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Thank you for standing by, and welcome to the Northern Star December 2021 Quarterly Results Call. [Operator Instructions] I would now like to hand the conference over to Mr. Stuart Tonkin, Managing Director. Please go ahead.
Good morning all, and thanks for joining us. With me today is Chief Operating Officer of Australian Operations, Simon Jessop; and Chief Financial Officer, Ryan Gurner. I'm pleased to report quarter 2 gold production of 393,000 ounces at an all-in sustaining cost of AUD 1,631 an ounce. And with an outlook for the stronger second half of FY '22, we maintain our full year guidance for production and costs.I would like to acknowledge the efforts of our team to continue to improve our group safety performance and maintain the precautions necessary to mitigate the impacts of COVID on the health of our employees and communities. We're continuing to implement these controls and our Pogo learnings in the face of the WA border relaxation. We are well prepared by the extent any operational impact remains largely unknown. Simon will speak to the Australian operations that are performing well and which underpin significant organic growth in the near term.In North America, our total operation delivered a similar quarter to quarter 1, and it is pleasing to see the development physicals meeting the desired level to build additional production [ fronts ].The Pogo operation remains mine constrained until we maintain 1,500 meters a month to build more stope production stocks, deliver 1.3 million tonnes per annum to the mill. In the near term, we have supplemented mill feed with lower grade development ore, which impacts the average grade and recoveries. Our focus -- the focus of Pogo at the half 2 remains on building mine volumes through increased development and lifting the production contribution from high-grade stoping activity.For the group financials during the quarter, we delivered strong cash earnings with the half 1 results estimated at $425 million to $440 million. Our dividend policy targets 20% to 30% of this cash earnings metric. We maintained a net cash position of $288 million after our organic growth investments, the exploration and the acquisition of Newmont power as well as the convertible funding agreement with Osisko Mining. We aim to retain a very strong balance sheet to fund our growth -- our organic growth activity.During the March quarter, we will publish our sustainability report, providing important ESG disclosures and highlighting the significant positive contribution Northern Star makes to our communities, the environment and the economy. The gold price remains very strong, above USD 1,800 and AUD 2,500, providing strong operational cash flows to Northern Star to meet our business first strategy, with profitable growth of 2 million ounces from a simplified asset base.I would now like to pass to Simon to cover the Australian operations.
Thank you, Stu. For the Kalgoorlie production center, including KCGM, Carosue Dam, Kanowna Belle and South Kalgoorlie, we sold 245,000 ounces of gold at an Australian all-in sustaining cost of $1,538 an ounce, up 5% on gold from the September quarter. This production produced a mine operating cash flow of $239 million, and we spent $51 million of significant growth capital projects. Of this major growth capital total, $26 million was spent on open pit mine development at KCGM.Specifically at KCGM, open pit material movement was lower than the September quarter at 15.3 million tonnes, with a focus on the longer hauls from Golden Pike and the base of the pit. Currently, we have 12 of the new open pit mining trucks. 793F class successfully commissioned or approximately 30% of the replacement program. We are already seeing improved tonnes per hour and lower diesel burn per tonne for the new fleet, and we really look forward to having the entire fleet on site to commence further optimization.Underground mining for the Kalgoorlie region again delivered 1.6 million tonnes at a slightly lower average grade of 2.5 grams a tonne for 126,000 ounces. Carosue Dam increased mine tonnes by 16% to 685,000 tonnes, while the Kalgoorlie operations continue targeting the bulk areas at Kanowna Belle and continue to develop the HBJ underground mine.KCGM processing volume was 3.5 million tonnes for the quarter, with shorter shutdown durations and improved SAG mill utilization for higher throughput rates. Head grade also increased with planned delivery from Golden Pike, delivering a 0.2 grams per tonne lift.Pre-milling ore from KCGM's Mount Charlotte operation is now being processed at Kanowna Belle and the South Kalgoorlie plants, freeing up capacity at KCGM for the previously stockpiled high-value marginal ore. Carosue Dam set a new processing record of 1.03 million tonnes for the quarter and has milled an impressive 2 million tonnes for the December half. The plant continues to perform at 25% above nameplate plant design and is operating at an annualized 4 million tonne per annum rates providing opportunities.At our Yandal production center, including Jundee, Thunderbox and Bronzewing, we sold 102,000 ounces of gold at an Australian all-in sustaining cost of $1,518 an ounce, which produced a mine operating cash flow of $76 million, while we spent $77 million on significant growth capital projects. The Thunderbox mill expansion itself spent $47 million of major growth capital during the quarter.Our Jundee operation continued with another strong underground performance by breaking the recently set development record with a new 1 at 6.8 kilometers for the quarter. This development will provide long-term drill platforms and the ability to access future ore areas earlier.The open pit of Julius as part of Jundee's satellite ore feed mined an impressive 24,000 ounces of gold in the quarter. Jundee also completed and commissioned the thickener for the processing plant, which will reduce water by 30%. Plus, they installed the coarse ore stockpile cover. Both of these projects are significant environmental improvements, which are now complete.Our Thunderbox operation continues to invest in the pre-strip of D Zone as the pit reaches the top of the main ore zone with 23,000 ounces mined in the quarter. The underground improved mined ore tonnes by 44% quarter-on-quarter to 416,000 tonnes for the December quarter. The mine will continue to ramp up to greater than 2 million tonnes per annum as the larger stopes come online primarily in the [ A ] Zone area.The Thunderbox mill expansion project saw significant progress completed in the December quarter, and we're sitting at now 60% of the project complete and remains on track for commissioning in H1 of FY '23. We continue to be pleased with the progress of this material growth project as a key project of Northern Star's growth strategy.I would now like to pass to Ryan to discuss the financials.
Thanks, Simon, and good morning all. As demonstrated in today's quarterly results, Northern Star remains in a very robust financial position entering the second half of FY '22.As set out in Table 4 on Page 7, at 31 December, our balance sheet is strong, with cash and bullion of $588 million. The company has recorded strong cash earnings for the first half of FY '22, which is estimated to be in the range of $425 million to $440 million and a reminder that our dividend policy is based on 20% to 30% of cash earnings.As mentioned, during the quarter, the company completed the acquisition of the power business from Newmont making a balanced payment of USD 70 million and a funding agreement with Osisko Mining through a convertible debenture totaling CAD 154 million. After funding both these acquisitions, the company remains in a net cash position at 31 December of $288 million after allowing for corporate bank debt of $300 million.Figure 5 on Page 7 sets out the company's cash movements for the quarter, with closing cash, bullion and investments of $774 million, which included the payment for Newmont power and additional $38 million in borrowings drawn.At KCGM, the focus on Golden Pike and Morrison ore zones in preference to waste movement at Fim South resulted in higher open pit production, lowering all-in sustaining costs and growth capital cost allocation. With the completion of the purchase of the power business occurring early December, KCGM was able to realize immediate savings on power costs. The Kalgoorlie production hub recorded $239 million of operating cash flow during the quarter and $450 million during the first half of the year. At Yandal, the Thunderbox underground and D Zone open pit operations reached commercial production early into the December quarter, meaning the costs associated with mining and processing ore, along with the revenue relating to gold sales, are recorded as part of all-in sustaining metrics as opposed to being presented net under growth capital. The Yandal production hub recorded $76 million of operating cash flow during the quarter and $173 million during half 1.As Stu mentioned, Pogo had an improved quarter. We increased ore tonnes mined and milled tonnes with an anticipated step-up in mining rates in the second half.Table 5 on Page 8 sets out the company's committed hedge position at 31 December. The overall hedge book now stands at 1.1 million ounces at an average price of AUD 2,405 an ounce, which reflects approximately 20% of our forward 3-year production profile. The average hedge book price has increased $58 per ounce quarter-on-quarter.I will now pass back to the moderator for the Q&A session.
Your first question comes from Daniel Morgan with BarrenJoey.
Stu and Team, just on Pogo, just wondering if you can talk through the development meters and what's planned for the rest of the year. Do you think you've now got in place the TAM and equipment and productivities in December quarters now meet where you need to be?
Yes. Thanks, Dan. So look, we've got the fleet, the people, the thing with disruptions regarding restrictions that have been in place over there. So again, with the borders relaxing the ability for expats to move back and forth on their front line jumbos, that's been better. And we achieved just on 1,500 meters [ vertical ], about 40, 70 meters in December. So we're pleased with the exit rates importantly of quarter 2.We need to maintain at about that 1,500 meters throughout the rest of the year, build those stoping fronts. Pretty pleased with the performance to date on showing we can do it. It's really about maintaining at that level throughout. So that's key to obviously deliver this year's guidance, but then exit this financial year with the development stocks and stoping fronts available to make 300,000 ounces next year.
And on COVID in WA, so the border is scheduled to open up in early February, and there's a lot of trepidation in the resource industry about this. Could you just expand on the measures that you're taking to deal with this expected risk? I know there's a lot of stuff out of your hands as with regard to just the measures you're taking to plan for this risk and the impacts.
Yes. So I think all the companies are very well prepared and us, particularly given our experience in Pogo, we've implemented a lot of the same things just to mitigate the amount of contact teams are having, and we've got a lot of contingency and diversification of where operations and activities and skills sit. So from that side, I think everyone is well prepared.The trepidation, you call it, is probably more related to the regime of quarantine related to positive cases and/or close contacts. And that's being reviewed by Health Minister, and they will likely be modified. And it could align with the East Coast changes and restrictions there. So if it's at 14 days, which is the design -- a structural design of that isolation, that becomes a problem. As you domino more cases back, we believe that will be reviewed, and there will be a risk-based approach. And it will involve a lot of the rat tests that everyone stocked up on and -- as well. So I think everyone is well prepared, but it's still difficult to estimate what the actual impacts would be.
And just last question, can you elaborate on the process at the Windfall asset and the convertible note that you've acquired? And just what is the process from here for decision-making or decision tree?
Yes. So we're in a period where there's due diligence. We've got teams on the ground in Quebec and really just going through the processes to work towards negotiating a joint venture with the Osisko team. So we still got a couple of months of exclusivity there to work with them through that. And that will be the process from here to wane, to establish a joint venture on the Windfall deposit.So the debenture funding agreement is in place, and that was achieved during the quarter. And I guess that can be leading to a value farm-in into the joint venture structure or it can be an equity piece on Osisko or it can just be retained as a debt piece with the coupon. So really from here, it's just continuing to do the due diligence work -- to work towards a joint venture on Windfall with Osisko.
Your next question comes from Matt Greene with Credit Suisse.
Just back on Pogo if I may. Look, it's encouraging to see development rates step up. But just on your comments on performance being slightly below expectations, was this more on development rates? Or are you seeing any initial challenges with the upgraded mill yet?
No. So it's really on the ounces outcome. And you'll see that reflected as well in the all-in sustaining costs given that denominator. The lead indications in development, we are pleased with and having achieved that exit rate of 1,500. Really, it's about -- if you look at the physicals in the tables, that will show we're mining at about 850,000 tonnes per annum, and we milled a bit over 1 million at a rate. And what we do there is supplement that with some lower-grade development ore. We got stockpile.So the grade looks down as well as recoveries, and I'll say it's below expectations. 50,000 ounce a quarter would have been on plan with some extra mining volumes. So we've absolutely got good visibility in the second half in the stoping fronts and the grades. We will return to those levels, but yes, it's probably 3,000 ounces short where we had a plan.
Okay. That's helpful. And then just on KCGM, is it just the deferring of waste movements? What drove that -- this decision? And I guess, should we expect this to continue into the second half?
Yes. Thanks, Matt. Simon here. It was really around access to Golden Pike in the base of the pit. So whenever we get an opportunity where the floor is drilled and available and blasted, then we will always head down to Golden Pike because there's obviously low strip ratio, good ounces from the base of the pit. So it's really cycle dependent as to when we're down there. But certainly, in the back of that quarter, we had a lot of tonnes to access from Golden Pike, and we'll always go back to there. And the impact is it's just a longer haul, much longer haul distance than from the top of the pit.
Okay. That's great. If I could just squeeze one more in. So just on the Osisko JV there, just under the JV agreement, who would -- would it be a joint operatorship? Or would Northern Star be the operator there if you were to pursue the JV?
Look, that's yet to be decided. I think acknowledging the significant experiences of the Osisko team developing operations over that part of the world, I think it's going to take [indiscernible] great advancements already on the project. But I think what the true partnership is, is leading on some of the underground and strength and technical skills that we have to establish that. So absolutely a joint -- 50-50 joint everything in decisions investment and likely to see leveraging off both parties' skill sets.
Your next question comes from Hayden Bairstow with Macquarie.
Just a couple. Just I guess, Simon, just interested on the truck replacement at KCGM. Obviously, been a lot of talk here about the strike we had at the port earlier on in the -- late last year and the ongoing impacts of that then potentially post [ dev 5 ] further impacts. When are you seeing any easing in the sort of supply chain within WA to make sure all those trucks get to site as scheduled? And is there any impact potentially on the KCGM sort of outlook, particularly sort of stripping it into next year if that fleet replacement takes a bit longer than expected?
Yes. Thanks, Hayden. Look, I suppose the short answer is no, we don't expect and we're not seeing any further impacts to the truck delivery schedule. So we had some small impacts in Q2, just not quite, probably only 1 or 2 trucks short. But that will be caught up in the second half and in the upcoming quarter. We're actually seeing nearly 18 trucks getting delivered. So yes, that's all well behind us now and no impacts going forward.
Right. And Stu, just on Pogo, just following up on Dan's question. I mean is this purely just going to be a grade story that gets this production back to the 300,000 ounces? Or is there other things you're relying on in terms of efficiency as well to deliver a better outcome?
Look, it's mine volume and obviously returning to the 8-gram reserve grade. So mine volume, you can see in the quarter, the run rate is only at 850 [indiscernible] ounces. We've got to get that to the 1.3. And that's going to be sort of 30% from development ore, 30% from stoping ore. But really, it's about pushing all the development together where the area is open to have like what we've built at Jundee, having multiple production fronts and diversification of where you're pulling your ore from.As far as efficiencies go, there will be a point of stability before we can then start bringing the unit cost down. So we still have overcompensated for some fleets, critical spares and otherwise continue to see there. So I think get to that ounce rate, and then work on reducing overall resources at site in [ employed ] equipment there to reduce the unit cost. So I think first point of call is mining volumes at the right quality, then start to optimize.
Your next question comes from Mitch Ryan with Jefferies.
Just staying on Pogo. Can you just -- you talked to the grade profile stepping up and all of the metrics that will deliver that. But can you please put some color around what the trajectory of that will look like and what the exit rate will be? Will it be at that 8-gram reserve by the June quarter? Or will it just be exiting? Or will it still be trending up?
Look, [ schedule say ] will be the stoping grade sits a bit above that 8 grams, so if its contribution is higher, it could be a bit above that. But if you see the ounce profile for the second half, we kind of need to be at that 120, 140. So you're on a 60-plus and likely a 70 [ ounce ] quarter. So your exit rate of quarter 4 will be stronger than quarter 3, and it will be a good platform to meet FY '23 guidance.
And then more of an industry-wide topic is the labor workforce tightness throughout WA. Can you give any commentary on what you're seeing with regards to workforce turnover at your asset level and therefore also within your head office and how that trends relative to normal or historical?
Yes. So it got up by 20% and 30% turnover. It's slow, but it hasn't come backwards. So -- and I don't expect the border relaxation to help it. I actually think there will be a bit of flight of labor out of state. So with that considered, we're still prioritizing what activities we do first and making sure that we consider any discretionary activity that would burden more -- extra burden on labor.Yes. So it's still been -- has been high. It has had some labor cost pressure as people have competed for it. You still see all the other commodities, gold up at the end of the day, but you see a lot of the other commodities attracting higher sentiment and therefore, development projects and new jobs being developed. So I think this year, we'll still retain some high pressure on labor, just how it converts through to cost before it gets relaxed.
Okay. And really quickly, last one. The timing for the mill -- KCGM mill feasibility study is still within the June quarter. Do you have the front end, back end or still to be determined?
Look, like at the back end of that, we're doing the work underway at the moment. And look, it won't necessarily be for a decision. It will be what are the fundamental metrics around how big it would be, what would be the ideal size, what would be the unit cost at the back end of it, the CapEx to get it, a time line to[Audio Gap]of that [indiscernible] point of decision for investment.
Your next question comes from Matthew Frydman with Goldman Sachs.
Firstly, on KCGM, and Simon's talked on this a little bit, but just interested in that trade-off between mining from Golden Pike and progressing the pre-strip. Obviously, it's quite cycle dependent at the moment depending on the schedule of that remediation. But just wondering if we should expect that the delivery of both pre-strip volumes and ex-pit volumes are going to improve going forward with this additional fleet that's being brought onboard. I guess I'm just trying to get a feel for if this quarter or the December quarter was really harvesting the benefit of where you're at in the cycle or if that level of production is going to be more sustainable going forward with that additional fleet.
Yes. Thanks, Matt. I suppose when you -- if you actually look back, we've improved material movement at KCGM from 30 million tonnes to 60 million last year, and we're ramping up again targeting sort of 75 million to 80 million tonnes this year. So as the fleet comes in, our material movements will consistently improve, and we will see further material movement in the second half as more of the truck fleet gets replaced as well as we're training a lot of operators and bringing people through.So yes, you'll see more tonnes come through from KCGM in the second half and certainly more waste stripping, along with similar sort of tonnes from the base of the pit as well as from OBH. So the other piece is the cutback on OBH is absolutely on track, and we're on plan for getting past that stripping over the next couple of years.
Yes, Simon. Yes, that makes sense. Maybe switching quickly to Pogo, maybe that one for Ryan to address. But the growth capital spend in the quarter, that $22 million, is that the bulk of the spend on the mill expansion done? Is there any key growth capital items remaining at Pogo that we should be thinking about?And then, I guess, broadly, you've already seen a ramp-up in your ability to utilize that expansion, processing at 1.2 million tonnes. Does that give you confidence around potential further debottlenecking projects down the track on that mill, obviously dependent on mining rates? But is that early sign promising?
Ryan?
Okay. So yes, a small amount of CapEx, Matt, in relation to finalizing the mill upgrade. But a lot of it actually is development. So as they're developing new areas, as Stu mentioned, to open up, so that's probably the majority of the cost there. Debottlenecking, Stu, do you want to...
Yes. It's more just keeping -- in any flight plan, you want stability. And from that, you'll slightly be able to lift the throughput rates. At the moment, it's just maintaining consistent fee. Secondary crushing or any crushing is likely going to help. So we're considering how that would fit into the main circuit.But ultimately, you're limited by the power in your mills and given everything built inside a box [ or weather ] limited without major CapEx to do to restructure or reformat that plant. We've really lifted from the 1 to 1.3 fairly cheaply, and we really just want to get that very consistent 1.3 stabilized and efficient before we start looking at further expansions from that.
Just touching back on that again, Ryan, you mentioned that the bulk of that CapEx, growth CapEx in the quarter actually attributed to developing new areas. How should we think about the, I guess, required spend for that going forward? Obviously, it's not something that's falling in all-in sustaining cost. But when does that capitalization of development of new areas roll off? What's the kind of quarterly spend that we should be thinking about going forward?
Well, I mean, I'd -- probably for this year, at least I'd come back to our sort of -- our guidance, Matt, where we've got that $70 million. Part of that's infrastructure. Part of that's development. I think for this year, I'd just point to that as to what -- at least the delta that we've done from the half to the next half, that's the amount that we're looking to sort of invest in that area, and I'll stick to that for now.
No problem. While I've got you, another quick one. Cash tax outflows, I guess, for the remainder of FY '22, nothing to point to there in the waterfall in terms of cash back payments. Obviously, you've got [ fair ] duty sort of lingering in the background from past acquisition. And obviously, you've got regular PAYG payments. So can you give us an indication of maybe what you're expecting in terms of cash tax outflows over the remainder of the financial year?
Yes. No, good question. It is -- there's a lot going on around tax at Northern Star. So yes, so first of all, the strategy, that -- it's a bit of unknown timing, so we're waiting on the government to provide an assessment, and then we look at that and we've done all the work and we essentially make a payment. So you'll know back in -- from last year, we sort of said to the market the estimates that $225 million, it could be less than that, but we're waiting on that process.Timing-wise, again, a bit uncertain because we're waiting on an assessment. It's probably likely maybe to be Q4, around the timing of that.In terms of corporate tax, so if I come back to 30 June balance sheet of the business, I think there was $150 million there as a receivable and no liability. So again, coming back to that merger piece around tax synergies, the company will be basically receiving a tax refund for the prior year, which we expect this quarter. And then looking ahead, I think certainly for the remainder of this year, financial year, our sort of corporate tax piece will be close to 0.
Yes. Okay. Got it. So my kind of summary is that in terms of my simple head is that, even though you do have an outstanding [ financial ] liability, kind of may not fall in the next 6 months and then plus you've got a refund that's going to offset some of those other corporate tax requirements here.
Yes, that's right. That's right. That -- look, that -- yes, that's exactly right.
Right. Okay. Final one for me quickly. Stu, you touched on Windfall before, and I guess the steps from here. Just wondering maybe at a high level, can you sort of talk to what attracted you to participate in this project? Why do you think it's a good fit for the Northern Star potentially? And I guess any particular aspects that you're focusing on as part of your due diligence, if you can sort of highlight anything in particular?
Yes, sure. I mean it's still live. So I don't want to give too much color on all our discussions and negotiations to date. But look, one rating -- rating the Osisko team highly. Their ability for -- similar to Northern Star and their technical prowess to explore, discover and develop, so a great partner to work with.Secondly, if you look at the quality and you'll see recently an upgraded resource update on Windfall and the intercepts that they're receiving with new drilling that's adding to that. So the grade, the quality, the scale, the underground geometry of it all. It's a world-class deposit, and it's going to be top North American mine. So to get into one of those early, we've always picked up things maybe after some of their peaks to get into a project early and build it from scratch, has always been something Northern Star desired to be able to do and set it up. So that's the interest. Timing is never perfect. It's often whenever things are available, but importantly, that's derisked due to the partnership arrangement and working closely with the Osisko team. So like water to go under the bridge, I don't think absolutely on strategy on all the things we've set out, what we do in our business first strategy. So to net all of those metrics, it's a very high-quality deposit.So you'll see things unfold over the next couple of months as to how we advance that. And as that backstop, we've got that debenture there that sits there as well. So with that, I guess, we'll give you an update in the next quarter.
Your next question comes from Alex Barkley with RBC.
I won't ask any more questions on Pogo. So just one on the mill utilization across your Kalgoorlie region. I'm seeing at Kalgoorlie operations, mill capacity is probably not being used across Kanowna Belle and South Kal ops. Is there a more immediate near-term option to use some of that capacity with ore coming from KCGM? I appreciate there's a study in progress. But is there a more near-term district opportunity?
Yes. Thanks, Alex. Look, we -- what I can say is we absolutely are using the full capacity at Kanowna Belle. South Kalgoorlie, obviously, we had some changes there from taking away the Kundana assets feed into there. And now we're topping up that process plant with ore from Mount Charlotte pre-milling ore. And KCGM is running at full noise as well. So the numbers are certainly at the back of the report, but we are utilizing the full capacity of the processing plants, the 3 main plants in the region.
Your next question comes from David Radclyffe with Global Mining Research.
I had a bit more of a high-level sort of question on the portfolio given that you sort of finished the year with Kundana sold and now the prospective JV with Osisko. So just trying to understand, when we think for '22, are you happy with the position of the portfolio? Maybe you could share if there's -- some color around other assets that maybe still don't quite fit? Or are there areas you'd like to move into? Just sort of thinking, does Osisko show that maybe you're thinking about trying to add some more long-term optionality to the portfolio?
Thanks, David. And look, the interest on Osisko, its commercial production likely to come into 2025, '26, albeit it has -- we got 15 [ added ] new mine life on current plan. The -- how 15 is different, I guess, to what our current plan and guidance is, so we'll look at that if that eventuates.We're very happy with our portfolio, all of our producing assets and contributing strong cash flow, and that's what we've guided our 5-year strategy on. We'll continually assess that on a yearly basis to see [ each's ] contribution and how they are meeting what we expect out of them. But yes, presently, maybe some exploration assets, or otherwise, we streamline. But our producing assets at the moment are all contributing strongly and meet our organic growth from 1.6 million up to 2 million ounces over the next 5 years, so pretty [ with that ].Our general attitude is we don't fall in love with these things. We make sure we run as a business first, and we focus on their contribution. We know which are our higher cost areas. And if labor gets short or otherwise, we tend to migrate our people to where the best returns and efforts are placed. So we're not mining for mining's sake. So all of that's on strategy and the assets that we hold are important.
[Operator Instructions] Your next question comes from Peter O'Connor with Shaw and Partners.
Back to Windfall and Osisko. Just wondering, so you're actively looking, from an M&A perspective, on an ongoing basis, firstly the international balance, how do you think about the balance of the portfolio? And is it just about being first tier? Or is your -- within that first tier portfolio, is there an international focus given your learnings from Pogo?
Yes. So from a strategy, I think we showed organic growth self-funded, the 1.6 million to 2 million from the assets we hold. Yes, importantly, that Pogo delivering 200,000 ounces and talking about it being that beachhead in North America, and you've also seen the restructure of our team where Simon Jessop heads up all of our Australian operations, Luke Creagh still oversees Pogo but is in -- running BD as the Chief Development Officer, which includes reviews of North America, including the Osisko due diligence. So absolutely keeping our eyes and looking to make sure that we're not missing out on quality opportunities.But again, we've got to reassess against our own organic growth options and the best returns on that capital for our shareholders. So all those things are in line. When you look at that bumped up against our strategy, the plus 200,000 ounce equivalent contribution, the low-cost, high-margin, long-life scale jurisdiction in Tier 1, very favorable mining jurisdiction. You can expect all of those things meet our strategy, so it shouldn't be a surprise to people with those type of things coming into our view.
So Stu, it sounds opportunistic. So who approached who?
Good question. We engaged with them over 4 years ago in regard to just watching the development and have been close to the team on understanding what's happening. Not too different to many emerging deposits and discoveries around the place. We -- these conferences are about, is keeping close to in contact with parties that are doing great things. And if you can learn things and readapt them back to your own operations, that's what we do. So yes, it's been a number of years of us watching, and ultimately, the funding arrangement allowed them to continue to advance the project and give us exclusivity to work with them on a partnership. So still a lot of water to go under the bridge, and that doesn't mean there's any deal done. But I guess that's the early stages of that work.
So the why now question would be it gave you the trigger to do this deal, it sounds like.
It was really around that funding agreement and lending to source funds to advancing the projects. So they're going to do that in many different ways. And obviously, our ability to come in and provide that option or that debenture [ assisted ] in doing that.
And could you explain the conversion premium if you choose to elect that route? So in the headlines at the time with a conversion premium of 125, depending on the project, any interest in the property? Or will that take you above 50%? And how do I think about that working?
I'd say, it'll push -- so effectively, the CAD 154 million we put in converts at a 1.25, so it goes up to your $192-odd million as a conversion into a joint venture interest. And the debenture conversion was at $4. They're trading pretty close to $4 now. So again, they've got a natural mechanism that are not familiar that much in Australia, but they're very common, I guess, in North America, how those funding agreements are set up.
And so you can go -- you can and will go above 50% if you convert?
Sorry. No, no. The target is a 50% -- it's up to a 50% -- a 50-50 joint venture in the asset level. So that's what I'm saying. The conversion of that bond or that debenture converts at a premium only under the scenario with the JV [ planning ].
Sorry, and that's conversion to equity or the property?
Well, equity -- joint venture interest in the Windfall asset.
Okay. And in terms of the development pathway, you mentioned '25, '26. That's a long-dated option. What do we think about key milestones? You talked about a couple of months more of [ BDs ]. So when do we expect you to come back with that [ BD ]? Do you have a particular month in mind or a quarter in mind? And then cash outflows, when would they occur? And how should we think about that?
Yes. The best reference is through the Osisko public announcements on the TSX, and look at their PEA in relation to that, and you can look at their updated resource that just published this week. They have set out all the metrics and time lines. I won't comment on anything outside of that. I guess we're still in that process of doing the work.
Got it. So we should think back to being a couple of months you said earlier.
Likely. Yes, we'll definitely get the market updated disclosures.
Your next question comes from Kate McCutcheon with Citi.
You've milled in tonnes from Mount Charlotte at Kalgoorlie this quarter. How is that material performing? Are you getting the benefits that you expected? And then can just remind me how you're accounting for that gold and also those costs from that material?
Yes. Thanks, Kate. I'll just comment on the performance of that. It is performing very, very well. We're getting improved recovery of approximately -- sitting around the 19% mark when we take that either to Kanowna Belle or South Kalgoorlie. So we're getting an improvement in terms of gold recovered by doing that. And the main point is we're actually filling up the KCGM mill with the marginal stockpile there, which has no mining costs attached to it. And we still got circa 18 million tonnes of that left.So it's really just completing synergies across the processing plants in the region. But it certainly gives us a benefit and performing very well.
Yes, yes. And then just can you remind me how you're going to account for that gold? Where will it be attributed to?
Yes. So the accounting sits under KCGM. So even though that ore moves and gets processed elsewhere, it gets internally costed back. The income, the revenue and the costs associated with it get reported and costed back to KCGM. That's probably the earlier question around mills not being full in those tables that shows KB or Kalgoorlie ops milling rate at, whatever it was, 600,000 tonnes versus sort of 800,000. It's because of that accounting of moving those tonnes back under KCGM being milled appropriately.
Yes, got it. And so you maintained cost guidance, and on an annualized basis, it sort of looks like you've got to get 2H down to meet that. How are you feeling about cost inflation? How you're going with critical spares and what we're seeing with supply chain bottlenecks? Any comments around that?
Yes. Look, for the second half, most of our costs, quite sticky and contracted and firm. So typically those cost escalation, there's quite a lag associated with that. You've already got inventory paid for. You've got long lead items you've paid for, capital that you've got secured later. You know what the costs are. So in the near term, we've got great visibility of what that is.Look, the second half is really driven by the announcements in product volumes and checks written are very, very similar. It's really the quality and grade uptick and obviously denominator getting our unit all-in sustaining cost down.So in the near term, we have really good visibility. It's really the view of the impacts of COVID and then what the run rate is into next financial year in regard to any other cost escalations we haven't understood yet.
Your next question comes from Nick Evans with The Australian.
I guess just returning to the state border openings, Stu. I wonder if you could give us, I guess, a bit of color around what sort of scenario and modeling you're doing and a bit of color around, I guess, what you've learned from the experience in Pogo and what you're doing now in WA that perhaps you wouldn't have done if you didn't have the sort of the Pogo experience.
Yes. Thanks, Nick. So there's probably 2 things to understand. One is the true health impacts should someone have a case and their symptoms and the absolute domino of that through with knowledge, with testing, with understanding and seeing symptoms, temp checks, all of those things that you do as a screening and/or testing to get the positive, and you've seen all of the states having done this well through the medical systems [ on the line ]. That's actually what's happening.Then there's the, say, framework you impose artificially to try to reduce that. So this 14-day quarantine or you're in close contact because you've been face to face for 15 minutes and all those sort of things, that's the part that really gives you the structural impact to your operations. And that's the part where people fear on the side of caution, and we're looking to review, does that have any benefit. The 14 day is going to be 10, is going to be 7, is going to be 5. Can you test someone every day?So that's the modifications at the moment of learnings we've had from Pogo and also just understanding a lot of it can be asymptomatic, without symptoms and basically still be positive and/or not affected in their workplace. So importantly, the material things that we do is reduce the team interactions, reduce them bouncing around and being in multiple places, ask them to be responsible with all of the community-based precautions in regard to scanning in places, knowing where the hotspots have been, mask wearing and cleaning, also doing deep cleanse across our vehicles, offices, spaces, those sort of things at heightened cost and then again, just splitting down and thinning out those interactions to mitigate the domino effect. So they're all the things that we've learned and have worked to manage through at Pogo and are still doing that, and that's things we expect to see. The strength of our Australian operations fly in, fly out is much, I guess, easier to maintain and control, and it's the residential where we see the continual interaction in the community and then coming back to work the next day where those challenges are. I mean it really goes on with the staff to step up and understand and be risk averse in regard to big gatherings should there be a community outbreak.
There are no further questions at this time. I'll now hand back to Mr. Tonkin for closing remarks.
Okay. Thanks for joining us on the call today. And as you've heard, we remain on track to deliver full year guidance well advanced on our organic growth projects funded from our strong balance sheet position. We look forward to reporting our progress to deliver production of 2 million ounces by 2026 and lower our costs to drive strong financial returns to shareholders. Have a good day.
That does conclude our conference for today. Thank you for participating. You may now disconnect.