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Thank you for standing by, and welcome to the Northern Star's June 2019 Quarter Results. [Operator Instructions]I would now like to hand the conference over to Mr. Bill Beament, Executive Chairman. Please go ahead.
Good morning, and thanks for joining us. On the call today, we have our CEO, Stuart Tonkin; our CFO, Ryan Gurner; and Chief Geological Officer, Mike Mulroney.The record results today show that the Pogo mine is making great progress as we apply the Northern Star business model to this asset and transition it to the highly productive and profitable contributor to our bottom line. The significant operational improvement over the past quarter has been very strong, and the trend is now undoubtedly our friend. Our Australian operations are going extremely well and are consistently delivering to our expectations. They both delivered at the top end of their full year guidance. The overall result is a record quarter and a record year for Northern Star.But as you know, we don't judge ourselves on production as much as we do financial performance. And in this respect, the company has also delivered, with record underlying free cash flow for the quarter of $104 million. This was even after investing around $34 million in growth capital and exploration, which will benefit us in the years ahead. This resulted in our cash and investments significantly rising by $73 million to $361 million over the 3 months, and this includes paying out $38 million in dividends to our shareholders and $29.5 million in royalties and taxes to our governments. Cash build is a simple measure, but it's the one I believe is the most telling.It's worth noting that this performance stemmed from an average realized gold price during the quarter of AUD 1,839 an ounce. If we had realized the current spot price, which is over $200 an ounce higher, overlaying that with our production numbers for the June quarter, we would have generated an additional $46 million of revenue in the quarter.At the time of the March quarterly, I said we had encountered a few challenges at Pogo due mainly to the late delivery of equipment. We had expected 16 pieces of the new underground mining fleet due to arrive during that quarter, but by the end of March, only 5 had arrived. There was also the anticipated impact on production associated with the change in mining method to the much more productive and cost-effective long-hole stoping. I'm delighted to report today that the vast majority of the equipment has been delivered and is operational. And on every key metric, Pogo's performance has increased markedly, and Stu will elaborate on this shortly.As I mentioned earlier, the Australian operations had a record quarter, demonstrating their status as genuine Tier 1 mines in Tier 1 locations.I will now pass to Stuart Tonkin who will elaborate on our operational performance, including the great progress at Pogo.
Thanks, Bill.The June quarter delivered a strong finish to the financial year-end with continued high performance from our Australian operations and solid progress in Alaska to restore Pogo to the Tier 1 status asset we know it to be. There is further detail on Pogo in a separate ASX presentation that was released on the platform this morning. The presentation highlights the success we are having and reflects the effort by the operational team at Pogo, but rather than going through it slide by slide, I will summarize these highlights now.So at Pogo, our strategy is simple. The conversion from jumbo stoping to long-hole stoping techniques reduces the unit mining cost per tonne. It's simply less intensive activity per tonne whilst maintaining both quality and productivity. As we develop future production areas, we are growing the contribution of long-hole stoping where tonnes are now up 250% and account for 33% of the mill feed, and this compares with only 11% in the March quarter. Our target is to build this to 60% long-hole tonnes as we remove the constraints in the mine and drive productivities from the fleet. Our development meters also are up 13% from the March quarter, showing the progress there. These improvements in long-hole stoping progress are seen directly in cost reduction, with all-in sustaining cost down 18% from the March quarter. Ounces mined were up 27%, and most importantly, gold sold was up 33%.This cost reduction achieved for the quarter is even whilst maintaining investment in developing new production fronts. So increasing productivities at Pogo also has a compounding effect on the cost base, with the overall reduction of the underground fleet by 43% now complete. This is delivering improved reliability and reduced maintenance costs and removes congestion in the mine. With this new fleet commissioned, we are seeing the benefit of the introduction of the newest technologies in motor automation and drill performance. And with this adoption, presently delivering only 50% to 60% of Australian performance as the operators upskill, we expect continued uplift from this investment. The mining techniques and technologies that are reliably applied at our Jundee and Kalgoorlie operations are well underway at Pogo, and this is the key strategy that will restore Pogo to its Tier 1 status.Now to the Australian operations. Jundee lifted underground stope production a further 15% in the June quarter, taking the full year to 2.1 million tonnes mined from the underground. Increasing the stoping rate has been a concentrated focus by the Northern Star and Byrnecut team there, who have delivered an impressive 148,000 tonnes a month average throughout the June quarter. To complement the underground performance, the Ramone open pit mined first ore in the June quarter and is progressing well under BGC contractors with 214,000 tonnes of ore mined. The mill processed consistently with a 12% uplift at 550,000 tonnes in the quarter from previous, demonstrating a capability to operate at 2.2 million per tonnes per annum run rate, including the Ramone oxide ore.The full year Jundee gold sold met the upper guidance limit at 300,000 ounces. To Kalgoorlie now, the June quarter delivered a 15% increase in ore mined to total 805,000 tonnes across the operation with production growth at HBJ underground and Millennium underground assisting the uplift. Development investment continued to extend Pope John underground and preparations to develop the new Moonbeam underground commenced. Over at Kanowna, development of the hangingwall zones in the upper levels continued to provide new production fronts higher in the mine. And the Kanowna processing facility also achieved a record annual milled throughput at 2.05 million tonnes in FY19 through a focused debottlenecking and continual improvement program by the team there.The full year Kalgoorlie operations' gold sold met the upper guidance limit at 340,000 ounces.I would now like to pass to Ryan to address the financials in the quarter.
Thanks, Stu.I'll now present to you some of the key financial aspects of the company's 2019 June quarterly results. The cash flow waterfall chart on Page 4 provides an overview of cash, bullion and investment movements, which at 30 June stands at $361 million, up $73 million from March. Strong production in sales during the June quarter generated $173 million in operating cash flow, up 175% from the March quarter and $104 million in underlying free cash flow, both records for the company. This underlying free cash flow was generated after investing a total of $34 million into organic growth across exploration and expansionary capital to set the business up for future years. Principally, this investment included drill platforms at Jundee and exploration and capital investment at Pogo.In addition, a fully franked dividend of $0.06 per share or $38 million was paid to shareholders on April 4, taking the total paid to shareholders to $70 million during the 2019 financial year.During the June quarter, the Australian operations sold a record of just over 184,000 ounces at an all-in sustaining cost per ounce of $1,111. Jundee, with first ore from the Ramone open pit, recorded its highest gold sales quarter with 89,395 ounces sold at an all-in sustaining cost of $957 per ounce. Jundee's strong finish to the year resulted in full year sales of 299,236 ounces at all-in sustaining of $981.Kalgoorlie operations had a very strong June quarter with 94,638 ounces sold at an all-in sustaining cost of $1,257 per ounce, taking full year result to 340,007 ounces at $1,330 per ounce.With further equipment availability and an increase in ore source from stoping, Pogo sold 48,009 ounces during the June quarter, up 33% from the March quarter. June quarter all-in sustaining cost per ounce at Pogo reduced 18% from March quarter to USD 1,207 per ounce. Pogo's total site operational costs, excluding exploration investment and ore stock movements, averaged approximately USD 18 million per month over the June quarter. This shows a continued reduction in the average monthly operational cost at Pogo since the first half of the 2019 financial year. We're all really excited about the potential for significant free cash flow generation from Pogo operations when the mine's transition is complete.Record June quarter sales of 232,042 ounces resulted in full year group gold sales of 840,580 ounces at an all-in sustaining cost of $1,296 per ounce.FY '20 production and cost guidance will be announced in 2 days' time, and we are forecasting a reduction in our group all-in sustaining cost predominantly due to a significant improvement at Pogo.Finally, during the quarter, 60,000 ounces of gold were hedged at an average of $1,906 per ounce for delivery across the June '21 half and 10,000 ounces of gold hedged at an average USD 1,351 per ounce for delivery across the December half.I will now hand over to Mike who will discuss exploration.
Thanks, Ryan.In the quarter, the group's in-mine exploration across Australia and Pogo focused on resource conversion and extension programs. At Pogo, the underground diamond drill fleet changeover commenced in early June with the arrival of the first new mobile carrier rigs. By the quarter-end, 4 new rigs have been commissioned and the further 4 rigs due to be commissioned during this quarter.Excellent progress has been achieved in the extension of conversion drilling across all the major Liese Vein, North Zone, X-Vein, South Pogo and Fun Zone areas with excellent intersections highlighting extensions to all known systems within and adjacent to the actual -- active mining areas.On the surface, strong results continued from drilling into the new Central Vein discovery waiting for the completion of the known resource model for the area; the upcoming 2019 resource and reserves statement, which show that rapid growth has been achieved geologically at the project since October and provide a first glimpse into the long-term potential that has entered across Pogo gold system.Moving back to Australia. At Jundee, the underground reserve definition program has expanded positions at Deakin South, NIM Deeps and Cardassian areas. Resource extension drilling continued within the historic systems across the mine with particularly strong results, including visible gold recorded in extensions in the Lyons South area.Regionally, exploration focused on the area surrounding the new Ramone open pit with significant resource return from the adjacent Marley-Ziggy and Redding prospects. Also, additional assays coming with nearby Tosh prospect also showed excellent potential from the early results.Moving to Kalgoorlie. At Kanowna Belle, excellent results continue to be received from the Sims and Troy trends in the hangingwall of the main Lowes ore system across A, B, and C block mining areas, while at Velvet, drilling continued to expand the mineralization down plunge from the main production area.Across at Kundana, underground exploration drilling continued at Christmas and Strzelecki South, targeting extensions along the main Strzelecki trend.Moving south to the EKJV, the focus has been on stoping the new Falcon trend, which is located midway between Pegasus and Raleigh mines from underground platforms at Pegasus and Raleigh. The Falcon mineralized corridor has now been traced for over 1.5 kilometers and remains open in all directions, with definition drilling continuing from both platforms. At South Kalgoorlie, the drilling from the new underground platform at HBJ has achieved early excellent success, extending the North Ore Zone, north to the Mutooroo area. Regionally, it's been a great quarter across the extension of South Kalgoorlie tenements with continued exploration success in several areas. The standout results from the quarter from further drilling at Colnago in what is shaping up as a potential discovery on the eastern side of the Zuleika Shear corridor adjacent to the historic Fuji open pit. Further drilling is in progress to determine the continuity and extent of this mineralization.Further west, significant results were also recorded for the initial drilling at Colnago Southwest. While closer to Coolgardie, initial drilling at Golden Eagle successfully intersected intervals at quartz veining, alteration and sulphide mineralization at target depths with all assays still pending.I will now return the call to the moderator for questions.
[Operator Instructions] Your first question comes from Michael Slifirski, Crédit Suisse.
Look, just a quick couple of questions on Pogo for me. In your commentary, you talked about significant capital invested to growth production. In your guidance, you talk about a sort of higher development run rate than what you've achieved. So just trying to understand how that sort of fits together. You did a total of just over 3,000 meters development, but you're talking about, I guess, a run rate of 4,500 meters steady-state. So is that the way to think about it, that you're not yet at steady-state development? So the -- from an all-in sustaining cost base, there's -- we should be thinking about that 4,500 meters per month to go in?
No. So yes, Michael, it's Stuart. So look, at the moment -- at the start of the quarter when we were still getting the fleet delivered, we were prioritizing that operating development. So the steady-state, that will come. Now we've got all the fleet being commissioned and are picking up those mining rates. We're able to move into more of capital declines and extend those that are there. So yes, at this stage, steady-state will be around 1,500 meters a month, and we've got all the resources on site to achieve that. So that's a steady-state. The balance between capital and operating, even throughout the financial year, you need to put capital declines down into -- open up your vertical extends to the orebody and then you devise your development operating meters, and then you'll see that convert into your long-hole stoping tonnes.
Okay. So of that target of 1,500 meters per month, when you achieve it, how much of that will be production-related delivering ore and how much will be sort of pure capital development? That there might be your all-in sustaining cost?
All right. So they all generate from development, be around that 40,000 to 50,000 tonnes a month. And so -- probably now I forgot the question. But you're looking at the cost of development that's going to all sustaining? Is that...
Yes. That's right. Just trying to differentiate between what's going to be an all-in sustaining and what's outside.
Yes, 60% of it sits in that all-in sustaining.
Okay. And the -- I think in the last...
Michael, with that, it moves -- as you develop the mine up, there's one-off growth investment in capital if you can open up new production fronts. So you start to move around, so we can give you color on a quarter, but it will move around from quarter-to-quarter.
Yes, yes. No, I'm just trying to get it. I thought there was some sort of catch-up development to be completed, so was just trying to understand what it might look like on a more balanced annual basis.With respect to the guidance on throughput, I think in the past, you've talked about sort of 1.2 million tonnes per annum. Is that still the target? Or is the sort of plus 1 million suggesting a softening? Just trying to understand the plus 1 million versus a prior discussion of 1.2 million.
Now we're going to say that the plant can take that up to that 1.2 million, 1.3 million. We, at the moment, for the grade and opportunity that we're mining, we're saying plus 1 million gets us to where we want to be as a milestone, and the progress is there. What you'll see in the additional presentation, it will show the contribution that low grade is having. And the intention is we're filling up the mill, because we're mine-constrained. And we're putting in lower-grade material, which is dragging the average grade down. But when you look through and see the stope grades, you'll see them at plus 10 and ultimately trying to build that long-hole stoping contribution to be up to that 60,000 tonnes a month supplemented with 40,000 development tonnes a month to get our total grade up. So, yes, the 1 point -- the 1 million-plus tonnes is really the metric to achieve what we've put out there. Anything on top of that is a bonus.
Great. And then finally, with respect to hedging, just interested is there are any -- at what -- I'm not clear what your hedging policy is. So do you continue to hedge on a portion of production? Or how should we think about what you add? Do you basically add when you deplete? Or do you run the hedge book down?
Michael, it's Bill. Look, our hedging has been stated for years and years and years now. We basically have a rolling 12-month hedge of 25% to 30% of our 12-month production. After year 1, we go down to sort of 10% to 15% range; and year 2 to 3 is about 5% to 10%. As they come off, we replace.
[Operator Instructions] Your next question comes from Daniel Morgan, UBS.
I was just wondering if I could get a quick update on Jundee and the open pit opportunity in and around Ramone. I'm just wondering what conceptually success looks like, tonnes, grade going forward.
Yes, sure. So obviously, we commenced first production there this quarter, and that's going to take about 13 months, 14 months to have that completely mined and stockpiled. That would be great if that's reconciling really well through the plant, but we are mining faster than we can mill. So I guess the intention to start that mine was to top up the mill, given that the underground wasn't filling it, and we're able to do that.We're not pushing hard on the exploration front and extending, but there are follow-up targets from Ramone for the exploration team that are kind of well advanced to get things pit -- the next pit after Ramone. But at this stage, we're just really pleased with where [ done this ] open pit that we've cranked up in Northern Star and its contribution, and it's reconciling really well through the plant there. So there is potential, but again, you're not just going to go mine it if -- until we've solved the milling capacity.
Just a quick...
Dan, it's Mike here.
I'm sorry, Mike. Go ahead.
Sorry. Yes, it's Mike here. We've obviously got other targets sort of within 0.5 kilometer of Ramone. I talked about a couple of them briefly in terms of the name. So they're being worked up with a view that as Ramone gets deeper and depletes, we'll be able to roll on small, satellite pits, but it's pretty much a work in progress. This is a new style of mineralization. We're still learning, but we see ourselves being down there for quite some time.
And just a small follow-up question. I mean I know you guys have pushed everything really hard including mills over time and exceeded nameplates. What's the latest thinking on what the mill at Jundee could achieve? I'm just trying to think about what is ultimate throughput at Jundee based on what you know today.
Yes. So with the predominantly hard rock feed, we're saying that 2.2 million tonnes per annum is the rate we've demonstrated. You can throw oxide in to top it off, if we've got an oxide feed, it's short-lived before you get into some transitional hard. So the -- I guess the hard end of -- is power. So without upgrading the ball mill, that -- its power in the current plant and that really optimized to say that's where we think it's currently sitting.
Your next question comes from Stuart McKinnon, The West Australian.
This one is probably for Bill, I imagine. I was just wondering if there's been any further discussions with Anton Billis about the company's bid for the balance of the EKJV, if there's been developments on that front, and whether the company's been in talks with Evolution as the new significant shareholder of Tribune. Can we just have a bit of an update there? Or is it at a stalemate?
Look. No further discussions. And we never really talk about the corporate discussions over, Stuart.
Okay. No, understandable. And just one another one if I can. There seems to be a bit of a talk lately about electrification of underground vehicles in the mining industry in the interest of improving health for underground workers and lowering fuel costs and ventilation costs. You've got something that Northern Star is looking at? Or is that not on the agenda at the moment?
Sorry, I missed the first part of your question.
Oh, no. It was just about the electrification of underground vehicles, like boggers and so forth. There seems to be a bit of a push on at the moment for the electrification rather than sort of using diesel vehicles. I was just wondering if the company was looking at that at all.
Okay. I'll hand to Stu, considering he owns a Tesla, he's probably best positioned.
Yes. I've ordered a heap of Teslas for the fleet, Stuart -- no. Look, primarily, it's driven by OEM, so if primary suppliers are working on these things. It's not as simple as you would first think, but it is going to be key to some advantages or step changes in the industry. So I certainly think over the next 5 to 10 years, there will be those advancements, but it really doesn't sit with any corporate to actually be developing it. It sits within the adopters. And to retrofit mines is the challenge. New mines have that opportunity, but it's got to be driven by the OEMs and the supply and the whole system of work that gets there. Anything costs, ultimately. You're going to be still putting energy in. It's just in how efficient and how clean that energy is. So yes, we're fully up the curve on that -- where the opportunities are. And as you've seen before, we're first adopters with a lot of things, so we're pretty interested in that.
Yes, Stuart, just to add on to that. We do a lot in our mines. So we're probably one of the most productive gold companies from an underground perspective on a per tonne basis. If you look at our development rates per jumbo, truck usage, tonne kilometers per unit, loader hours, we're very, very efficient for, I guess, our carbon footprint on a productivity basis, which I think is what people should be measured against. And obviously, power generation is one of the biggest. And that's why we use gas at Jundee. We're on the grid at Kalgoorlie. So we limit our diesel uses quite substantially and get very efficient use out of power. We've been put in our mines -- most of our mines now are on on-demand ventilation, which is radically changing the power consumption from underground basis. But one of the biggest consumers of power for an underground mine actually is -- substantial producer is ventilation and the cost to do that. But we've done a lot of work in that area, so I'm happy to show those results to other people.
Your next question comes from Daniel Morgan, UBS.
Everyone's a little bit shy today. I just wanted to ask a couple of follow-up questions on conceptually how you're thinking about cost cutoff grade and the gold price. I mean the gold price is appreciably higher, which is obviously very positive for your business. In the December quarter, you had made a discretionary choice to mine some lower-grade material. Just wondering where that decision point -- if you're thinking about that now, cost versus tonnes, grade, that whole concept versus the high gold price.
Yes, sure. So look, we'll put our resource reserves out on Thursday. We're not changing our assumptions based on that. We keep a pretty conservative view there. Our reserves still capitalized at AUD 1,500 and resource at AUD 1,750 an ounce, so we're not changing that related to gold price. The one thing we do look at, obviously, is productivities and the costs and the cutoff grade. And that's where we're really driving this productivities, because we understand the inclusion of material into the mine plan when we can actually reduce the cost. Now that is a thing that we can control. So yes, we look at more at the cost base and the productivity drivers than worrying about a revenue top line that we can't control in that regard.
Just a follow-up on that. With the gold prices heating up in the industry, wanting to do more. And underground mining personnel over the past 12 months, we heard, is getting tighter. What's the latest thinking on attracting and retaining enough...
So if there's any cost pressure, it's coming from labor. We're aware of that. And again, we reward our staff pretty well in that regard on the productivity drivers since it's linked through to that. The -- we also got some of those linked through to gold price. So there's gold price mechanisms on a staff's earnings related to that upside, so there's some shared benefit there. I think the system we look at is -- that's where the pressure comes, and it's not a case of just paying more money and getting the same thing. We're trying to align those and always do try to align those outcomes. So yes, we're always looking at margins, maximizing those margins, and that's related into our -- through our whole pay structures and through our productivity drivers in the business.
And just segueing a little bit back to Pogo, the concept of what ultimate success and stretched targets are, it's still not clear in my mind. What you're talking about today is trying to get to 1 million tonnes per annum of the mine and the mill, but you've also said you're trying to get to 1.2 million, which is above those numbers. Is there a stretched target or something even beyond that? What's -- what does success look like? And how would we would think about it in a time sense on when it might be achieved, unlocked?
Sure. So you've seen, I guess, the evidence at each of our historic operations. We keep moving the bar up. And I guess these real checkpoints along the way show that we're winning. And hence, while we don't just put a ceiling outside, we make sure that there's these key milestones that we achieve. And that when we grow, we're growing something that's productive and efficient. We're not just growing for growth's sake, and we're just not throwing more money at it to achieve the top physical. So each of those gateways we've spoken about, one of the key things is to get that consistency, that 1-plus million tonne per annum. The simplicity of the 1.2 million is delivered by 60,000 stope tonnes, 40,000 development ore tonnes a month, so that's 1.2 million metric tons per annum. The mill has shown it can take it. And then we'll be looking for debottlenecking or upgrading that plant beyond that. But until you've met these milestones, in parallel, we're planning for the growth beyond that, but that's why you're hearing these sort of checkpoints along the way.If you look into the presentation that's provided regarding Pogo, you'll start to see even with the yearly tenure that we had held that asset, the improvements across all those metrics that we're lifting. And it's the trend. You've got to look at the trend and the exit rate of the June quarter, it's showing that uplift. So with -- as I said, we're at about 50% to 60% of the Australian physicals, and that's when you're comparing drill meters or development meters per jumbo or tonnes per load or tonne-kilometers per truck. We have the fleet and the team and the skills there. It's really now about the refinement, and there's enormous upside with the fixed cost base that's in place, hence why I have confidence to say that the fixed -- the costs are very sticky and fixed at Pogo presently, and the physicals will come from the resources that we presently have on-site, hence why we're looking at that fixed cost base. So that's why we're working through to drive those physicals up.
And just one last follow-up question on that, and I'll leave it. But on the 60% to 70% of Australian physicals, which Pogo is at, at the moment, is there anything in Pogo that would suggest that ultimately it won't get to the same rates from the Australian assets? Is there anything at all that we should be thinking about that's a constraint that the Australian assets don't have?
Look, it will take time for -- we're talking about crews within our mines in Australia that when you look globally, they are the best-performing teams across the globe. And I'll put that out there that we are breaking global records in development events, 500, 600 meters a month with its one jumbo crew. That is 5 to 6x typical North American average. So Pogo's been averaging at 100 meters a month per jumbo. We're presently sitting at double that, at 200. The average across our fleet is above 300, and we're achieving 400 to 500. So I believe we can hit 500 meters a month with that jumbo team.So we're talking about significant uplift. The scope is limited in that regard. Even we operated at sort of 75%, 80% of Australian physicals, then we would beat it. So we're not trying to stretch outside of any unknown parameters. That's pretty easily achieved. Now the constraints over there, there's differences, but there's also benefits. So things like power, it's different, but there's benefits in other things that are there in ground support regimes and ground conditions. So yes, we see it's all achievable. There's no other reason or constraint to get to those physical levels.
[Operator Instructions] There are no further questions at this time. I'll now hand back to Mr. Beament for closing remarks.
Thanks. It has been great to announce these various record results today, but what is more satisfying is to be able to report on the huge progress at Pogo and show the benefits of our business strategy there. The upshot is that our plan for Pogo is working. And it is clear that Pogo will deliver the sort of performance we envisaged when we bought it and generate significant returns for all our stakeholders and shareholders. We are also confident about the great exploration outlook for Pogo, and we will have more to say about that when we release our annual reserves and resource updates on Thursday. We will also provide an update on our Australian operations and publish our FY 2020 production and cost guidance then. I look forward to releasing that document in a couple of days. Until then, thanks for your time.