doesn't sit there and do all this work on everything and then nothing, they do the first primary critical path elements and then if it goes to the same route, they can then flow those resources into Stage 2. So it's a lot of that back end leach tanks and yes, the back end of the flow sheet. So we're on track with it. We don't see -- a lot of it is the engineering on a lot of the final design parts as far as cable trays and piping and small elements that even if it doubled, tripled in price, it makes no difference. It's the smaller capital items and that, the big major works, where all heavily defined and if we -- probably look back to how we put that contingency in place. There is sort of 150-odd million contingency, it was thinking about what was still moving parts and part of this design was considered in that review. So yes, the hardware and the final design is set. It's really around sequencing the work that happens to get it done and the closer they're doing it to that point, the more you see the detail. We're actually seeing some revised downward pricing for some of those elements with some of the inputs. So, I've tended originally at high steel, high copper, high other elements, and then we're starting to see some reduction in costs in some of that final design work now, or even just optimizations where we can do less work and actually get a saving there too. So, I don't see it as a threat. I see it probably as a benefit in the near-term.
Hayden Bairstow: Yes, okay. Just [indiscernible], I mean, there's not much in here on some exploration, but is there anything that the exploration guys at [indiscernible] or underground at KCGM that could actually come in and shift the 5-year production outlook a bit?
Stuart Tonkin: Yes, so it's probably the -- it's getting the portals and the drill drives and the drilling happening at the moment, we would typically put out an exploration update around November, working out whether we want to do that or whether we just wait to the resource reserve sort of March, April sequence. Yes, at this moment, the team's, we had $180 million exploration budget and they headlong into that. So it's really whether I can put drill holes up on a page and it makes not much differences around the formulation of that. As you mentioned things like Hercules, what does that look like from an overall resource and the capital et cetera to accelerate it into a mine. I think that's more likely to come after the resource reserve statement, not in the coming months.
Hayden Bairstow: All right. Great. Thanks for that.
Stuart Tonkin: I will just add, we are super excited with the exploration potential across the belts and then in the mine at KCGM and underground, hence why we'll be putting in probably six portals this year and getting access to them and then we will be drilling heavily to prove out that long-term plan for Fimiston underground and then Pogo in itself as well. There's some really exciting ones over there a month ago. There was some really exciting follow-up targets to advance on. So, seasonally been able to drill through the winter from surface, it's great, and then also the productivity of getting out of the underground rigs is up, is increasing, so we may get some better results as well out of Pogo. So yes, pretty excited about the exploration. Yes, with extra cash flow at the moment, if there's good projects, we might even throw some more resources towards that stuff.
Hayden Bairstow: Thanks.
Operator: [Operator Instructions] Your next question comes from Levi Spry with UBS. Please go ahead.
Levi Spry: Yes, good day Stu and team. Thanks for your time. A lot of good questions there. Update on KCGM and Dave's questions around, I guess, price and where we are in the cycle. Maybe can you just sort of tie that together a bit for us, Stu? So how do you think about risks in, I guess, the business and, I guess, the sector overall, there's probably still a little bit of caution towards believing these prices from the investment community, I suspect. How do you think it plays out next?
Stuart Tonkin: It is hard to believe these oz levels above 4,000, still coping with 3,000 ounce and that's 4,100. I think that comes back to some of the original questions on do we change our behavior and immediately the answer is no. And in fact we're enjoying prudent, disciplined decisions we made in previous years, we're coming out the back of that. So people who are dusting off plans or thinking about investment decisions at these levels, they've got to really look at the payback periods and therefore they may have to look at hedging and those sort of things to commit to it because you can only enjoy a gold price when you've got gold and we've got lots of it. So I think there's that imbalance there of sentiment, theory, developers, timelines. We're going to be coming out of our -- we're delivering into 2 million ounces next financial year and then the following year Fimiston turns on, adding another couple of hundred thousand ounces. So, this year, next year, high capital spend, and we're still net cash dividend paying, have our buyback active, we have surplus cash generation. So, I think it just enhances what we're doing at the moment more so than anything, and we don't have to be considering, well, what if gold price goes up? Our resource and reserves are calculated at very, very conservative numbers compared to spot. But at the time we calculate them, we also looked at a really robust, through the cycle, downturn kind of attitude to say, with a 60 plus million ounce resource, how long does it take that to come out of the ground, and how many decades ahead, and what's the cost and gold price going to be? So I think they're all the things that we have visibility and runway to assess and consider. But I think people are suddenly looking at gold price and going, look to gold producers and go, now, what do you do next? We're doing this day in, day out, controlling what we can control, and the biggest ways we can create value, growing production, reducing costs, extending life. And when you overlay gold price, all it does is magnify up and down, but it magnifies the enhancement of that value creation. So we're sticking to the stuff that's in our control and shareholders should benefit from being exposed to significant leverage to gold prices that we're enjoying at the moment. And I don't ever speculate on gold prices. We don't have to. We've got assets that will survive throughout cycles and we're pretty much midpoint on the global cost curve. And so there's a lot of assets above us that would struggle with a retracement and the back quartile of the cost curve gets really steep. That's not flat throughout Q1 to Q4, in quartiles, it really gets stopes [ph]. So there's a lot of things that production is being delivered into at these levels that it doesn't take much of a shock for a lot of those things to fall off. And as you also know, it's not really a simple supply-demand curve for gold. Like other commodities, there's another element with guarantee overlay in there.
Levi Spry: Yes, got it. Thank you. Appreciate your time.
Stuart Tonkin: Thanks, Levi.
Operator: There are no further questions at this time. I'll now hand back to Tonkin for closing remarks.
Stuart Tonkin: Right. All right. Thank you for joining us on the call today and I appreciate it is a busy morning, lots of reporting. So again, thank you for joining us and I look forward to updating you as we continue to advance our profitable growth strategy and go gold.
Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.
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