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Thank you for standing by, and welcome to the Northern Star September 2021 Quarter Results Call. [Operator Instructions] 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. With me today is Chief Operating Officer of Australian Operations, Simon Jessop; and Chief Financial Officer, Morgan Ball. I am pleased to report quarter 1 production of 386,000 ounces at an all-in sustaining cost of AUD 1,594 an ounce. This stemmed from a simplified portfolio with the divestment of Kundana assets completed during the quarter. At the same time, our growth projects are proceeding well at our long life key production centers of Kalgoorlie, Yandal and Pogo. During the quarter, we outlined a clear 5-year strategy of active portfolio management designed to deliver superior shareholder returns by growing production to 2 million ounces per annum, lowering costs and extending mine lives in a responsible and sustainable way. During the September quarter, we delivered a continued sector leading safety performance with our lost time injuries at below half the industry index. We have set a net zero greenhouse gas emission by 2050 target, and we'll provide greater detail of near-term decarbonization progress in our sustainability report published in the coming March quarter. We maintained strong quarterly cash earnings of approximately $170 million. And our balance sheet sits at net cash of nearly $500 million, which demonstrates the strength of the business and capacities to deliver consistent dividends and fund organic growth. We are on plan to deliver our full year guidance of 1.55 million to 1.65 million ounces at an all-in sustaining cost of AUD 1,475 to AUD 1,575 an ounce as we grow product throughout the year and in future years to deliver 2 million ounces per annum by 2026. We highlighted in our guidance that this year is second half weighted as we increased grades at Yandal and volumes at Pogo. Simon will provide some detail on the Australian operations. But first at Pogo, we saw a softer quarter -- production quarter with 44,000 ounces sold. As scheduled in quarter 1, we completed and commissioned the expansion works at the processing plant at Pogo to enable 1.3 million tonnes per annum throughput which is key to delivering growth to 300,000 ounces per annum. It was important that we continue this expansion work despite COVID impacts with labor, but we experienced extended unplanned downtime with failure of the primary conveyor and commissioning ramp-up. The total impact of planned and unplanned works was 24 days mill downtime during the quarter. Now with this work complete, our focus is on ramping up mining development and stoping volumes throughout FY '22. And I extend my thanks to the Pogo team who continue to meet the associated impacts of COVID, whilst adjusting to the challenges to meet the growth planned. I would now like to pass to Simon to cover the Australian operations.
Thanks, Stu. For the Kalgoorlie production center, including KCGM, Carosue Dam, Kanowna Belle and South Kalgoorlie, we sold 232,000 ounces of gold at an Australian all-in sustaining cost of AUD 1,533 an ounce, which reduced the mine operating cash flow of $212 million and a net mine cash flow of $155 million after spending $57 million on significant growth capital projects. Of this major growth capital total, $40 million was spent on open pit mine development. Specifically at KCGM, the largest operating asset in the Kalgoorlie production center, open pit material movement was 18 million tonnes or an annualized movement of 72 million tonnes and a new quarterly record. The first 2 new open pit mining trucks, 793F trucks were delivered and successfully commissioned with further deliveries and commissioning to continue throughout FY '22 as the entire open pit fleet is replaced. We look forward to the new haulage fleet having a positive impact driving lower open pit costs with improved productivity. Underground mining delivered 1.6 million tonnes at an average grade of 2.6 grams per tonne per annum 134,000 ounces. The production centers processing capacity of 20 million tonnes is unlocking previously mine constrained resources and stranded high-value stockpile ore. KCGM's underground operation at Mount Charlotte is continuing to ramp up production as drilling has accelerated to understand this large opportunity. Kanowna Belle is also mining increased tonnes at a lower unit rates, maximizing the already installed mill infrastructure. The KCGM Fimiston North drill platform is on track to be finished in Q2 with drilling in these areas to commence at the same time. This is an exciting area to develop away from the main pit and to the south of Mount Charlotte. KCGM processing volume was lower in quarter 1 with planned relines of the Fimiston and Mount Charlotte circuits. I will point out that Carosue Dam processing also achieved a new quarterly record of 970,000 tonnes, which is a full 20% above nameplate capacity. Also at Carosue Dam a Stage 2 of the solar farm was successfully commissioned, taking solar power generation to 4.3 megawatts or approximately 8% of the site's total power usage. This is providing Northern Star with invaluable data for the long-term group direction in the green energy space. Moving on to our Yandal production center, including Jundee, Thunderbox and Bronzewing, we sold 110,000 ounces of gold at an Australian all-in sustaining costs of AUD 1,345 an ounce, which produced a mine operating cash flow of $97 million and a net mine cash flow of $62 million after spending $35 million on growth capital projects. The Thunderbox mill expansion is the key driver of the Yandal 600 to increase production to 600,000 ounces per annum and lower all-in sustaining costs. During the quarter, $25 million of major growth capital was spent on the expansion. At Jundee, operation continued with a strong performance and achieved a new record quarterly development advance of 6.6 kilometers during the quarter, providing future areas to access ore. The open pit of Julius as part of Jundee's satellite ore feed mined an impressive 18,000 ounces of gold during the quarter. Our Thunderbox operation continues to invest in growth capital to pre-strip D Zone and the underground ramp-up in production. I can say that the new paste plant has now been fully commissioned and is pouring paste as part of normal underground production operations. The Thunderbox mill expansion project saw the mobilization of GR Engineering Services with the completion of major bulk earthworks including the pouring of the SAG mill raft, approximately 780 cubic meters of concrete and is on track for commissioning in the December half of calendar year 2022. We are very pleased with the commencement of this material growth project. I would now like to pass on to Morgan Ball, Chief Financial Officer, to discuss the financials.
Thank you, Simon, and good morning to all. As demonstrated in today's quarterly, Northern Star remains in extremely robust finance position. As set out in Table 3 on Page 6, at 30 September cash and bullion was $756 million. Further, as noted previously, during the quarter, we utilized the funds from the sale of the Kundana assets to pay down our corporate bank debt. As such, our net cash position at quarter end was a healthy $494 million after allowing for the corporate bank debt of $262 million. Figure 5 on the same page sets out the company's cash movements for the quarter. Closing cash bullion and investments of $771 million reflected a decrease of $55 million, following the payment of our FY '21 final dividend totaling $110 million. After adjusting cash flow for one-off items, the company's normalized free cash flow for the quarter was in excess of $100 million. You will recall that following the finalization of our FY '21 accounts, including the impact of the merger accounting, the company updated its dividend policy, which is now based on 20% to 30% of cash earnings generated. For this quarter, estimated cash earnings was in the range of $165 million to $175 million. From a consolidated group perspective, both production and costs are in line with expectations, and we will see all-in sustaining costs reduced in the second half of the financial year as production increases. Gold sales for the quarter included 24,000 pre-commercial production ounces predominantly from the Thunderbox underground and D Zone open pit operations. Preproduction ounces will decrease throughout the balance of the year as these operations achieved commercial production. As mentioned with the release of our FY '21 accounts, you will note that the fair value uplift relating to the merger accounting is reflected in the increased D&A and noncash inventory charges to the group. Table 4 on Page 7 sets out the company's updated hedge position. The overall hedge book now stands at roughly 840,000 ounces at an average price of AUD 2,347 an ounce. The book is 15% of our rolling 3-year production profile. Pleasingly, the average hedge book price has increased $61 quarter-on-quarter. I will now pass you back to Harmony for the question-and-answer session. Thank you.
[Operator Instructions] Your first question comes from David Radclyffe from Global Mining Research.
I've got a couple of questions. Maybe starting at Pogo. Obviously, another tough quarter. But looking forward, maybe you could talk to when the works were complete and how it's actually performed since. And maybe then to give us sort of an idea about when you actually see it operating at those targeted volumes, and obviously targeted costs, and if you think there is still possible to get down to that sort of circa USD 150 per tonne for operating costs?
Thanks, David. So we're very pleased despite the production loss for the quarter at Pogo. We're actually very pleased with the work is completed. So the mill capability is at 1.3 million tonnes per annum with the reduced team sizes on site, it was -- just dragged out longer than we had planned and obviously, the fixing of the primary conveyor. So those things now have been commissioning and ramping up. This year is really, the focus is on the development of underground and getting the stope tonnes increase to try to meet and match that volume by FY '23, which is key to getting to 300,000 ounces per annum. So FY '22, we're in still a building year and quarter-on-quarter building out that ounce profile. So that one thing of the mill upgrade was going to be a bottleneck. We've addressed that. We plowed through in the seasonal weather throughout the summer to make sure that, that was done and commissioned, and now we're able to replace those construction crew people with production people in the mining camp.
Okay. And maybe just moving on to Carosue, obviously, a great performance from the mill. It continues to sort of annualize sort of 10% to 20% above what that capacity was supposed to be. Maybe could you give us an idea what's driving that. Is it sustainable going forward? And what, if anything, are the constraints of actually keeping that full from the underground or open pit?
Yes. Thanks, David. Look, we absolutely see that sort of run rate of between 3.8 million and 4 million tonnes per annum as sustainable going forward. We've built in some extra upside in the processing plant as part of the design. So it's just maximizing and utilizing all of that installed capacity. In terms of feeding that process plant going forward, no issues at all. We have 28 million tonnes and 1.8 million ounces on reserves. So we've got plenty of ore to feed the Carosue plant at that size -- at that throughput.
Okay. And maybe just a quick last one on the Fimiston underground. Since the site visit, it sounds like things have gone a little bit slower. Is that fair? I thought you would have been drilling already and might even have some sort of results for us. How should we think about how you're going to report that going forward and how things are progressing?
Now. So that -- [indiscernible] significant multi-kilometer drill drive. We've got 1 diamond rig sitting in there, and we'll have multiple diamond rigs sitting in there when the development crews come out. So that's setting up a multiyear drilling campaign for that 1 quadrant that kind of Northwest quadrant of Fimiston. So no, that will take quite a few years to build out that resource definition, but it's just -- it's a progress that hasn't been seen in decades at the super pit. So Mount Charlotte is still ramping and producing well. It's really the upside of exploration that's occurring at Fimiston. And that is in the plan for about 7 years, any feeds from the Fimiston underground to get to 2 million ounces is not reliant on that. There's an opportunity there to define and evaluate the scale and size of what they can be.
Your next question comes from Daniel Morgan from Barrenjoey.
Sorry, I was on mute. So Pogo, I was just wondering if I could understand a bit more of what was happening in the mine. And my impression is you don't have a lot of stockpile capacity. So I imagine the mill outage and conveyor change over meant that you couldn't really mine as much. Just trying to understand, was the mine productivity on an underlying basis, much better than the 840,000 tonne per annum rate implied by the quarter.
Thanks, Daniel. And you're accurate in as much as we don't have the ROM stockpile or the real estate broken ore on the surface like you do in Australia. So we diverted our efforts to waste development and try to maximize the waste development whilst the mill was down. And we also utilized trucking ore to the surface and the E feeder at a lower throughput rate while the main conveyor was down. So when you take that 24 months -- the 24 days out of the quarter, there's about 25% of the quarter gone. You sort of normalize that back to an ounce profile, we did as best we could do with the available days up. Different to the Australian operations where you can build a ROM stockpile, can't do it there, but we're investing in underground storage bins, developing those this quarter, which will decouple and give us some surge capacity for mine to mill feed.
Okay. Understand. And just wondering if you could disclose the development meters during the quarter. I don't see this in the report and would just be good to understand what was happening on the development rate if you had a bigger focus on it during the quarter.
Yes, it's about 3.6 K, so 1,200 a month, and we want to be at 1,500 meters a month.
Okay. And I noticed you're very active on your hedge book. You delivered a lot, but also added more to the book. Just what's your strategy here? And what are we what can we expect going forward?
Yes, Daniel, Morgan here. Well, actually now that the hedging policy is out there and understood. So we will always stay within that, and the strategy really was increasing the price of the book at time when we see our peak capital spend. So that's really just matching our operating cash requirements with some surety and risk management around our gold price.
Your next question comes from Levi Spry from UBS.
Good morning, everyone, and thanks for the call. Just on the KCGM expansion project, big value driver fees, I think, during the June quarter. Can you just remind me what kind of work you are doing here? What key inputs are and what we can expect to see along the way leading up until the fees?
Thanks, Levy. It's Simon here. As we sort of outlined in the strategy document, we've got a couple of key options that we're running to ground. So it's all around simplifying the number of mills there. So we currently run 5 mills. 1 case is to install 1 bigger mill, drop 2 to drop to 4 to 17 million tonnes. And then another case is to go to 22 million tonnes with 3 mills. So look, that study is progressing very well. We're certainly on track for a December half -- sorry, a June half update, but that's a material growth lever for us. But what we do have there at KCGM in terms of reserves, we've got 270 million tonnes of ore there. So we want to try and realize the value from that as quick as we can. Even at the current processing rate, that's sort of 20 years of processing. And along with that, we see the opportunity to lower our processing costs.
Yes. And just to add Kalgoorlie in the meantime. Is that sort of a processing rate or the production rate we can expect going forward post the sale of Kundana?
Yes. So we obviously sold the mine without the mills. So we've got that 20 million tonnes regional capacity at the moment, and that's utilizing those stockpiles and moving that fleet around. So that's still there. These expansion projects are just at Fimiston expanding that. So that's where that expanded capacity would be focused on and leaving the other mills alone.
Yes. And just the last one on Thunderbox. I guess tough environment to be building a new brownfield project, I guess. But what are the risks you're seeing out there with the time lines for that over the next 12 months? And what are you focused on to address them?
Yes. So look [indiscernible] ordered back in February. Large mill and a lot of the units that go into it. Greg has done a fantastic job boots on ground and turning soil and getting foundation side. We're really ahead of the curve on the progress there. We'll be more comfortable when pass through a port and sitting on ground as you could appreciate. So we'll get it through 1 port, if not [indiscernible], and we'll be still [indiscernible] probably the second quarter of next financial year when we're working through that commissioning of the [indiscernible]. So we've got a bit of buffer [indiscernible] TBO. It's still running and producing that 150,000 ounces undisrupted with this upgrade adjacent to it. So there's not a material gap or downtime if there was any slippage in time.
Your next question comes from Matthew Frydman from Goldman Sachs.
A few for me. Firstly, I guess, operationally, at Pogo, we can see that recoveries in the quarter were a little bit softer, 84% for the September quarter. Certainly, potentially that's been partly driven by the lower head grades. Just wondering if there's anything else that you'd like to call out there in terms of what's driven that dip. And I guess can we expect a return to 90-plus percent, I guess, as you've commissioned the additional milling capacity and potentially a return to higher grade feed?
Yes, good point. Look, float banks generally lack stability. So with ramping and commissioning up and down there were losses there, and that's why that recovery is slightly down as well as the point that you made on the head grades, a bit lower. But the head grade will return to reserve grade of 8 grams and as we get stability in the plant, we return to the 90%. So I don't know if it will get much more than that 90%, but 90% is what our current plan is. There are final projects to continue to do. We're just getting the baseload of that upgrade all completed and stabilized presently.
And then looking over to KCGM, we can see that mine grades from the open pit were a little bit lower during the quarter. I guess you called out there, I guess, mine scheduling some restrictions in the amount of high-grade material you can access. Just wondering if there's anything you can update us there on in terms of the wall remediation progress. When are you expecting to access that higher-grade material in Golden Pike? And then also the delivery of the additional haulage fleet. Has that been on schedule? I guess you called out some of the timing there in terms of additional trucks. Just wondering whether that's met your, I guess, plan or you're schedule for additional fleet.
Yes. Thanks, Matt, Simon here. In terms of the grades from the open pit, it's really just timing and focus. So we mined a lot less out of Golden Pike during quarter 1 versus quarter 4 last year. So virtually 250,000 tonnes in quarter 1 versus sort of 1 million tonnes at much higher grade in Q4. So our focus really was on OBH and the cutback. So we moved a lot more ore out of OBH and really just prioritizing that due to the value that will unlock still in FY '24 when Golden Pike North comes on stream. So yes, no issues, just timing of grade and scheduling of where we're mining in the pit. The cutback is tracking well. It's on plan, and we're looking -- that's our major priority in terms of pulling down the wall. Last question, just in terms of the haulage fleet. Yes, last quarter, we got 2 trucks. This month, we expect to get another 4 or 4 are on site. So really, it's just the ongoing throughout FY '22. No real issues there from our perspective. We're in the probably luxurious position that the orders were placed quite a while ago, and those trucks are just come through the system.
Great. Simon. And then finally, a couple for Morgan, I guess. Firstly, you talked to the strong balance sheet position, as you say, $500 million in net cash and bullion. And as we know, all things being equal, you should have better operational cash flows in the second half given higher production and lower all-in sustaining costs. So I guess, firstly, can you remind us of the timing of any upcoming tax or stamp duty payments, I guess, related to the merger accounting or the Kundana divestment or anything else? That's firstly. And then secondly, more broadly, how do you think about the strength of the balance sheet given that net cash position and into the second half of the year, where things should get better? I guess, what's the comfortable level of cash and liquidity that you'd like to retain? And I guess, what are your options beyond that or in excess of that?
Sure. Thanks, Matt. In relation to the cash and liquidity question first half. I think we sort of guided to we'd like to sort of have that $1 billion to $1.5 billion liquidity assets, and we have that well and truly at the moment. We'd like to see about 1/3 of that in cash. And so directionally, you'll see us maintain that. Sorry, on the first question, Matt.
Tax timing.
Yes. Sorry, the stamp duty. So stamp duty, obviously, We're still working through the valuation work and engage -- and we'll engage with the Office of State Revenue on that, but we would expect Q3 of this financial year on the stamp duty from a tax perspective, [indiscernible] put the Kundana tax [indiscernible] as well following the merger. We -- and we would have seen in our balance sheet where we actually expect to receive a tax refund during the course of this year, and that would come in during Q3.
Your next question comes from Jason Mennell from Kalgoorlie Miner.
Just a couple of quick ones from me. Pogo obviously had 24 days total downtime. How much of that was unplanned?
10 days unplanned 14 days were planned. So -- and look, we persevered -- the team did the best they could do with reduced numbers. If you appreciate KCGM when we did a 14-day shut, we imported 900 extra people. In Pogo, we don't have that luxury, so we dealt with the teams that were there, and we managed through those [indiscernible] issues that you have when you upgrade the plant. So again, appreciate their time and effort to get it done, but those extra 10 days obviously cost us [indiscernible] production deferred.
Okay. And just another one for me. Record material movements at the super pit. Can that be attributed to the 2 new machines rocking up during the quarter? Or does it come down to something else?
No, look, the luxury and the insurance we have is we already have the fleet, albeit its aged, and the improvement of the new fleet will be lower unit costs and higher availability, fewer machines are able to work. So no, I think it's the credit to the team that are they are keeping the uptime and keeping things active on the multiple working fronts that we have. So they've got optionality. They can go to the bottom of Gold Pike. They can go -- actually can go to Fimiston South and just keep the wheels turning. So I think it's a credit to the way they've organized the mine and kept volumes moving.
Your next question comes from Hayden Bairstow from Macquarie.
Stu, just had a broader question on Pogo and the whole North American strategy. I mean this has clearly been challenging to date. I mean at what point do you think, or how much runway do you need to give yourself to get this mine to 300 and then stabilize it before you become more confident in the whole operating model of potentially acquiring more assets in that part of the world?
Thanks, Hayden. Look, we're 3 years in. And I think we're a year late from where we wanted to be. And we've had a, obviously, disruptions of the pandemic amongst us. So we had more active COVID cases at Pogo than in the state of Western Australia, just to put things in perspective presently. And we see FY '22 as that build-out year. We've got the development to occur, the multiple stoping fronts to open up. We've sort of been tracking about 800,000 or 900,000 tonnes per annum before. We obviously need to build that out to 1.3 million tonnes to get to the 300,000 ounces. A critical part of that was getting the mill upgraded, which is now complete. It's really about getting those development meters in. But everything that we've done to date in the reserves, in the infrastructure of that investment, it's for the long-term decade-plus asset. So we are still laboring on and still working on those key milestones to deliver that 300,000-ounce operation. So we're pleased with the progress, albeit it is lower than planned. Were we too aggressive at the start, in hindsight, you might say so, but we still see great fundamentals in that asset, growth beyond that. We like North America, a Tier 1 jurisdiction like Western Australia, and we see opportunities of assets over there. You're still seeing consolidation in the sector, but you still see high grade underground and/or open pit operations that are available in North America. So we'll keep our eyes on it all the way.
And just on the WA operations. I mean, you've obviously got these targets in the medium term? And how far away are you from completing all of the optimizations on ore feeds, et cetera? So there's a bit of M&A going on at the moment, a small scale, albeit. But before you'd be ready to look at -- looking at maybe additional ore sources to plug gaps as they emerge? Or is that stuff that you sort of think you're already across and if things do pop up, you'll have a pretty hard look at things.
Look, we've -- Simon touched on it, we have a significant stockpiled ore. We've got over 3.1 million ounces of stockpiled ore in our own backyard. So we will be utilizing and managing all of that in the first instance. Something outside of that needs to look better or sooner than we have in our life of mine. So we believe we've got everything to deliver our growth plans organically without doing any of that M&A. There are natural bolt-on things you always look at, but it always has to be at the right price. So we're just, it's more of a want than need, and we'll keep our eyes active on all of those things. But at the moment, plenty to do with our own portfolio, and we've got a really solid team. And we want to simplify the business as we're continuing to do. So adding things sometimes doesn't make it simpler.
Okay. Just one final one on, I mean, post the sale of Kundana, those operations actually look like are going quite well from our numbers. I mean, is that sort of release the handbrake a little bit on what you're doing into KB and Millennium and that sort of stuff?
Look, through the quarter, we worked hard to transition Kundana well with the team to Evolution. So I think that's been managed and handled very, very well, but it does allow the bandwidth of the team to focus back on fewer things. So look, we're always just looking at where is the best return for the capital invested. This quarter has been a strong quarter of commencing those growth projects. So don't discount things like the commencement of the TBO upgrade. We're going to get under 600,000 ounces in pre short order. All of that waste movement and the volume increase at KCGM is paramount to the long-term growth story there. And obviously, key upgrades at Pogo plant. These are all things to check off the boxes to show that we can grow the 2 million ounces organically. It's not a mean feat, 25% up, 1.6 million ounces to 2 million ounces in 5 years. There's not many peer gold companies with that organic growth whilst lowering costs out there.
Your next question comes from Al Harvey from JPMorgan.
Just a quick one on Jundee. So getting a bit of open pit ore contribution from Julius. Can you just remind us of the reserves here and what the contribution will be to Jundee going forward from those regional open pits? And if you can kind of step us through what other regional pits you've got coming online and how that kind of flow between the Jundee plant and the expanded Thunderbox mill?
Yes. So Jundee to the North, we'll maintain that 300,000 ounces. It's about 2/3 underground, 1/3 open pit, but the reserve is a bit more biased to the underground. So about 2.2 million ounces of reserves for underground and 0.8 million ounces open pit reserve ounces. And the feed going through that 3 million tonne plant is about the same 2 million from the underground and about 1 million tonnes of open pit. So you will continually see us like remain, Julius, you see satellite pits build and grow and contribute to that to maintain that 300,000 ounces. Whilst we still, we've got 15 underground diamond rigs at Jundee extending the system from an underground perspective. So we see a long life, decade of opportunity there. And we keep that nice 1 million tonne stockpile. So we're not spending capital too aggressively ahead. We'll keep that buffer of 1 million tonne stockpile of open pit feed should you have any disruptions or otherwise in underground feed. Just to the second part of that, the Thunderbox area. So doubling that throughput from 3 million to 6 million tonnes, it will be 1/3 from D Zone Thunderbox pit, 1/3 from the Thunderbox underground and 1/3 will come from satellite pits like Orelia or Bannockburn that feeds into that 6 million tonnes also get 300,000 ounces down to the south.
Your next question comes from Mitch Ryan from Jefferies.
Most of the key ones have obviously been asked. But just wanted to understand with the 2 new trucks at KCGM, clearly, you called out that, that will help bring down operating costs. Just wondering if you can put any metrics around it yet as to, if they're delivering to the extent that you thought they might be able to or not, if it's statistically relevant?
Yes. Thanks, Mitch. I suppose that this year is a transition of the old fleet out with the new fleet in. So it's going to take some time for that to just stabilize and go through. But what we do see is with the F trucks, we see less downtime in the summer months, so they don't overheat on the ramp compared to the old trucks as well as the new model F trucks are actually a couple of kilometers faster than the older model C. So look, it will take some time for that. It's a big fleet that we're changing out. So it will take some time for the old fleet and the operating cost to wind out and the new equipment is fast and more efficient and lower operating costs are really kicking in. So it will just take us time to transition, but we do see good upside once the fleet is all consistent and the same across KCGM. Obviously, we've got a mixed fleet. It's a little bit difficult with fast trucks catch up to the slower trucks, so it probably FY '23 onwards that we'll really see some improved productivities -- significant improved productivities from that fleet.
Your next question comes from Peter O'Connor from Shaw and Partners.
Stuart Morgan. Two questions. Firstly, Stuart, just on cost headwinds. Broadly speaking, in WA and from a level of COVID impact still, but also other broader industry issues? How are you seeing them? Now on the second question, going back to the point about North America, Stuart, you talked about the attraction of the Tier 1 jurisdiction and potential for opportunistic potentially M&A. Does Northern Star need paper in the North American market to execute on deals like that in the future?
Yes. Good question, Peter. So look, on the domestic or even general labor costs and input costs, that's probably where we've seen -- those headwinds is labor and turnover. The unnecessary costs of just churning labor that gets fussy and flighty in this environment. I still think within 6 months, we'll see relaxation of borders, international and/or interstates with vaccines becoming prevalent. And therefore, that will relax some of that as well as different commodity cycles. So those cost impacts at the moment are layering in across the sector. Fortunately, we have the synergies delivered from the merger as well as the economy of scale of the higher production planned out. That we can still reduce our all-in costs despite some of those headwinds, but it means we offset some of those with the synergies cost. On the North American outlook and paper, and I'll take that as does it require equity and/or second dual listings or otherwise. Look, what fewer questions out before were the balance sheet and the health of our balance sheet being net cash presently all self-funding on our growth capital of 2 million ounces plus dividend paying plus exploration, resource reserve growth plus surplus cash. If we're not buying something, we're returning that through a special dividend or evaluating things like share buybacks and all of those other sources and uses of capital. The beauty is Northern Star has those options available to us. So we reliably consider all of the capital management. And my view is that we have a lot of capacity for debt, but we have a lot of free cash flow that in the future years, we'll be able to put to good use to get superior returns. And if we can't find the superior returns, we'll return it to shareholders.
Your next question comes from Matt Greene from Credit Suisse.
I just have a follow-up really on the cost base. Can you just remind me sort of how your diesel contracts are structured in terms of just timing lags based on where spot pricing is? And then just roughly, just on, I guess, KCGM more so, how much of that cost base is fuel related?
So I think, I heard that as the diesel, the way we do diesel, and it's the same as everybody else [indiscernible] with no hedging and no lead or lag as you buy it. But I guess, fortunately, nearly 8% of our production comes from underground, which is less diesel-intensive. Obviously, [indiscernible] large fleet is diesel intensive related to your cost base. So it doesn't have a huge input or flux on us. That's why we don't try to hedge it or guess it. And all of that power primarily comes off grid or gas fed into our power plants at the moment as we're transitioning towards a renewable type program. So with that, it's not a massive lever or change or sensitivity [indiscernible]. Thanks, Harmony, I think -- are there any more questions?
There are no further questions at this time. I'll now hand back for closing remarks.
Excellent. Well, thanks for joining us today on the call. As you've heard, it was a solid quarter at our Australian operations, and we incurred a couple of one-off issues at Pogo, which impacts our results there. Given the strong results being generated at the Australian operations and the fact that we will see the benefits of the investment made at the Pogo plant, we are well on track to meet our full year guidance. We are also in the midst of an exciting expansion phase with significant organic growth projects commenced during the quarter at Kalgoorlie, Yandal and Pogo to lift production to 2 million ounces per annum by 2026 and lower our costs to continue to generate significant cash flow and superior shareholder returns. Have a good day.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.