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Thank you for standing by, and welcome to Northern Star's December 2017 Quarterly Results Conference Call. [Operator Instructions]I would now like to hand the conference over to Mr. Bill Beament, Executive Chairman. Please go ahead.
Thanks, Michael. Good morning, and welcome. On the call today, we also have Stuart Tonkin, our Chief Executive Officer; Shaun Day, our Chief Financial Officer; and Michael Mulroney, our Chief Geological Officer.Today's quarterlies results see the business tracking in line to achieve full year guidance on production and on cost. Essentially, all it says is that we are doing exactly what we said we will do both on the operational front and in respect to our organic growth strategy. At the halfway mark of the financial year, we are comfortably on track to meet our production and cost guidance for the 12 months. We're also on track to hit our target of producing at an annualized rate of 600,000 ounces per annum this calendar year.And last but certainly not least, the first half of FY '18 has presented several opportunities across our assets to substantially grow our reserves and resources from organic sources. The opportunities flowing from the success in this area are reflected on the fact we have brought forward $5 million of expansionary capital expenditure, including exploration, into the December quarter. That decision was aimed at accelerating the overall growth strategy in terms of both production and gold inventory growth.Over the medium term, we do not envisage spending more on expansionary capital than planned at the time of our strategic update last August. But we are bringing forward some of that investment to deliver the benefits sooner. These benefits will be evident in our rising production and exploration results, which will, in turn, flow through to our overall gold inventory.It's important to note that this style of investment in the business has generated sector-leading returns on invested capital and share price performance over the last 7 years to Northern Star and will help to set the business up for its next stage of growth. On that last point, we are delighted with what we have seen, and we expect to say more about that in the month of February.We have long stated our strong belief in the exploration upside at and around our assets. We have also made no secret of our belief that there is a lot more gold to be found in Western Australia in general. These views are demonstrated by our recently acquired shareholding in our neighbor, Echo Resources.Echo's management are doing a good job of presenting a business case to potentially recommission the large capacity mill at Bronzewing, which we believe will need a number of ore sources to be successful. The combination of all these factors means, it's just common sense, to position the business to have a seat at the table, and that's pretty well where we're at this stage, nothing else to report on that front.In the quarter, Northern Star also expanded our interest in the Tanami region with the successful acquisition of the Western Tanami gold project for $4 million. This infrastructure and tenement package complements our existing footprint in the Central Tanami, and our geological teams are continuing with their work from the ground up there.Now I'll hand over to Stuart Tonkin, our CEO.
Thanks, Bill. So our December quarter was another busy one with lots of activity across the group. We've redeployed our Paulsens resources through the growth centers of Jundee and the Millennium operations, and we continue to invest strongly in development to deliver organic production growth across those centers.The physicals achieved in the quarter are a testament to the efforts underway to further extend mine lives and grow that production. Although gold production in December was slightly down on previous quarter, that was really driven by the cessation of production at Paulsens and some lower grade zones in the sequence mined at East Kundana Joint Venture operation.Going forward, we are well positioned to offset the Paulsens production with higher-margin ounces at Millennium and Jundee, where we have redeployed our staff and equipment. The Paulsens activity was largely focused on the final stoping horizons and processing of stockpiles, and preparations were made to enable a quick restart once further geological work is assessed, and our underground diamond drilling is continuing there.At Millennium, it benefited from the additional resources from Paulsens, and development activity increased accelerating towards future production fronts, including Pope John and the Centenary. Kanowna Belle is reestablishing multiple production front higher up in the mines to access some of the high-lying mineralization. But importantly, as well, with new lodes identified in the hanging wall, and the Velvet continues to extend with drilling positively.The East Kundana Joint Venture is continuing development across all of Pegasus, Rubicon, Hornet and Raleigh, with a focus on growing stope production, and that's evident in the quarter with the 21% increase in stope tonnes mine. Stope grade is largely influenced by that mining sequence, and these lower grade zones resulted in a reduced gold output during that quarter.Jundee maintained a strong performance overall, with the exception of physicals achieved. The development made is -- were in excess of 4.3 kilometers for the quarter. Ore tonnes mined were equal high of 407,000 tonnes in the quarter, and milling was a record 440,000 tonnes in the quarter. And the Armada vein is well under development with footwall access that's extending along strike. That mill upgrade has now enabled very consistent throughput parameters, which removes this constraint from the operation. And as Bill mentioned on Tanami region, our geological teams are now presently active on the expanded base up there and still continuing their work.So I'd like to now hand over to Shaun Day to cover some key financial highlights for the quarter. Thanks, Shaun.
Thanks, Stuart, and good morning, everyone. It's a pleasure to be able to present the December 2017 quarter results. I'll take you through a couple of key financial aspects.Turning to the waterfall chart on Page 3. It provides an overview of cash movements for the quarter and the generation of $56 million in operating cash flow. During the quarter, Northern Star acquired a $25 million stake in Echo Resources, which hold a tenement neighboring Jundee. This does not have an impact on our cash and equivalents holding as it only constitutes the movement from cash to the investment category.The underlying free cash flow for the quarter is $35 million. During the December quarter, Northern Star paid a final cash payment in respect of last year's 2017 income tax return of $35 million plus Northern Star acquired additional leases to the Western Tanami for an outlay of $4 million. After the tax payment and the acquisition, cash and equivalents was $433 million. This balance is achieved notwithstanding the acceleration of the growth strategy with $28 million of exploration and nonsustaining CapEx expenditure during the quarter.Also on Page 3, we have a table summarizing Northern Star's hedge book, which was brought down with deliveries over the quarter. The book now contains 375,000 ounces at $1,750 an ounce. This book extends 2 years to December 2019. The benefit of this hedge book position, which is presently around $20 million in the money, will flow into Northern Star's cash flows over the course of future quarters. The hedge book exists to providing us protection around budget outcomes and manages the return on capital for current investment decisions made through the future production.I'll now pass the floor to Michael Mulroney.
Thanks, Shaun, and good morning, everybody. It was a very busy quarter for the exploration group this last quarter where we drilled over 100,000 meters across the group, with the main focus of activities being Jundee and down to the EKJV operations in Kalgoorlie.Jundee, underground drill fleet focused on a lot of in-mine resource definition and resource development programs across the mining areas, including Cardassian, Deakin South, Westside and Gateway-Gringotts while we also carried out an initial grade control drilling program at Armada, which got better-than-expected results. We continue to add 2 diamond rigs down on the deep drill drive, drilling exploration sand holes on the 39 Level, which is targeting the down dip extensions of the Westside of Gateway systems with some success while a number of holes had been pushed on into the new Armada trend at depths beyond our systems.In terms of looking at Zodiac, the new discovery, we continue to progress drilling our a very broad-spaced pattern with 4 diamond rigs from the surface, and we're looking at the areas both north and south of the discovery hole over and extend it. It now extends beyond 2,000 meters on the surface. We completed a number of deep parent holes to depths of up to 2,400 meters at this stage, and that program is continuing, but we expect that to be completed during this current quarter when we'll be in a position to discuss some of the results.Reiterate Jundee, our Echo program is continuing testing a number of target areas up and down the Jundee belt, more specifically in the Desert Dragon area 7 and down to the Deep Well domains.Moving now to Kalgoorlie. At Kanowna Belle, the underground diamond rigs are focused on expanding the resources in the upper levels of the Lowes orebody, particularly at the shallow end around B, C and D levels with some success in the new hanging wall positions. Also drilling on the Lowes extension at depth has recommenced from the 9245 drill drive, and some of the results of those are just starting to be received and looks particularly interesting. At Velvet, we continue to drill around the mine, Velvet resource, where we await the develop of new platforms to allow us to pursue the Velvet mineralization at depth.Now across Kundana, we began the underground grade control drilling at the new Millennium mine, which achieved as expected results. And we also conducted a short resource definition drilling program in the upper levels of the rehabilitated Barkers Mine, which successfully delineated some extensions to the Helga’s Vein structure. To the south at the EKJV, the underground drill fleet of 4 to 5 rigs continuing focus off the new Link Drive at depths below Rubicon and Hornet targeting the extensions to the main K2 and associated hanging wall structures. Across the Pegasus, resource definition drilling at Pegasus Central are also targeted at high-grade extensions to the new Pode system, which is adjacent to the current mining operations in preparation for commencement of mining operations in that new surface.At Raleigh, we also diamond drilled some extensions to the Skinners Vein resource and identified some new structures in both the footwall and hanging wall to the Raleigh Main Vein, which will be the target in future programs.We also completed programs at Paulsens in the underground targeting expansions to the Voyager 2 system up and down plunge as well as looking for extensions down plunge of the Miranda and Galileo systems. And we also completed a surface diamond drilling program on the Southern Gabbro prospect south of the main mine looking for parallelized mineralized trend. At a point -- at this point, we are revisiting our seismic interpretations of the area, and we're preparing to conduct a new 3D seismic survey at Paulsens to drive the future exploration in that area.From a regional exploration point of view, we were particularly active in the Carbine area, with further drilling at Paradigm, where step-out drilling has successfully extended the Arina structure and together with identifying new mineralization in the footwall to that main Arina structure. And while results are pending for RC and diamond drilling conducted down the new Zorro trend adjacent to the Carbine pit.Similarly, results are pending for some work we did up the new Carnage tenements, where RC and diamond drilling tested targets at the Red Wedding and Three Eights prospects.Within the Acra JV just north of Kanowna Belle, we conducted reconnaissance aircore drilling programs while we continue to complete the finalization of heritage clearance activities across that area. I'm happy to say we've now successfully completed those negotiations with the traditional owners, and we look forward to advancing those programs quickly.Moving up to Tanami. At the Central Tanami, we continue with our regional mapping and sampling programs, particularly over the Black Hills area and to the South of Jim's, with Camelbore.And across our 100% regional project, we've just started the helicopter-borne targeting survey on some of the targets generated from our regional airborne geophysics program completed in previous quarters.And across the Western Tanami, as soon as we completed that transaction, we commenced drilling operations over there. Post-settlement, we did completed RC and diamond drilling programs at Pebbles and Road Runner prospects just to the south of Coyote before the drilling was suspended due to the wet season rains commencing in that area. So overall, it was an extremely busy quarter.I'll now hand back to you, and with the moderator for questions.
[Operator Instructions] Your first question comes from Michael Slifirski from Credit Suisse.
I've got 4 quickies, if I may, please. First of all, with respect to Paulsens, as relevant as it is, I guess last quarter you said that you still expected to achieve your guidance. This quarter, you haven't. Was there some strategic decision made in terms of what was sort of optimal? I'm just trying to understand why you perhaps produced less than what you thought you were going to do?
Yes. Thanks, Michael. Stuart here. So you're right, we had a plan, it was largely based on activity in the first half with the transition over December or January. Yes, that call was made basically to leave the operation in state that actually enabled a faster restart. So the plant condition and everything that's there, the start-up stockpiles and to leave the stopes in the development areas in a state, which can create a quick start up. So the diamond drills, they are drilling, and the teams there just prepared it. So they spent those efforts throughout the December period. But importantly, it was about getting them down to the growth centers of Millennium and also some of the resources across the Jundee team. So it's been -- it's really that the resetting period of getting them out. We did pull it up an ounce short. It doesn't mean that, that creates a void in the overall guidance because we splice that with ounces that come out of the Millennium operation.
Perfect. Secondly, with respect to Jundee, I think the guidance was that with the permanent crushing solution going from contract crushing that you'd have about a $4 a tonne saving given that you achieved your aspiration 1.7 million tonne annualized rate. So it looks like it was $1.50. So does that mean there's still further cost savings to be realized? Or is there some other adjustment there that I'm not understanding?
Yes, you've seen that pull through. It's -- well, there's still a few -- there's still costs coming through from post the commissioning, so it will take a bit of while to settle that through. But on the throughput alone that you saw in December, I mean, that explained that $1.75. December achieved a run rate much higher than that. So you have -- there is some settling costs in there. But we've definitely, about removing that, yes, we're paying $6 for a mobile crushing unit for half the tonnage. Now with that fixed infrastructure, every tonne's going through that, which is sub a dollar operating cost. So you'll see that settle down as the operating gets economies of scale. We've got phenomenal throughput through that plant now. And it's very stable as well. It's very predictable, which is another great outcome from the team that did that.
Great. Then just trying to understand the reporting around Kalgoorlie. In the September quarter, Millennium cost revenues were capitalized. This quarter, the footnote seems to have changed somewhat. The ounces sold have increased, but the all-in sustaining cost hasn't changed. Do we use the new September quarter as a sort of restatement or the old September quarter numbers?
Mike, just in terms of how we feel trading Millennium or the Kundana 100% as preproduction, so we continue to capitalize those costs net of the revenues we derive from the sales of the ounces that are coming out. When we're calculating the Kalgoorlie gold operations, the all-in sustaining cost, we're effectively using the cost at the EKJV and Kanowna Belle and those ounces to drive the all-in sustaining cost calculation. So it's effectively announced through this EKJV 51% interest and Kanowna Belle, whilst Millennium will still be capitalized.
Perfect, great. And then finally, the last one. I think I got lost a little bit in the exploration presentation because there's so much detail. But was it said that the Zodiac zone has now been sort of traced over 2 kilometers? Was that the summary for Zodiac?
Yes, Mike, that's correct. We're drilling north and south of the discovery hallway. That's very, very broad basically because some of it is quite deep, but we've traced the zone now over a strike length of approximately 2 kilometers. But depths from surface somewhere in excess of 2,000-meter deep holes, it's been a bit of a slower process than what we're used to.
That's downhole.
Yes, so what was that true depth?
Varies from about 1,300 meters down to sort of 1,400, 1,500 true depth.
Your next question comes from Sophie Spartalis from Merrill Lynch.
Just want to follow up on Jundee and also Millennium from Michael's questioning. Just maybe firstly on Millennium, when do you expect commercial production to be achieved there?
Sophie, look, we have a kind of a policy that looks at grade and stoping tonnes and ounces to make that decision. Right now, that looks like it will be a March 2018 or April 2018 decision. So we'll basically pursue that based on the outputs we get from the mine.
Okay, great. And then just back to Jundee, the grades is pulled back a little bit, do we expect, given in order for you to make the annual guidance, that the grade is expected to rebound for the second half of the year?
Look, we track within 5 grams and 5.5 grams, at those volumes, because of some of the material of the stake as it comes in. Some of the milling picked up, all the stockpiles as well, because you saw that we mined at 407,000 tonnes and milled at 440,000 tonnes. But yes, that 5.5 grams will be typically where it will track, and that's really because we're not leaving any economics out in the ground. We're picking up all that material on the way through and we're working on ways to minimize pillar sizes and pick up these -- the opportunity lies that sit parallel to the main structures. So I think that's the benefit of having -- lowering your operating costs while having a larger throughput in the plant. As long as they're profitable ounces, we'll extract them out of the ground. So probably just look at the absolute guidance on the total ounces out of the mine as opposed to just that hit grades being mined.
Okay, so does that mean going forward that we should expect to be more hand-to-mouth? So your mining -- or like your mining should be the same as your milling tonnes?
Look, it's not hand-to-mouth because we've got a very clear mining schedule and program now for a couple of years on the design. So it's -- we know where it's coming from, but the miners need to pull their finger out now because they're not constrained by the mill. But to give them credit, the physicals that were achieved in that quarter demonstrate the capacity they have to do that. So their record development made, their record stoping tonnes that had been achieved. I mean, you look back over the previous quarters, forgetting grade, looking at the absolute physicals that are achieved at Jundee, they're getting better and better and better each quarter. And that's only delivered by a thorough plan and schedule, and adhering to that schedule. So it's not -- it might feel busy for the mining teams. It's not hand-to-mouth, but there's a lot going on out there.
Okay, so just to read between the lines then, you don't foresee any bottlenecks to prohibit them meeting that milled tonne number now? It'll just take time for them to ramp up what they're doing and obviously, scheduling?
Yes, that's correct. And as you see in our guidance out there, we see an opportunity to actually grow that ounce profile at Jundee about this year's guidance. So it's really -- that's dependent on the sequence of mining and sort of meeting our schedules that we've got planned out.
Okay, and then just one quick last one from me. Just in terms of the depreciation, it's come down quite a notch. Should we expect to see that going forward, that level of depreciation, $100 to $150 an ounce?
Yes, Sophie. Look, that runs reasonably consistently for the financial year so -- it's an equation based on the ounces as well, but yes.
Your next question comes from Kristie Batten from MiningNews.
I was just wondering, I just had a question on business development front. With more sort of companies drilling now, do you think that the opportunities coming through is starting to become a bit more interesting? Are you seeing more opportunities, I guess, than you would have this time 12 months ago?
Yes, Kristie, it's Bill. Yes, look, a very good question. Look, I think it's fantastic what's happening across the state of Western Australia. You're looking at some of the small companies actually now has the money, time and the geologist on board to actually do some meaningful exploration. And it's something the states lacked for a number of years, so it's really encouraging to see these smaller companies spend that money and that effort on the ground and, in fact, were getting rewarded. And they're actually pulling out some really good results across the states. So as an investor, you don't need to go after the dark path parts of Africa because what's happening here in the states is pretty exciting.
And do you think that's sort of going to become -- like things are going to start to become more competitive with yourselves and other peers sort of vying for those early stage opportunities?
Look, I don't necessarily say that. You've got to look at where your mills are located and you can't own every house in the city, can you? So that's sort of our view of where we're located in our strategic hubs. So no, I wouldn't necessarily say that. I think everyone's got great portfolios, and like we've done, if you spend the money on your own portfolio is probably the best value you'll get versus going and buying someone else's.
Your next question comes from Warren Edney from Baillieu Holst.
I was wondering if you could give me some guidance about -- or some indication of the individual components of the Kalgoorlie production guidance? And also what your current view is on the state of play now that you've got 100% of the mill at Tanami and what are you going to do there to progress that. That's all.
Okay. So just on Kalgoorlie, in the back of the quarterly, you've got your actuals split down by operations, so I won't go through all the number there. You've got those tables.
I was just thinking more of from a full year perspective. That's all.
Right. We don't give the specific break down on that. We give it as a consolidated. Essentially, you guys go through the same plant so perhaps I’ll tack tan on minus the – we’ll touch back later on to making sure your models are scratching the equation that’s built. On Tanami, look, the infrastructure we acquired there in Western Tanami is a 350 million -- 350,000-tonne CIL plant at the Coyote location plus camp and airstrip and infrastructure, workshops and all those things that are there plus the resources on the tenements and the prospectivity of that tenement package. It sits about 90 kilometers up the road from Central Tanami and it used to held obviously by the same business in that group. So we’ve expanded our foothold, it gives us a quick startup to produce and do sampling of any mining ore that we'd do from either side, Northern Territory or WA. So strategic in that way. It's an operating plant that can be turned on quickly. So that's the opportunity. So a pretty low entry cost to get that infrastructure. That's just part of the broader plan and footprint update.
Your next question comes from Paul Hissey from RBC Capital Markets.
Yes, a couple of questions that are important as well, which I think Stuart already covered. But just want to be just clear, any likelihood of a contribution there later on this year? And also is that likely to be treated separately in the accounts at all? And any exceptional items associated with that sort of premature or sort of early in to the production volumes from that business?
Look, so -- so turning down that -- no, I don't give any calls into any contribution this financial year. So it doesn't affect our overall guidance that we have set. We meet that with growth out of Millennium. And as far as treatment costs financially for the way Paulsens have set, there's low carrying cost on that, but it's -- we're still actively drilling and doing geological work and review of that asset. So what we've also been able to do is move a lot of the fleet of people to those growth centers in Millennium. So yes, those costs aren't written down or in that regard, are actually down to utilize those assets and people rapidly there. So literally, no redundancies, no idle fleet. It's all been redeployed throughout the month of December.
Okay, and Shaun, not being treated as a discontinued asset or anything like that?
Sorry, can you say that again, Paul?
Not being considered or treated as a discontinued business or anything like that for the purposes of your accounts?
No. So in August -- the assets, the -- it's not treated separately. It just flows through the accounts normally. Because we're not selling it, it's not a discontinuing operation, so it flows through the accounts in a normal way. And it won't see any impairment or anything in that half year, we effectively -- we're managing our depreciation on that asset based on our expectations throughout the year. And as you know, Paul, with the way we manage our D&A, we effectively are going to see that once on the balance sheet. We look at our whole life-of-mine plan, and we anticipate future CapEx in determining those levels, which gives you there a very consistent outcome and a high quality of earning. So no surprises in the account.
Yes, sure. And just one other question then. In your slide deck, you've got the cash flow waterfall, which is quite useful. I just noticed in there you're saying investments provided $23.4 million of cash, I guess, as an inflow. Can you just reconcile that number for me? Obviously, given the outflow for that Echo acquisition during the quarter, I just couldn't quite reconcile where the inflow from your investments is coming?
Well, because this is a cash and equivalents table, if you look at that $433.1 million, that reconciles that top table of cash at bank plus bullion awaiting settlement plus equity investments. So effectively, during the period, we bought just under $25 million of Echo shares, subtract about $900,000 reduction in the market value of the other mutual investments we held. So the net impact was that the equity investments went from $40 million up to $63.6 million, hence you see that $23.5 million increase in the value of investments within that cash and equivalents value.
There are no further questions at this time. I'll now hand back to Mr. Beament for closing remarks.
Thanks. As I've said at the outset, the business is tracking in line on production and costs, and we are doing what we said we will do on every front. We are meeting our production objectives and at the same time, generating substantial organic growth. We will always be a growth-focused company, and our growth will be driven largely from organic sources because ultimately, that's where we can generate the best financial returns for our shareholders. Northern Star is about maximizing financial returns. As you know, we have one of the best track records of an ASX company in this respect, and I'm confident we will retain this enviable status as the benefits of our exploration and development strategy flow through this year. I look forward to updating you on this in the coming months. Thanks for joining us. Looks like we'll beat the Poms on Sunday, and Happy Australia Day for tomorrow. Thank you.