Northern Star Resources Limited (NST.AX) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Northern Star operational update. [Operator Instructions] I would now like to hand the conference over to Stuart Tonkin, Managing Director and CEO. Please go ahead.

Good morning, and thanks for joining us on the call. With me today is our Chief Financial Officer, Ryan Gurner; and Chief Operating Officer, Simon Jessop. On Friday, we provided an operational update on the back of a soft December quarter. And subsequently, we have revised down our annual production guidance to now 1.6 million to 1.7 million ounces from 1.7 million to 1.85 million ounces. The full year reduction has been necessary due to a number of isolated operational events late in the December quarter, which have largely now been rectified, and Simon will talk to these shortly. This positions the group to deliver second half production of 871,000 to 971,000 ounces. We will be providing December quarter costs with the quarterly results published on Thursday, 22nd of January as well as any outlook to the full year cost guidance. I'd like to reinforce our confidence in the underlying asset portfolio and thank our teams who worked to address the recent operational impacts promptly and safely. Our long-term value creation strategy is sound, and we're excited at the prospects of commissioning the new Fimiston plant in 6 months' time, which will deliver a step-change in production and costs for the business. I appreciate investors' understanding of the near-term volatility of a growing business, and we will continue to prudently manage risks and liberate opportunities for the company. We remain in a strong financial position currently with net cash and are comfortably delivering into our reducing hedge commitments. We continue investing capital for the long term to increase production whilst improving cost profile to generate superior returns from our assets. I'd now like to hand to Simon to cover the operations. Thank you.

Thank you, Stu. The Kalgoorlie Production Centre delivered a lower-than-expected quarter driven by 2 main issues. The first issue was the previously announced partial suspension of mining at our South Kalgoorlie operation. Post a significant rainfall event in October, a pit wall slip occurred, impeding the escapeway into the mine. A new escapeway was mined and installed over 9 weeks with normal mining resuming around mid-December. Kal Ops has since returned back to normal operations with a total sales impact of 10,000 ounces as previously disclosed. The second main major issue was a lower-than-expected processing outcome at KCGM. The mill underperformed all quarter on throughput, volume, both run rate and time. The lack of throughput was primarily due to the Fimiston primary crusher faults impacting plant stability. This resulted in a shortfall of around 650,000 tonnes of throughput over Q2. Due to the ongoing impacts from the crusher not performing, a major Q3 shutdown was brought forward into Q2 with multiple elements changed. This shutdown took over a week. And unfortunately, the crusher failed 12 hours later, resulting in another 2 weeks of downtime over the Christmas period up until Monday, the 5th of January, when recommissioning has started. The primary crusher replacement similar to current works last occurred in February 2021 with a previous failure in August 2017. Due to the Christmas break, sourcing specialist labor to rebuild the unplanned crusher failure took longer than expected. This crusher is required as part of the expanded mill circuit. KCGM mining performance was similar to that achieved in the first quarter. Open pit total material movement was 22 million tonnes for the December quarter and 45 million tonnes for the first half at the top of the 80 million to 90 million tonne annual guidance range. The open pit mined in Q2 alone unreconciled approximately 150,000 ounces with Golden Pike's contribution 110,000 ounces. The KCGM underground operation developed 8.6 kilometers for the quarter and mined 780,000 tonnes of ore at an annualized run rate of 3 million tonnes per annum for unreconciled approximately 42,000 ounces in the quarter. KCGM total mining achieved approximately 190,000 ounces mined for Q2 and due to processing throughput issues, finished the quarter end with 1.1 million tonnes at 1.9 grams per tonne for approximately 70,000 ounces on the ROM pad. CDO performed in line with expectations for the quarter and the half. Let me close on the Kalgoorlie Production Centre by sharing that the KCGM mill expansion continued well over the Christmas period with a workforce of around 300 people working on the project. The project will ramp back up to 800-plus personnel working on the mill in January, and it remains on time for an early FY '27 ramp-up. Turning to our Yandal Production Centre. Both Jundee and Thunderbox experienced a challenging quarter and first half. At Jundee, the previously announced localized structural failure of the crushing circuit works have progressed well, but it has taken longer than anticipated. The coarse stockpile tunnel has been all excavated with all materials on site to finalize the repairs. The impact to the quarter was around 170,000 tonnes of processing at 40 to 50 tonnes per hour throughput or around 15,000 ounces. The crushing circuit is set to be restored to normal operations around mid-February. The Jundee team has action these worked safely and professionally for an extremely large job. The Jundee strip was also being upgraded over Q2, which had already commenced before the crushing circuit failure occurred, compounding the Jundee results with reduced operational time. The air strip project will be completed in late January with flight savings and less rain interruptions from the site going forward. At Thunderbox, 2 issues prevailed for the quarter: one, reduced throughput due to tank issues, which also impacted recovery by 5%. Secondly, less mine grade from Orelia and the haulage of the high-grade ore to the mill. On processing impacts, all tanks were back in operation at quarter end with rectifications planned for H2, which will cycle through 7 tanks. Secondly, on Orelia, the resource is not performing as modeled and mined in the high-grade areas of the ore body. We've already reduced the mining fleet from 17 trucks to 11 trucks in order to manage the required mining practice changes, improved mining and cost efficiencies and the fact that the strip ratio reduces from here on in. Orelia has an estimated life of around 21 months and will generate 215,000 ounces at 1.4 grams per tonne on the current forecast. Meanwhile, open pit mining at Bannockburn ramped up significantly with first ore being stockpiled ahead of milling in H2, providing another ore source closer to the Thunderbox mill. Finally, turning our attention to Pogo. At Pogo, the lower gold sales was impacted by lower head grade of approximately 0.5 to 1 gram per tonne due to a combination of stope dilution and ore loss. Volume of ore was also approximately 30,000 tonnes less due to some East Deeps fan constraints on scheduled high-grade ore and about 3 days lost in December due to extreme cold temperatures below minus 40 degrees Celsius. Processing performance was very good at Pogo with availability averaging 92% year-to-date. Recovery was also 85.8% during the quarter, 5% higher than expected. Development continued to improve at Pogo with 5.2 kilometers achieved for the quarter, corresponding to an average monthly run rate of 1,733 meters per month, above the 1,500-meter target. The quarterly performance on gold sale was impacted by a number of significant events across the portfolio, which has resulted in lowering our annual guidance between 1.6 million and 1.7 million ounces. We are in a stronger position as we enter the second half of the year. KCGM and SKO have returned to normal operations. Jundee has some outstanding issues that are expected to be resolved during the quarter. Thunderbox is in improved shape, and we continue to work through the various factors that may be contributing to the lower-than-expected grade of Pogo. I would now like to pass on to Ryan, our Chief Financial Officer, to discuss the financials.

Thanks, Simon. Notwithstanding the challenging operational quarter, the company remains in a great financial position entering the second half of financial year '26. At 31 December, the company's preliminary cash and bullion holdings are expected to be approximately $1.17 billion. And with the company's $1.5 billion credit facilities undrawn, total liquidity is approximately $2.7 billion. Q2 will realize a negative free cash flow result driven primarily by the softer production outcome and a $250 million tax balancing payment for the FY '25 year, which was made during the December quarter as previously guided. Other cash outflows include annual insurance premiums and the semiannual coupon payment on the notes. Despite the lower-than-planned sales during the quarter, the company comfortably delivered its hedging commitments as planned. The second half of FY '26, there are 330,000 ounces committed, which is comfortably within the forecast production outlook. Finally, as outlined in the operational update, cost guidance at the group and production center level will be revised at the results call later this month following finalization of the quarterly results due to all-in sustaining cost per ounce will be higher than Q1 due to lower production and higher sustaining capital invested during the quarter. Year-to-date sustaining capital spend is tracking to plan. I will now hand pass back to Ashley for the Q&A session. Thank you.

[Operator Instructions] Your first question today comes from Daniel Morgan with Barrenjoey.

First question is just what is embedded in guidance for the remainder of the year for the Super Pit mill throughput? And what are your thoughts about the risks around achieving that?

Yes. Thanks, Dan. Look, we'll give the detailed asset-by-asset breakdowns, particularly for the second half at the quarterly. So that will be full transparency on the breakdown of each of those. I think risk really on KCGM is that mill throughput. Simon has spoken to the crushing circuit is now commissioned and rerunning from that shut. There's obviously a lag of a couple of weeks of gold in circuit through there. But pleasingly, the open pit and underground mining volumes have been maintained and at high levels such that, that material is stockpiled adjacent to the existing mill. So for half 2, the risk of mining is reduced because the stockpile is there, it comes back to throughput through the existing plant that we are obviously persevering with until the middle of this calendar year when we commissioned the new plant. So it's really the 6 months remaining to get that going. That crushing circuit is part of the expanded plan circuit. So that's why I got extra retention investment and a birthday to get that upgraded. So yes, they're the risk, but we'll give asset-by-asset breakdown on that in the quarterly.

And it sounds like if I got this accurate, you've built I mean, the mining productivity has been fine during the quarter. And so you build the stockpile, if I got the numbers right, 1.1 million tonnes at 1.9 grams for 70,000 ounces on the ROM pad. I imagine that you'll shuffle that through during the March quarter.

Yes. Not necessarily, Dan. We'll make sure we keep it being because you don't want to give a spike of gold and have a dip on recovery. So we just want to make sure that we are blending accurately and get the best outcome for the long term. So yes, confident it will come through in the second half. Don't necessarily need to flood it in this quarter, and that's why we talk about the full year guidance, not quarter-by-quarter.

Yes, sure. That makes sense. And just the Pogo dilution, is there any reason to be for any longer-term concern? Or is this a short-term issue. Pogo's obviously been operating very well for quite a period of time. And just wondering how far this dilution travels do you think.

Yes. Thanks, Daniel. Simon. Look, it is -- we did have a challenging quarter on dilution mainly in the first 2 months of the quarter. December, we certainly saw grade come back to 6 grams in that particular month. And really, late in December is when we saw much better results from Pogo. So we've still got more work to do around stoping. It is ongoing at that particular operation. But we don't see that as a long-term impact. It was certainly lower than we had planned. The reserve grade is about 7.2 grams. We were sort of planning on about 6.5 grams for the quarter with a better second half in front of us from just what the schedule shows, but we certainly copped dilution than we normally planned for Pogo during Q2.

And just last question, Jundee, the materials handling system. Did you outline when you expect that to be fixed in the quarter? Is that January this quarter? Or is it -- is there still some outstanding items that have risk to that time line?

Yes, Daniel, the coarse ore stockpile fix is well progressed. We've got all the materials on site. We've excavated the whole area, and we're starting to form up some concrete plants now, and it should be rectified by mid-February at the latest, and we cut back when we do the mill shutdown. So certainly, well in hand understood. We're past the worst of it. Now it's just rebuilding it, and it's back to normal materials handling for that asset.

So the other part of that, Dan, is the current format is a bit of rehandle and redigging to move -- use the e-feeder. So the throughput is being managed. But getting back to that normal efficient cone through the feeders through that coarse ore stockpile, which has currently been bypassed, is where we'd like to be by absolutely midway through this quarter.

Your next question comes from David Radclyffe with Global Mining Research.

My question is a little bit more high level. So given a number of the outages reported are maintenance related, could you perhaps give us some more color, I guess, on your approach to proactive maintenance if this has changed and whether these events point to maybe an increased focus is required across the group? Or would you just characterize this as just a period where all the unplanned events just happened to come at one time.

Yes. Thanks, David. And it's an interesting approach. I guess we're always trying to manage and manage the sustaining capital balance to capital investment and returns. So if you kind of appreciate mines like Fimiston, multi, multi-decades in operation, Jundee just turned 30. Kanowna Belle just turned 30. If you were driving a 30-year-old vehicle around the roads, there's a balance here between breakdown maintenance and sustaining maintenance. This is the eternal balance. You can see the hundreds of millions dollars we're spending in sustaining capital. We're not under doing it, but we're equally trying to be -- to not overdo expenditure in this regard. So it is a balance. With the knowledge of Fimiston upgraded plant imminently coming into commissioning, it was always a risk and a concern around the overall Fimiston plant, which motivated us 2.5 years ago to commit to the expansion fundamentally. So the crushing circuit is part of the new circuit, hence, why we do a great job on that, but they are just examples. All the other elements are probably twice their designed life. Obviously, built this factors of safety at the time. And we've often done audits assessed and upgraded as we've gone annually. It's just around balancing that because the alternative is things shut down and you spend hundreds of millions of dollars on a brand-new piece of capital kit. We have not done that at these assets over a decade. We have looked at resources, reserves, mine lives and appropriately invested in capital into the assets to match the tenure of the assets, and they're all different. There's not a standard across everything. There's no point putting 10 years investment into an asset that has 2-year mine life. Equally, something like Fimiston, it's worth doing it right upfront because you know you've got multi-decades in front of us.

Your next question comes from Levi Spry with UBS.

Just a question on the second half guidance. Can you just talk us through the assumptions behind the high end there? Maybe it's a process question. Or how would you get to a million ounces in the second half?

Look, we're going to give you an asset by asset breakdown in the quarterly. It's only 2.5 weeks away, Levi. So I'll leave that today is really just events to discuss the quarter that's been. What I'd say is we've adequately modeled and see the outlook on the assets ahead. The mining risk has been reduced and the mining volumes are done. It's really around this throughput, and that's probably been the primary issue across the quarter has been around throughput and/or the recoveries grade through those elements, and we believe we've got really good confidence in the outlook for half 2. So the biggest lever really is KCGM. And hence, where Simon highlights in his spiel around the mining volumes, Golden Pike volumes stockpiled, the underground progress on development and stope tonnes at 3 million tonne per annum rate means that the ounces are being moved up the chain and then it's really around that throughput to deliver that.

Yes. Okay. And then obviously, it's too early talk about FY '27, but the big value driver here is the plant. So can you just expand a little bit more on the commissioning in the first quarter?

Yes. So we've said and things are progressing. The quality of the build is excellent. Simon spoke about there's still people working through Christmas, 300-odd back to the full team of nearly 800 people over that plant this month. So we're very impressed with the progress. To be able to start that commissioning, we said early in FY '27. So talking July '27, not risk any impacts in June in this financial year. And we will provide guidance as we would midyear at -- usually, at the quarterly in July. So yes, FY '27 has to be with the comfort around the mining, the processing throughput, which was already tapered. It's 23 million tonnes for the FY '27 through that new plant, and that's already designed around lower uptime. So it's still a 27 million tonne per annum plant, but it's designed down planned downtime to commission. And that's probably the biggest lever. All the rest of the assets we've already talked to Thunderbox being a bit lighter, but the rest of the assets pre steady state throughout FY '27.