NSTYY - Northern Star Resources Limited (NESRF) Q2 2023 Earnings Call Transcript
Northern Star Resources Limited (NESRF)
Q2 2023 Results Conference Call
February 19, 2023 06:30 PM ET
Company Participants
Ryan Gurner - CFO
Simon Jessop - COO
Conference Call Participants
Daniel Morgan - Barrenjoey
Danielle Le Mazura - The West Australian
Matt Greene - Credit Suisse
Al Harvey - JPMorgan
Nick Evans - The Australian
Presentation
Ryan Gurner
Good morning, and thanks for joining our FY '23 H1 Results Presentation. With me on the call today is Chief Operating Officer, Simon Jessop; Managing Director, Stu Tonkin, is at our Pogo operations on a routine visit ahead of attending a North American Global Mining Conference.
I will now step you through the results presentation, which was lodged on the ASX this morning. I'll let you all review the usual disclaimers on Slide 2 at your own leisure. I'd like to begin on Slide 3. You will see our results and throughout this presentation, we have continued to generate superior returns for our shareholders.
Our focus remains on operational excellence and a disciplined and mature approach to investing shareholder funds. Northern Star continues to build from strength to strength. This is achieved from our simplified portfolio of 3 large-scale production centers in Tier 1 jurisdictions, producing 1 commodity gold.
I'm particularly proud of the people and their commitment to safety and sustainably execute our value creation strategy. Turning to Slide 4. Despite the challenges, the resource sector currently places with cost pressures and labor constraints, the strength and resilience of our assets was illustrated with the company delivering a strong underlying EBITDA of $633 million during half 1 of FY '23.
Maintaining capital prudency and the realization of tax synergies from the merger during the first half have resulted in the generation of significant cash earnings, which totaled $467 million. Pleasingly, this was higher than the first half of FY '22.
A reminder that cash earnings represents the amount of underlying earnings, which is a for return to shareholders, profitable growth-related investments and balance sheet management. A reconciliation is provided at the back of the presentation.
These strong first half cash earnings has enabled the Board to declare a record fully franked interim dividend of $0.11 per share. This represents a 10% increase from the FY '22 interim dividend and towards the top end of our dividend payout policy. The company is expecting approximately $32 million in income tax refunds in the second half of FY '23.
Following these receipts and the payment of the FY '23 interim dividend, the company's available franking credit balance will be approximately $3 million. The company does not expect to generate franking credits for at least 18 months due to the synergies arising on merger temporarily reducing the company's taxable income of its Australian operations. This means we anticipate the company's next new dividends to be unfranked, subject to future profitability.
In respect of the company's $300 million share buyback, good progress has been made on the program during the first half, and it remained open, subject to blackout periods until September. And we remain well positioned to deliver our near-term low capital intensity organic growth profile with our strong balance sheet, which includes $145 million net cash position at December.
Now to our operations on Slide 5, which have all continued to deliver in what is a challenging environment. Across our 3 production centers, we remain on track to meet FY '23 guidance. During the first half, and as outlined on this slide, we have made great progress across each of the production centers on our low-risk 5-year profitable growth strategy to become a 2 million ounce gold producer by FY '26.
Turning over the page to Slide 6. As illustrated, all 3 of our production centers continue to generate positive cash earnings. Key growth projects at Pogo and Thunderbox are delivering significant cost improvements. We will maintain our sharp focus in the second half on costs, which alongside the expected lift in production to further build cash to maintain the company's strong financial position.
Moving on to Slide 7. I talked earlier about our focus and disciplined approach to managing shareholder funds. This slide highlights the key elements of our capital management framework and the importance of our balance sheet and risk management to maximize shareholder returns over the long term. We remain in a strong financial position with $1.1 billion in liquidity at 31 December and continue our sensible and consistent approach to mitigate risk in light of external conditions to support the delivery of our strategy.
Now to Slide 8. And before I hand over to Simon to talk to our operations in the next few slides, I'd like to say that as a team, we are really pleased with the progress made during the first half of FY '23.And we are very proud to be the best-performing senior global gold stock on a total shareholder return basis over the past 12 months.
Over the Northern Star journey and including our declared interim dividend of $0.11 per share, we've now returned over $1.1 billion to our shareholders...
Simon Jessop
Thank you, Ryan. And on Slide 9, at the halfway point of FY '23, we have sold 773,000 ounces of gold or 48% of the midpoint of guidance. And in Australia, all-in sustaining costs of $1.766 an ounce, which is 106% at the midpoint of guidance.
We remain on track for the stated yearly guidance of gold sales ranging between 1.56 million and 1.68 million ounces at an Australian all-in sustaining cost of 1,630 to $1,690 an ounce.
Also previously stated, our guidance is second half weighted due to the commissioning of the Thunderbox process plant, KCGM's open pit or sequence timing and Pogo moving into higher-grade stopes.
On Slide 10, you can see our profitable 5-year organic growth strategy planned out to FY '26. I would like to emphasize that this growth path has low risk delivery and is executable from within our existing assets. So far this year, we have made significant progress.
At KCGM, over half 1, we saw a pleasing annualized movement rate of 84 million tonnes per annum, which is within our stated 80 million to 100 million tonne per annum strategic goal. The new fleet is operating very well, plus we continue to look for further optimization. The Thunderbox mill is well positioned to operate at 6 million tonnes per year nameplate capacity during the second half and remains a key driver of increased ounces from the Yandal region.
The newly installed process plant expansion will take Thunderbox from 3 million tonnes per annum to a 6 million tonne per annum nameplate capacity. While at Pogo, we have maintained the expanded 1.3 million tonnes per year run rate through the mill.
We continue to focus on optimization initiatives at the mine, particularly higher grade stope all contribution. We are well on plan to deliver our profitable growth plan to 2 million ounces per year by financial year '26.
Now moving on to Slide 11. We maintain being in an enable position with a significant mineral resource base of 56.4 million ounces and reserves of 20.6 million ounces. We have very effective and efficient exploration programs, which is shown on adding ounces to the resource base at $24 an ounce last year. We have committed $125 million to exploration over FY '23 at our high-quality geological systems to replace and profitably grow our mine life.
Turning to Slide 12. The chart shows our visibility to improve renewable projects across each of our assets and to reduce our carbon footprint. We have commenced planning and implementation of these projects to enable a 35% reduction in Scope 1 and 2 carbon emissions by 2030 and a net 0 target by 2050.
On Slide 13, at present, we are still in the process of evaluating whether to expand the milling capacity at KCGM due to the large stockpiles stranded on the surface from past mine. While the project has many merits, the current 13 million tonne per annum milling capacity does remain an option. A reminder that the potential expansion is not included in our 5-year strategy to reach 2 million ounces by FY '26.
Earlier, we spoke about capital management discipline. Given our extensive knowledge and our understanding of the KCGM ore body, we see low technical and geological risk to committing to such a project. We continue to monitor external pressures while working to derisk the execution elements of any expansion and will come to a decision point during 2023 calendar year.
Thank you, and I will now hand back to Ryan.
Question-and-Answer Session
Operator
[Operator Instructions]. The first question today comes from Daniel Morgan from Barrenjoey.
Daniel Morgan
I guess just a couple of quick questions on the operations and how they've been going since your last update. So firstly, on Thunderbox mill, how is that ramp-up going? Are we as of today, consistently hitting that 6 million tonne per annum run rate? Or is that still to come later this financial year?
Simon Jessop
Yes. Thanks, Daniel, Simon here. As we stated at the quarterly call, we expect to get the 6 million tonne run rate during H2. So continue to work through commissioning of the plant and ramping up with the consistency on all elements of the plant, mainly crushing and milling.
But pleasingly, we absolutely see the spring capacity there for 6 million tonnes per annum. So it's now just around bidding in the new SAG mill and the crushing components of the plant.
Daniel Morgan
Okay. And just switching to Pogo, has the productivity of the underground being to your expectations, are you consistently this quarter, exceeding that 1,500 meter per month target. Are you -- is dilution within your expectations? Just wondering how the operation is going year-to-date?
Simon Jessop
Yes. Thanks, Daniel, Simon again. Pogo is going well in terms of the second half weighting while we've got the high-grade stocks coming in, and it is a major focus for us in terms of that dilution. Just trying to take waste out of the stoping sequence and really give the mill the expanded grade profile that we know when we hit the 1.3 million tonnes per annum at the right grade, we can deliver our 300,000 ounces per annum.
So Stu's over there. Just had it over there on the weekend. So he's team spent a week there with the team on site. So we'll come back well informed as to where Pogo is sitting. But right now, we're second half weighted for Pogo with higher grades in the stopping sequence coming through.
Daniel Morgan
And lastly, the buyback, I think you might have considered yourselves in blackout earlier this year. Will you now be activating the rest of the buyback?
Ryan Gurner
Dan, its Ryan here. Yes. So yes, we've obviously made pretty good progress. We are had to buy blackout. So look, we've got another, what is it, 9 months to run. So yes, the program is back open.
Daniel Morgan
And just on that, will you be anticipating making purchases with the buyback commensurate with how you're purchasing prior to the end of the December half year? Or what's your thinking about?
Ryan Gurner
Yes. Look, I mean, I mean, the answer is we’ve got 9 months to run on this. I think Stu’s terminology is right. So everything about Northern Star in those. It’s never set to get. So we’re always reviewing our positions around even where we put our money, whether it’s capital in the or in this case, deploying it here.
So all I’d say is we’re always keen to review all our options, we’ll always put the money where the greatest returns are. It’s open for another 7 months. Yes, let’s see how it goes.
Operator
[Operator Instructions]. The next question comes from Danielle Le Mazura from the West Australian.
Danielle Le Mazura
I was just -- I'm not sure if it's best placed to answer this, but I was just curious as to what your outlook is on cost and inflation. How much longer are you expecting some of the inflationary headwinds that we've seen continue to impact Northern Star's operations? I think you said it's going to be a continued focus in the second half. So just wondering what you think is there.
Ryan Gurner
Danielle, thanks for the question. It's Ryan here. Yes. Look, I mean, it certainly still challenging. We're not seeing significant cost reductions, albeit we are seeing some reduction. So for instance, we're seeing it on our energy prices, particularly diesel. And also some of our input costs that are indexed around steel prices.
We're seeing some peel-back on costs, which is helpful and pleasing. Broadly, though, the other input costs, obviously, labor's a key cost for our sector as it is the entire mining business. We are seeing those costs still remaining elevated and then some other sort of commodity-linked inputs in our reagents and things like that.
So they are absolutely still there. This is where, I guess, having scale and size helps because you can leverage your supply chain on with these costs sort of reductions or at least trying to get competition and volume, which does help unit costs.
I mean, from us, we're looking -- basically looking to do more with less, looking at ways to use less. So prince in the processing. We're looking to use less reagents and still get the same outcome. So through that being more efficient, reducing scope of work to actually get cost out of the business. So that's what we're sort of placed with into the second half. That's our strategy.
Danielle Le Mazura
If I can just ask a quick follow-up. How much of that cost impact had an effect on net profit falling?
Ryan Gurner
I'm sorry, Dan, what was that last part of your question on the...
Danielle Le Mazura
Sorry, I just saw a net profit was down quite a bit. So I was just wondering how much of that impact was from the board.
Ryan Gurner
I think what I – well, perhaps what I’d point everyone to is if you look at – even if you look at our costs half-on-half. So if you go back to the quarterlies we put out, which had pretty good information in them. If you look at our cash costs on a per ounce basis, they’re about $200 higher.
So the majority of that sort of that increase is from basically increasing in cost, which pretty much if the sector. I’m going to say this time last year. So half-on-half, that’s – yes, you can sort of see that coming through in our cash costs.
Operator
The next question comes from Matt Greene from Credit Suisse.
Matt Greene
Simon, hope you well. Simon, just a question for you, if I may, on the KCGM expansion. What do you need to see change from here on the execution side? Just you've highlighted this as the key risk on remaining discipline. What needs to change here for you to get more comfortable with pressing ahead of this project?
Simon Jessop
Yes. Thanks, Matt. We continue to just look at the elements of execution and primarily driven around the scope of work and the detailed [indiscernible] engineering of the various options. So the more work we spend on that, the more accurate will get around the pricing and also the variants that you potentially get without that engineering phase.
So that's really our focus is on that execution elements of the mill expansion. So we'll continue to look at pricing in the market, what we're seeing in terms of steel pricing and build slots and those sorts of things.
But really, the bulk of our focus is on get the engineering right, get the design right, and then we've reduced the risk of execution here of having to change things as you potentially go wrong. So really, that's our core focus for KCGM plant expansion.
As I mentioned, we certainly are -- we certainly see low geological mining reach due to the stockpiles, which are in front of us, so the 120 million tonnes. So that's a great position to be in. It really is around the processing side and the engineering to be in that [indiscernible].
Matt Greene
That's helpful. Thanks, Simon. So it sounds like it's really just getting the scope of this project nailed down, not so much on external factors such as needing to see labor come off or perhaps permitting or anything like that. This is more isolated on a scope basis for the project...
Simon Jessop
Yes. I think that’s the best way to think of it, Matt. And look, if we did nothing and continue with our 13 million tonne per annum milling capacity, we do have 21 years of processing in front of ourselves without increasing resources and reserves. So it is a very compelling case. We just want to get the work done upfront and get it right.
Operator
The next question comes from Al Harvey from JPMorgan.
Al Harvey
So just another one on the Super Pit expansion. So I guess last week, we saw one of your peers indicate a fairly long build time frame for a much smaller expansion in the Kalgoorlie region.
So you have highlighted that you could continue to run at 13 million tonnes per annum. Just kind of trying to get a sense of if you're seeing some of that tightness in long lead items as well and potentially how long you could keep the study on the shelf before pulling the trigger.
Simon Jessop
Yes. Thanks, Al. I suppose it is a large-scale project. So there's a lot of parties that like to be involved in a substantial project like this as well as it will be built over a few years. So having time on one project is, in some cases, better than doing 2 or 3 lots of small projects.
So we are still seeing a lot of interest from groups who would like to be involved in the case of gen mill expansion. And yes, core comment on others in others in the area. But we'll just continue to do the engineering work, get the scope right and then bring it to a decision point.
We are seeing changes in sort of steel pricing and things, which is pleasing to see. But really, our focus is on the returns the project can deliver and taking out that execution risk.
Al Harvey
And just following that, you guys usually do your resource and reserve update in March. Can we expect a bit of an update on some of those higher-grade underground opportunities? And how does that potentially act as a swing factor for the expansion to display some of those low-grade stockpiles?
Simon Jessop
Yes, I think that we are going to update the resource and reserves in the June quarter. So that's on track as normal business as usual. And we saw a significant growth from the underground portion of the reserves at KCGM sale last year to nearly 1.2 million ounces.
So the more we seem to drill the KCGM the more gold we're finding, we see that in the exploration cost of $24 an ounce. So we see great upside benefit long term, and that's part of the strategic elements we'll continue to look at as part of the KCGM mill expansion.
So obviously, lower cost per tonne milled will absolutely translate to increased margins for whether that's underground or open pit feed. But we -- last year's reserve 280 million tonnes. It's a large reserve base to process at KCGM without drilling any more holes.
Al Harvey
And just a final one for Ryan, perhaps just on the capital management, kind of pretty slim on the franking credits now, buyback looking somewhat what neutral on mine and consensus price target numbers. So -- just wondering how we think about the inorganic options, given we're currently at the lower end of the 3 to 5 hub target you've outlined in your presentation.
Ryan Gurner
Yes. Thanks, Al. Yes. I mean, obviously, we’ve got good options within our own portfolio as we’re growing to sort of that 2 million ounces.
So in terms of returns, we think they’re really compelling. And then on top of that, a set a number of questions on, we’ve got potentially this then lift with the expansion at KCGM should it be approved. So I guess we’ve got – coming back to the M&A for the type question, we sort of see that we’ve got a compelling offering, I guess, in this sector around our own growth and around our own returns that we have within our own business.
So we’re not – at this stage, we’re not really compelled to go and sort of do that. We’re always looking, but we really like what we have at the moment and what we can see in the next few years.
Operator
The next question comes from Nick Evans from the Australian.
Nick Evans
Just returning to the mill, KCGM Mill. I think June last year, when you released the pre-fees, you were talking about sort of 3 options, a bolt-on to take it up to 17 a complete refurb to 24 and starting in from scratch and building something new. Are you -- have you made a decision between those 3 options? Are they all 3 still in the mix? And can I just get some kind of clarity on sort of when you expect to make a decision? Did the presentation say within 2023 or FY '23?
Simon Jessop
Yes. Thanks, Nick, Simon. Definitely, during calendar year '23, it all comes down to just getting those engineering works completed and priced up accordingly and derisk those execution elements. That's our focus. We did have the free options of 7 million, 8 million tonne sort of bolt-on expansion, a 22 million tonne per annum full rebuild of which would need some permitting and take longer to get to that, I suppose, outcome versus just the build.
And our preferred case at the moment is the 24 million tonne, which is effectively replacing 70-plus percent of the existing plan. And the existing plant has been bolted on over many years. It's got 5 mills, so it'd be a reduction in processing and less components through our process plant as well as set it up for the next 2, 3 decades that we sort of see in front of ourselves.
So I suppose out of all the options, the 24 million tonnes is our preferred one at the moment, and it's just working through that scope and engineering phase.
Nick Evans
Yes. And then just heading back to costs, I know you answered Danielle sort of labor market stuff, but there seems to be a bit of, I guess, a bit of a divide appearing between sort of the more junior single mine companies, and I guess the bigger players such as yourselves and the big iron ore guys, you guys seem to be a little bit more comfortable where the labor market is and the smaller mines seem to still be struggling. Is that sort of a fair assumption in terms of what's happening in the market at the moment?
Ryan Gurner
Nick, its Ryan. Look, I can’t speak to the smaller guys. I guess, for us at Northern Star, again, back to the offering. We like to think we can offer our employees a good career with different pathways just simply because of our diverse operations.
So I think it is tough out there getting good people, but we find that we’re able to attract with people because of the long mine life that we have. We can show them that the career progression that they can have in our business.
So that, I think, helped. And maybe that’s the difference between your majors around their offering to potential employees and existing ones.
Operator
[Operator Instructions]. We'll pause for a moment to allow parties to end of the queue -- at this time, I'm showing no further questions.
I'll hand the conference back to Ryan for any closing remarks.
Ryan Gurner
Thanks, Travis. Thanks very much for joining us today. It is clear, our strategy is delivering strong returns as demonstrated in our financials and balance sheet strength. We look forward to updating you on our progress throughout the year. Have a great day.
Operator
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.
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Northern Star Resources Limited (NESRF) Q2 2023 Earnings Call Transcript