Northern Star Resources Limited

Thank you for standing by and welcome to the Northern Star March 2023 quarterly results call. All participants are in a listen-only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Stuart Tonkin, Managing Director. Please go ahead.

Good morning and thanks for joining us today. With me is Chief Operating Officer Simon Jessop and Chief Financial Officer Brian Gurner. I'm pleased to present our March quarter results today and reaffirm our group production guidance for FY23. During the March quarter, we experienced two key milling challenges at Casey Gym and at Pogo, which delivered a reduced production result of 363,000 ounces of gold sold at an all-in-sustaining cost of Australian dollars, $18.13 per ounce. We therefore revised our FY23 unit cost guidance to a range of Australian dollars, $17.30 to $17.60 an ounce, all in sustaining costs. These operational setbacks are now behind us and we are well positioned for a strong June quarter, advancing our profitable growth strategy to 2 million ounces per annum. During the quarter, our teams maintained a sector-leading safety performance with an annual LTIFR of one. We are seeing some easing retention can stabilise and improve training competency and safety outcomes. Our decarbonisation efforts continue with design and supply contracts advanced for Jundee's wind, solar and battery project. So I'm going to speak to the Australian operations, but first to our Pogo operations in Alaska. At the end of the planned mill shutdown in early March, we discovered damage to the ball mill motor which tripped during the restart. The POGO team ran multiple action plans and successfully repaired the motor in situ, and we safely resumed gold production in April. So despite nearly a third of the quarter interrupted, POGO produced and sold 47,000 ounces and advanced underground projects, including the new underground remote rock breaker and remote loading from ore bins to the underground grizzly, multiple new development heading takeoffs were established, ore stockpiles were built, and diamond drilling continued. It is representative of the endurance of the Alaskan culture, as during my visit three weeks ago there, the team remained optimistic and confident on the June quarter outlook and the progress being made toward the growth path to 300,000 ounces per annum. To group finance now, subsequent to the quarter end, we announced a successful closing of a US $600 million senior guaranteed 10-year notes offering. Our investment-grade ratings reflect the strength and resilience of Northern Star's business. Ryan will talk to the financials shortly. With the March quarter our best cash flow quarter year-to-date. The US bond proceeds provide further balance sheet flexibility to fund our organic profitable growth to 2 million ounces per annum, including the optional expansion of KCGM processing plant. A decision outcome on the Philiston Mill expansion study pricing inputs to the feasibility and assess execution risk medications. Now over to Simon for the Australian operations.

Thank you. Thank you, Stu. For the Kalgoorlie Production Centre, including KCGM, Karasu Dam, Kananabal and South Kalgoorlie, we sold 191,000 ounces of gold at an Australian all-insisting cost of $1,781 an ounce. This production delivered a mine operating cash flow of $169 million, while we spent $112 million on significant growth capital projects. Primarily $59 million was spent on KCGM open pit mine development. KCGM processing volumes were lower than planned due to an extended mill downtime post the major shut in January, which persisted for the majority of the quarter. These maintenance issues were mechanical in nature, also impacting processing stability, leading to a lower throughput per hour. The majority of these issues were rectified by the end of the quarter, with a small shut planned in quarter four to rectify outstanding items, ready for the planned increase in open pit, floor volumes and grates. At Casey Gem, open pit material movement achieved 19.6 million tonnes with shovel availability combined with longer hauls impacting total movement. This is in line with our total annual material movement plan. Greater than mined ore and volumes were steady quarter on quarter while additional waste was moved in the Femson South cutback. The open pit physicals have now delivered 60 tonnes of total material movement in three quarters, which is delivering into our strategic goal 80 million tonnes per annum of annualised movements. Underground mining volumes for the Kalgoorlie region were steady at 1.6 million tonnes, while grade increased 13% compared to the December quarter, driven from Kalgoorlie Ops and Karasu Dam, to deliver 129,000 ounces. KTGM's underground Mount Charlotte operation lifted volumes a further 12% from December quarter to 527,000 tonne. This volume is above our annualised 2 million tonne per annum target for FY23 and part of growing this operation to 3.5 million tonnes by FY26. Karasu Dam increased underground ore grade as Karari achieved improved stoke grades due to timing of the mining sequence. The Palfrey Underground mine continued development, averaging 340 metres a month. Kalgoorlie operations can now balance South Kalgoorlie increased volumes and grade quarter on quarter, while oil and sustaining costs reduced $315 an ounce to $1,666 an ounce. Due to access of higher grade mine ore from South Kalgoorlie operations. At our Yandall production centre, including Jundi, Thunderbox and Bronzewing, we sold 125,000 ounces of gold at an Australian all-in-sustaining cost of $1,627 an ounce. This production delivered a mine operating cash flow of $137 million, up 22% from the December quarter, while we spent $63 million on growth capital projects. Bronze Wing spent $22 million of major capital during the quarter as the Aurelia open pit achieved a full quarter of material movement for future ore into the expanded Thunderbox process plant. Our Jundi operation achieved 682,000 tonnes of ore, mined at an average grade of 4.1 grams per tonne. As a result, mined ounces were an impressive 89,000 ounces for the quarter. Total jumbo development achieved was 7.7 kilometres for the quarter, while Ramone achieved commercial production during the quarter as planned, stably increased. Processing throughput was consistent at 742,000 tonnes, while recovery improved to 92% with an increased head grow. Thunderblocks underground operation continued to be the high-grade ore source for the mill, with 476,000 tonnes produced. of ore mined. Ore tonnes mined both underground and open pits was 1.6 million tonnes, exceeding the process volume by 46%. Open pit volumes again increased another 13% to 5.2 million BCMs compared to the December quarter. We continue to bring on life of mine ore sources in order to provide high grade feeds to the 6 million tonne crown process plant. Chandig processing was steady quarter on quarter with reduced throughput coming from the Thunderbox mill expansion. The new Thunderbox process plan to achieve 1.1 million tonnes for the quarter, down 10% on quarter two because of unplanned downtime to address design issues that have largely now been resolved. We continue to see short-term capacity at or above the nameplate run rate of 6 million tonnes per annum. while our focus is on beating in the new operational processes and stability. The Thunderbox project remains a key focus as increased and consistent metal throughput will drive lower costs and increase gold sales. I would now like to pass on to Ryan, our Chief Financial Officer, to discuss the financials.

Thanks, Simon, and good morning all. As demonstrated in today's quarterly results, Northern Star remains in a robust financial position. Our balance sheet remains strong as set out in Table 4 on page 9 with cash and bullion at $452 million at the 1 March and we remain in a net cash position of $102 million with corporate bank debt of $350 million which remains unchanged quarter on quarter. Figure 7 on page 9 sets out the company's cash and with key elements being quarter-on-quarter total cost reduction at both the all-in sustaining cost and all-in cost level, resulting in the business generating $369 million of cash flow from operations and $114 million of free cash flow. Our ruling the annual production centres continue to generate positive free cash flow with capital expenditure fully funded. Pogo made a small loss this quarter as a result of operational interruption arising from damage to the ballroom motor. Importantly, the downtime was used to set up the operations for a strong Q4. And looking ahead to Q4, operating and free cash flows forecast to rise significantly with processing output at Thunderbox expected to increase. Stronger margin from Pogo with increased production and higher grade stoke contribution. and increase all tons from the open pit areas of Golden Pike and over the edge of Casey Gem. The starting capital spend was moderately lower quarter on quarter, offset by increased exploration investment, which is forecast to moderate in Q4. Growth capital investment during the quarter related to key growth projects, including material movement at Casey Gem, a really open pit development at Bronze Wings, is now in commercial production. Figure 2 on page 3 highlights that we are guiding group growth capex higher for the full year at approximately $700 million from $650 million. This is principally from additional waste movement at the Finlayson South Cutback at KCGEN. Finally, the company paid its interim FY23 dividend of $0.11 per share, totaling $124 million during the quarter. On other financial matters, depreciation and amortisation are in line with the company guidance provided, $600 to $700 per ounce. Year-to-date depreciation is at the upper end of the guidance range at approximately $686 per ounce. For the quarter non-cash inventory charges for the group, the 7N unit, as previously mentioned, the majority of these non-cash inventory charges relate to the milling of acquired stockpiles of KCGEM and are a component of ISADAR. In respect of the company's on-market share buyback, no additional shares were purchased on market following the company's half-year results release, and the buyback program remains open until September this year. Notwithstanding the challenges during the quarter, we are confident of a strong finish to the year in respect of production and lowered costs. From the delivery of increased volumes at POTO, we focus on high-grade stope delivery, ramp-up in trade growth on the box, and increased oil volumes from KCHM. And finally, in respect of hedging, Table 5 on page 9 sets out the companies committed to hedge position of 31 March. During the quarter, the company delivered 74,000 ounces into contracts and placed 390,000 ounces at an average price of 3,087 per ounce Australian. And the overall hedge book is now 1.6 million ounces at an average price just under 2,800 Australian per ounce. I'll pass now back to Harmony for the Q&A session. Thanks.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Matt Green from Credit Suisse. Please go ahead.

Hi, good morning all. Simon, first question on Thunderbox, please. We've seen a few quarters of decline in recovery. I appreciate some of this is probably due to ramping the mill. But just the commentary on the change of design of the mill, can you just elaborate on what has changed and has this been driven in any way by any metallurgy issues?

Yeah, thanks, Matt, Simon. No, certainly no changes in metallurgy. It's all the same ore sources that we've been processing. Really, the lower recovery has been impacted by gravity circuit, I suppose, challenges in terms of uptime of that. So that's been the main impact. Certainly no change in terms of the ore sources. And it's just down to stability of the process plant to be able to get a good, consistent residence time through the tanks, et cetera. So they've been the key drivers. So we see that very, very short term. As stability comes to the mill expansion, you'll definitely see the recovery bounce back to normal levels.

Okay, that's great. Thanks. Just on KCGM, the pickup in stripping at fitness itself, has there been any change to the scheduling on that cutback or was this perhaps more of an opportunistic decision to reallocate some of the fleet just given some of the downtime at the mill?

Yeah, it's really when we get large rain events, which we did have during the quarter, we're sort of quarantined out of the deeper parts of the pit. So it really is opportunistic to be able to move the fleet, maximise the fixed costs we've got for all those assets. And therefore, we've ended up moving some more waste, which is great for the long term. It gets us closer to the ore in Pimson South. So it's really a timing thing, but due to the multiple work fronts we've got, it's a great position to have versus just one area to mine at the base of the pit.

Got it. That's great. That's all from me. Thanks.

Thank you. Your next question comes from Daniel Morgan from Barron Jelly. Please go ahead.

Hi, Tim. Just on your guidance, you didn't say in your release that you're going to be at the bottom of guidance, which is a choice you could have made. You said you maintain production guidance. That must mean you have a very strong performance expected in June. Just wondering if you could go through some of the key drivers of that, because it will be a very strong performance if you're above the bottom of the range.

Yeah, thanks, Daniel. So, yeah, if you go to page three of the release, you'll see that updated target table that shows where those movements are, and it'll show that we indicated that pogo impact would be, you know, 20,000 to 40,000 ounces. We could put out that March 15th release related to the ball mill motor downtime. So, yeah, we've recut that asset to be that 225 to 240 for the full year, but Kaguli, Yandel and the group outcome, which will indicate or infer that both Kaguli and Yandel are performing very well and we absolutely expect and are set up for a very strong June quarter. And some of those play-in shuts that were completed last quarter don't exist in quarter four as well. So, yeah, we're set up for a very strong June quarter ahead and that tables the updated view of where that is.

And traditionally, Northern Star has had very strong June quarters and then there's a little bit of a hangover into the September quarter following. Is that something that we could expect again this time?

It depends how strong June is, Daniel. Growing a company from, you know, the 1.5 to 1.6 to 2 million ounces over that five-year strategy, it isn't a straight line. There's step changes as things get commissioned and brought online. And there's a bit of sautee thing. And that's intra-quarter, intra-year, and then, you know, throughout that five-year period. So we're still on track with progressing significant growth projects and closing them out and simplifying the business. So, yeah, you will see sort of two things throughout those periods, and our ultimate game is to get to that, you know, very stable, consistent, you know, throughput and production level, and then you can really hone in and work on the efficiencies and the cost out. So even across the quarter, our total spend across all in sustaining cost and all in cost reduced, and if you back in $40,000, that 1650 or sustaining cost. So it's really not about escalation in unit costs here. We've been making good savings. It's really that denominator of gold sold that's impacted that and hence what we've had to shift the full year or the sustaining cost guidance up to that 1730 to 1760.

And at Pogo, so good job getting that mill up and running well within the six weeks that you outlined. Just wondering, what should we be thinking about what that outage did to the site and more the mining side of things, like the productivity of, you know, development? Can you talk through that and, you know, what you're looking at to set up FY24?

Yeah, so when we got guided on the up to six weeks, you know, we were unsure what on whether that motor needed to be taken off site or there needed to be full rewinds and all that sort of thing. So they were very pleased with The multiple streams that they participated in were able to actually repair the elements to that synchronous motor in situ. And then obviously once we re-established it, it's travelling fine and we've really started with a strong, very strong performance in April. So very pleased with the work that was completed, the high quality work and the safe nature of how that was delivered. Whilst that was down, the underground mine, you know, you don't have the luxury of stockpile capacity in Australia. So we did as much waste development and establishing new areas, completed some project work that would have interrupted activity. And we did build some stockpiles, but seasonally it's difficult to get onto the surface and have that real estate, which set us up well for this quarter. So, yeah, we did as much as we could do. You can look in the back tables of the quarterly and see where the mining physicals have come off a bit. but grades improved and continues to improve as we move to the stoping. We did consume some of those stoping stocks during that down period because we couldn't really consume the ore, and it's really now to set up for this stronger quarter four in the exit rate into 2024.

It's fair to say that because of a lack of stockpile capacity, which is just what you live with with the mine, The mine sort of got backed up a bit from the mills up further, so... Absolutely.

Obviously, we can freely move waste out of the mine, so we ensured we kept the fleets busy doing that. We shut down some of the main development haulage routes to re-establish turnouts on new development headings, which would have been disruptive in the future, so we utilised that ability to do that, and we kept all the teams active... filling up those ore bins and every drive near to that ore bin. So when the ore, when the mill cracked up in April, we're able to consistently feed it. So again, we started with a very strong April and we're confident in that glide as we've put there. And if we take out this impact, it's probably, you know, 20, 25,000 ounces impacted off Pogo in the quarter. And we've got a very strong quarter for Apple.

Okay. Thank you very much.

Thank you. Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Matthew Friedman from MSC Financial. Please go ahead.

Sure. Thank you. Morning, Stu and team. I'm interested in, I guess, the context of the corporate bonds that you've secured, whether you can remind us about how you think about the limits of the balance sheet and I suppose your targets around net debt levels, gearing levels, particularly, I suppose, in the context of the ongoing buyback, which obviously, Ryan, as you noted, you haven't made any additional purchases since the half-year results. So wondering what's driving that and is it thinking around the balance sheet? And secondly, in the context of any update you can give on the mill optimisation study and how that's, I guess, playing into your thinking around future capital needs for the company.

Yeah, so maybe I'll start and you'll probably still come in at the end there. Yeah, it's good to have you back, Matt. I haven't spoken to you for a while. Thanks, Ryan. Thank you. So we've... You would have seen, and we sort of... I'm going to say it's probably two years ago we put out... just some targets financially, um, where we want to sort of keep the company. Um, so from a leverage perspective, that's, um, you know, um, one and a half, one and a half times leverage is where we sort of, this is, this is net debt to you. The data is where we sort of want to, want to play at the moment with the business and then gearing sort of, you know, around that sort of 20% up, up to 20%. And, You know, broadly the concept would be or theory would be that we're okay to go outside those frameworks, you know, for the right opportunity if there's a pathway back that we can see to come back into those metrics. For us, they're those investment-grade metrics that we want to keep and hold. You know, we've got this long-term funding now. You know, the last few years have been transformational for the business. It's allowed us to go to this market. Obviously, traditionally, we've always relied on, you know, short-dated bank debt. And now the company has the opportunity to look at longer-term funding, which, you know, aligns to our asset base and our reserves of that 10-year life sort of thing. So... Stuart, do you want to talk about that?

Yes, again, that 10-year tenner, and obviously investment grade rating, that six and an eighth coupon's attractive to us with that policy. The Fimiston study is still to be evaluated, presented, and a decision to be made on that, and that'll happen this coming year. But in relation to uses of cash and returns for shareholders, the buyback proceeds and the bond proceeds before we apply those. So you're right in saying we've still got until September to utilise that buyback. It's a bit over 40% complete, but we want to get to that understanding of the ultimate capex for Fimbleston and the financial metrics and a decision on the allocation of that capital.

Okay, got it. Thanks, Stu. I guess given that you do now have some pretty long-dated debt, you've got a lot of headroom on the balance sheet relative to those metrics that you outlined, it seems like you could maybe push a bit harder on the buyback, but understanding that obviously there's another piece of work going on in the background.

It all just compares to, we've got significant options for us. So there's lots of organic options within the business and how to generate those superior returns. So the buyback today has been, we've achieved an average in at about $8.20. So, you know, we're trading above $13, close to $14. The returns on that acquisition is fantastic. We still look at the returns coming in on the FIM circle up on where that is at. And that's what's competing with the application. We obviously just paid out the dividend that's been continuing to grow. These are all great positions and good signals of what a strong, thorough business is delivering. So the buyback is there as an instrument at all of capital management, but it doesn't have to be utilised. It's there through to September and we'll revisit that. It's the first time we've done that. We'll revisit that. And it can be extended or it can be expanded. So we've got no issue with utilising it.

Yeah, got it. Very clear. Thanks, Jude. That's all from me. Cheers.

Thank you. Your next question comes from Mitch Ryan from Jefferies. Please go ahead.

Good morning, Tim. Thank you very much for taking my question. Just one simple one. Just the increase in CAPEX at KCGM, that's very clearly a pull forward of material movements. I'm wondering if you can comment on the inflationary environment that you're seeing around KCGM and if there has been any other pressure on the other component of CAPEX?

Yeah, so we haven't seen any inflationary increases, albeit we feel we're at an elevated level anyway. But we haven't actually seen that continue to push, and there's been some stabilisations, as I said, on staffing, turnover and skills. So, yeah, that uplift primarily by volumes, it's all volume-related and getting more for that increased expenditure. And as well around... new developments up in Yandul, those are the extra things that have been accelerated to be that extra capex. So it's capex that will come out of future years and get us to more quicker, like Simon indicated, in the south of Finston.

Thank you.

Thank you. Once again, to ask a question, please press star one. Your next question comes from Kate McCutcheon from Sissy. Please go ahead.

Hi, good morning, Stuart and Ryan. On the hedge book, your total books come up quarter and quarter. Some of your peers will be unhedged from next quarter. Does the longer dated debt change anything on your hedging strategy or any comments on the hedge book here and that strategy going forward?

Yeah, look, we've got a pretty clearly stated hedge policy and we've maintained that. It's I think we can't necessarily compare us to other goldies. We probably do look like a bit of an outlier there, but it's on the ounce profile we have. The growth CapEx forecast we're delivering, it's still quite modest and it's priced well. So 1.6 million ounces and nearly 2,800 bucks an ounce. The additions that we added in the quarter were well over $3,000 an ounce. And if you comp our hedge book against every bank's forecast... they've all got gold price coming off and we've got gold price going up so it's something different there but I'm confident that our policy has worked well for us today typically when we either have debt land or invest in growth capital. We maintain that hedge profile policy and we ensure we keep delivering into it. There's no legacy issues there. We've still got over 75% to 80% of our production delivering into spot. So it's working well for us.

Okay. Good call. Thank you.

Thanks, Kat.

Thank you. Your next question comes from Al Harvey from J.P. Morgan. Please go ahead.

I can't see your name, Al.

Apologies, Al. Your line is now live. You may have yourself muted. Thank you. There are no further questions at this time. I'll now hand back to Mr Tonkin for closing remarks.

Well, thanks for joining us on the quarter. I had a very busy reporting day. We look forward to updating you next quarter and our full year results as we continue to advance our profitable organic growth strategy. Have a great day. Thanks.

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