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

Thank you for standing by, and welcome to the Northern Star 2021 Investor Day Q&A Conference Call. [Operator Instructions] I would now like to hand the conference over to Mr. Stuart Tonkin, Managing Director. Please go ahead.

Thank you for participating in the Northern Star 2021 Investor Day. You will have the opportunity to virtually meet some of our team presenting our 5-year strategic plan outlook. On the call today is myself, Stuart Tonkin, Managing Director; Marianne Dravnieks, Executive Manager of People and Culture; Hilary Macdonald, General Counsel and Company Secretary; Mike Mulroney, Chief Geological Officer; Simon Jessop, Chief Operating Officer, Kalgoorlie; Luke Creagh, Chief Operating Officer, Yandal and Pogo; Steve McClare, recently joined as Chief Technical Officer; and Morgan Ball, Chief Financial Officer; and Steve -- sorry, Troy Irvin, Chief Investor Relations Officer. We are available this morning to discuss our exciting outlook for Northern Star's business-first approach to deliver profitable growth to 2 million ounces per annum and enhanced financial returns through lowering costs, extending mine lives and responsible and sustainable business activity. Our FY '22 guidance midpoint of 1.6 million ounces per annum at all-in sustaining cost of AUD 1,525 an ounce builds to 2 million ounces per annum by FY '26, and where accounts most, our high-margin long-life assets. For clarity, this guidance is exclusive of our Kundana assets, which produced 120,000 ounces in FY '21, which we recently announced to be divested to Evolution Mining for $400 million. So our focus today is to articulate the tangible actions underway to meet the strategic plan and differentiate Northern Star amongst the sector-leading peer group. We have adequate time this morning, but please limit initial questions to 2, to ensure we address all the participants then rejoin if necessary. Thanks, moderator, now to questions.

[Operator Instructions] Your first question comes from David Radclyffe of Global Mining Research.

My first question is around growth capital. You've provided the 3-year guidance, which is great, and thanks for that. However, there's really not much information on the $805 million for FY '23 and '24. It's obviously quite a large unallocated sum. Can you maybe provide some more color here on what the key projects are?

Yes, sure. So look, the fundamental content, obviously, $230 million goes to Kalgoorlie, and that's largely the Fimiston South pre-strip. And then Yandal, this $270 million going up to Yandal and $109 million of that's going into the mill upgrade taking Thunderbox mill from 3.5 million to 6 million tonnes per annum. And then the additional mining commencement for open pit mining to also complement to feed that mill. Yes, there are lots and lots of things that add into the total sum. But the main chunky pieces of that, multiyear capital going into KCGM for that pre-strip that we commenced in Fimiston South, but within Thunderbox, that plant will be commissioned. That will be largely a 12-month expenditure to get that up to 6 million tonnes per annum, David. To give you a bit of data directionally in '23, '24, which you asked about as well. So approximately 40% to 50% each year relates to the [indiscernible] And we do see both Yandal and Pogo easing off a bit in '23/'24.

Okay. Then maybe just a follow-up then coming -- thinking about cash flow versus capital management. The business is generating sort of free cash flow at spot. You've got a conservative balance sheet. You've given some good guidance around. But I guess the current dividend policy is reasonably conservative. How do you deal with things like the Kundana proceeds and surpluses above target levels?

Dave, it's Morgan. Sorry if I didn't introduce myself earlier, but we go way back. As you know, we have a new team and a new Board, and we've implied in the pack that will sit down and we will announce the full year '21 dividend with our full year accounts. Obviously, we are very proud of the dividend history that Northern Star has and that we can intend to continue to always be in a position to return funds to shareholders. The beauty of the conservative balance sheet at the moment and bearing in mind the purchase price for Kundana isn't in my bank account yet, but that gives us excellent flexibility and optionality to think about these growth projects, both inorganic and organic going forward, and we'll continue to upgrade as we can. We have talked a little bit about the potential for KCGM particularly in relation to processing, but there's still work to be done on that.

Your next question comes from Daniel Morgan of Barrenjoey.

First question is on all-in sustaining costs. Basically in this presentation, you're messaging that synergies from the merger are better or ahead, i.e., the non-tax synergies. You have also sold yet today some of your higher cost ounces in your business to Evolution. But your cost guidance is relatively flattish at $1,500 an ounce and also -- which compares around about what we've experienced in the most recent history. My question is, is your business facing massive underlying cost inflation, which these drivers are helping to arrest or what -- could you just comment on that?

And look, Morgan can talk specifically to corporate synergies as well. But the operational synergies require that capital to be invested. So I think people need to understand the alignment between that, the capital expenditure that gets us to that point, we're at a much lower cost base in normal sustaining costs and particularly all in costs dramatically come off as that CapEx -- the growth CapEx rolls off. So yes, the 2 aren't immediate. Absolutely, the industry is facing cost escalations, but we're in a fortunate position that we've got those synergies that will come in once we've got things like Thunderbox. It's all predicated on that mill expansion, but that's still 12 months away from being commissioned. So you won't start to see those lower unit costs until that capital is being spent and that thing is up and running. But it absolutely shows the benefits of having those assets combine.

Okay. And my second question is just on the grade reconciliation of Super Pit. So Page 42, that slide there. When you say that you're starting to model the positive grade reconciliation that you've got more ore than you had expected and going through the stockpile slower. Just wondering, so you're starting to model this. To clarify, is this in the reserves? Or is this your business modeling where you're modeling it? And also how localized is this? Is this a particular part of the ore body? Or is this something maybe as an ongoing benefit?

Yes, Daniel, it's Mike Mulroney here. The answer to that is basically that we recognize the overreconciliation in the mine over the last period of time we've widened the asset. And a small portion of that has gone into the reserve as we announced earlier this year in May. There are still areas that we haven't bought it in at this stage, because we are pushing down through those levels, and we'll see how our modeling technique holds up in the real world. But certainly, all indications to date are -- we're still getting a positive reconciliation even after allowing for the initial uplift. So it's not fully baked into the reserves at this point. It's still a work in progress, but we are, as we recognize these things and get a better handle on them, putting them into the reserves as we go year by year.

Your next question comes from Mitch Ryan of Jefferies.

I was just wondering if you could give a bit more detail around Slide 43, specifically where you're looking at the different processing optionality. Obviously, the status quo was the $5 million and you've outlined, you're looking at option 1 and option 2. Can you clarify as to the extent of how much of that would be refurbishing existing infrastructure? And how much would be new? Is it just milling? Or is it also sort of the back end of the flow sheet? Can you give a bit more color around all of those moving levers, please?

Yes. Thanks, Mitch. It's Simon Jessop here. I suppose, the way we're looking at it is really trying to simplify the plant. So the $5 million to potentially fall by dropping a couple of millions out of Mount Charlotte circuit and then simplifying the Fimiston circuit to 3, is a logical sort of step changes through there. So this is a work in progress. We're trying to accelerate. But really, it's full steam ahead on a study, and our intention is to update the market in the first half of FY '22.

Okay. I might be doing -- this is sort of a subset of that question. What sort of capital part -- I realize it's early days, but I'm just trying -- I'm trying to get a graph on the capital framework that you may be looking at when -- with this facility.

Yes. And look, this is where I always guided the proceeds from the sales of the Kundana assets. Obviously, we bring in $400 million from that. The range to get that plant from 13 million tonnes up to 22 million tonnes, there's a raft of different ways to get there. And obviously, the capital is quite wide. So we want to be careful that one, we haven't banked in any production growth from expanding that plant. What we're identifying is the 3 million ounces of reserves and stockpile that's underutilized and really doesn't get depleted, because they're mine plan forward. So there's capital that can simplify and increase the capacity, lower unit cost of that plant. So it's hundreds of millions, yes, but the feasibility work is to really look at what that is to get that out. So we'll give some framework on that in the second half of FY '22, but it could be $200 million, it could be $300 million. Please don't put that into models, because there's no ounces hanging off the end of it. The banking balance sheet is available to do it, but we see those opportunities in the business to redeploy capital to get the highest returns and some of the cash margins on that stockpile through the KCGM will be some of the strongest cash margins, because there's no mining cash cost associated with that material that was highlighted in some of the slides.

And for my second question, I just wanted to -- with regards to the guidance for KCGM, it appears to be, I guess, quite conservative. If I look at the chart, you're sort of closer to 500,000 ounces, which is similar to less than the exit rate that you did in the last quarter. And I just wanted to understand some of the parameters that you've used in that. Have you assumed the 13 million tonne per annum throughput rate of the mill? And I guess given the mill has been operating at well north of 14 million tonnes for the last quarter, what -- why should we not assume that it's going to operate north of 13 million tonnes?

Yes. Thanks, Mitch. Simon again. Look, just in terms of instantaneous or quarterly rates, we do have large shutdowns probably every second quarter. So we're still in that range of around 13 million tonnes. I think the maximum has been about 13.3 million tonnes over the history. So in our numbers, we have got that processing throughput continuing on. We haven't got a higher throughput rate. And in terms of ounces going forward, it's really timing of when we get into Golden Pike at the base of the pit. So the cutback is all on track. And it's -- yes, we're moving forward for Golden Pike. Golden Pike North and South coming on stream in a few years' time, and that really drives your ounce profile.

[Operator Instructions] Your next question comes from Sophie Spartalis of Bank of America.

I just wanted to explore a little bit more Dan's question around the all-in sustaining costs and particularly around the sustaining CapEx. So you referred to the growth CapEx of $570 million for FY '22. Should we be taking this as a guide, the sustaining CapEx of $390 million, which is what you did in FY '21?

Yes. Sophie, our sustaining capital sort of tracks to that $250 to $275 an ounce. So it's probably fair to maintain that. Look, we tied to the idea of multiyear, past 3 years in planned all-in sustaining costs, but to some of the questions as well to project forward costs at that point, I think, for anyone is going to be quite difficult. We've got a lot of our contracted costs in our supplies and procurement and all that secured in the near years. And we've got a trajectory of where we're going to go in the back years. But yes, that sustaining capital amount $250-odd per ounce has been a fairly consistent cost of business probably can be assumed. And that relationship with underground mining, you typically are putting that development in at the same ratio to open up same many ounces. So that is pretty fair.

Okay. And then just as a follow-up to that. So the depreciation should be roughly that as well.

Well, you'll also see that increase with the synergies related to the tax yield.

Yes.

Sophie, it's Morgan here. Just, I guess in relation to the all-in sustaining, that's absolutely right. We saw a track around that $250 an ounce. What you do see throughout a year is a bit of variability depending on how many precommercial production ounces we have in a particular quarter. We're relatively high in that area in the first quarter as Thunderbox underground approaches commercial production. So you don't have as many ounces to spread across your sustaining capital. And then -- but over the course of the year, that's the number we'll settle at. And in relation to D&A, I guess we're just finalizing the merger accounting work, the best lead I can give you there is the Q4 D&A per ounce numbers that we've put out yesterday, that gives you a pretty good proxy of how we're thinking going forward.

Okay. That's great. And then my second question is, [indiscernible] from reading the presentation last night is Northern Star still has a number of optionality and flexibility within the portfolio, particularly around Tanami. You put out production guidance to FY '26 and doesn't include that project and you still understand that it is in the early stage of exploration. But you've increased your stake back in May to 50%. So you obviously see some potential there. Can you just talk through when is the right time to start turning your attention to this asset? And maybe talk to what are the key stumbling blocks that are needed to be overcome to get into a similar position of your 3 existing hubs that offer that scale in mine life?

Yes, that's a really good point, Sophie. Look, I think we started with a couple of hundred slides that we really got disciplined to try and trim it down to the materiality for the business going forward. So please don't read that the emission of -- thing about Tanami means the significance is there. But when you look at where the growth is coming from, we're really focused on those material things of opening up KCGM, getting the pre-strip of the southern cut back and the OBH cut back rectifying that flip getting in the grade and the floor as well as the Thunderbox expansion. But for us, Tanami, we're still going through the process with a joint venture partner there to get that 50-50 lock. I think the shareholders are going to [indiscernible] on that. Absolutely working with them on -- with Mike and the team on the exploration programs to get into ground rush. And really looking forward to the price up in the Tanami, and we still love that district. The geological potential up there is phenomenal, and we're still holding 8,000 square ks or so of tenure. So yes, please say that it's not -- just because it's not a massive slide in the pack. We're not an exploration company, but it's still meaningful in the pipeline, and it's probably highlighted in Mike's section about -- we've got projects throughout the whole elements of pipeline that trade into that future stock, and we just haven't, I guess, put a fees on it to say when it falls into that program, but you highlighted optionality. Those things exist across the business, and it's really just prioritizing capital.

Your next question comes from Matthew Frydman of Goldman Sachs.

A couple of questions from me, please. Firstly, on Pogo, a very flat production profile there post FY '23. You've previously scoped up the potential for a further mill expansion at that asset to 1.5 million tonnes per annum. Just wondering if you've got an updated view on what that next phase of expansion at Pogo could look like? What it could cost? And is it dependent on further exploration success? Or is it a matter of bedding down the current mining rates? I would assume that the milling expansion optionality that you've got there at Pogo can be presented in much the same way as what you presented at KCGM.

Yes. Matthew, it's Luke here. Great question. And it's probably more the latter. This is a massive district, massive potential, we call it [indiscernible] scale, and we see numerous hits outside the resource. So what you are really probably seeing is first near term, get to the 1.3 million tonnes, get the 8 grams going, produce 3,000 ounces. I'm heading there to not -- to go and have another look, because I missed it. So I'll be happy there for a couple of weeks as well. But this story will evolve over time. But what we've -- when we bought the asset, we saw the 1.3 million tonnes at 8 grams. We're going to deliver on that. We've got huge exploration potential outside of that. We're going to let those results come in over the years, but in no rush, given what we've got in mine to work with. And then we will just really optimize it with just going into our capital sort of analysis and work out what the best [indiscernible] for that region going forward. But I guess the short answer is we got plenty of time. And while it's producing 400,000 ounces, it will be producing a fair bit of cash along with it.

And Matt, it's Stuart. Just to add to that, Steve McClare, joined us as Chief Technical Officer. The long term, he'll looking more past that the CLOs remit to these bigger scale operational projects. So when travel permits of the Alaska and that [indiscernible] we'll be looking at good, pasture, resource, mining resource this year and just what that whole district can do. So look, main focus is to deliver that 300,000 ounces, but the key is to actually get that longer, more forward dated plan.

Second question for me, and I guess a bit of a bigger picture one. I guess looking back at the time that the merger was announced, the prospect at that time was to create a $16 billion company. Currently, your market cap is around $12.5 billion. Just wondering that if the merger was compelling at that prior valuation, how does buying back stock today rank in terms of return on capital in terms of your capital management metrics? And do you compare that return on capital up against the optionality from your suite of internal growth projects, which obviously has been the focus of today's release?

Look, it's -- these things are always options in the thing, but I think it does rank quite low. Mike showing how many ounces that can add efficiently. We've looked at this organic growth CapEx that can lift profile and increase margins. As far as market cap, I mean gold prices retreated somewhat. But you've seen us with a really healthy balance sheet in those environments, even being an acquirer of gold assets. So all these things at play. Share buybacks in the immediate term aren't probably high on the list.

Your next question comes from Rahul Anand of Morgan Stanley.

I just have 1 question. So if we combine the production guidance for FY '22, '23, '24 for Northern Star and Saracen prior to the merger. We're losing in your guidance provided overnight about 160,000, 140,000 and 130,000 ounces. Now you did mention that the Kundana sale impacted and some of those ounces can be accounted for from there. Two questions on that. Firstly, Evolution's presentation gives us ounce numbers that are much smaller than that. How do you bridge that gap? And the second is, obviously, I would have thought that you would have moved to higher margin ounces, however, your all-in sustaining costs have still gone higher over this period versus pre-guidance. How should we square that circle, please?

Yes. Thanks, Rahul. Look, I want to answer on behalf of Evolution. It's probably directed to them. But look, I'm certain it's around the milling capacity. You got to get that all through the mill, and I think they've led to the fact of an expansion at Mungari [indiscernible] you need to probably ask them on how the [indiscernible] we produced 121,000 ounces on those Kundana assets in FY '21. So we're extracting those from the go forward, some of the parts plan. We'll give you some of that change. But obviously, we've done a massive resource reserve update, probably it might be sound like chocolates tomorrow. But on a lot of these plans, we've worked for the long term. We've got a decade-plus mine lives on some premium assets. We've made sure we haven't done a snatch and grab plan. And some of the expansions or the work that's happening in places like KCGM is for the absolute long term to get the best results. So it might defer near-term production, but it absolutely drives sustainable levels of production once we get to those levels. So yes, we've got that multiyear guidance that's there now on the combined businesses. And obviously, the merged companies has been bedded down and the new plans, new resource reserves have been incorporated into life-of-mine plans. I would probably just highlight as well -- I'll just highlight as well that 2 million-ounce per annum target, we arrived at that a couple of years earlier than the previous sum of the parts planned. So I think that's probably a highlight that we need to look at. And it will be at lower all-in sustaining costs.

Okay. I have slightly different numbers, but I might take that offline.

Yes. Look, we've been watching consensus numbers as well. And there is a bit of a range at that end. So please follow up any questions through Troy Irvin just so we can assist in clarifying any of that.

[Operator Instructions] Your next question is from Daniel Morgan of Barrenjoey.

Portfolio question. You've just sold Kundana to Evolution. Is there more potential rationalization of the portfolio with the Kalgoorlie asset for the nonsuper pit or maybe Paulsens or what's in and out of what you would consider for the M&A piece? Is it very much seems like growth is not done on that side either.

Yes, good question. And look, it's that term, I guess we've gone the active portfolio management that says we'll do all those things. So it's really the sequencing of it. So ideally, through cash generation from our assets. We're taking that organic growth, we're dividend paying. We're building our balance sheet. So when we look at the acquisition side of things, bolt-on acquisitions that feed into these concentrated production centers. That just makes logical sense and complement the life of mine plans will always occur. And then we've got the strength bandwidth here to be able to operate for the 3 to 5 meaningful concentrated centers. So the acquisitions of standalone, large-scale production hubs exist. Divestments really is this for award. It's what's the return on that invested capital is you better spending your focus on fewer areas. So it comes in the equation, things like Paulsens they're not burning a hole in our pocket, but they're not also contributing, and we'll absolutely look to divestments of those types of things versus trying to turn back on 100,000 ounce per annum mine that's sitting out in the Ireland. So all I'd say is, yes, we're not closing doors on any of those options, and we'll keep portfolio management as part of our DNA.

Okay. And second question, a little bit of accounting minutiae, so apologies. But the CapEx guidance you've given, the growth CapEx guidance, I just want to clarify these gross numbers. And what I mean by this is, in the past, there's been preproduction sales of gold that have been offset in the past from Saracen guidance, for instance, and also in the quarterly, there's preproduction that comes in the top bit from growth CapEx. But I just want to clarify the cutback numbers, is it gross dollars you're spending? Or is it net after some of the preproduction ounces?

Dan, and welcome to your new shop, Morgan here. Yes, those numbers quoted in the presentation are gross. And you and I can have a really enjoyable long-term accounting discussion later offline. But as far as preproduction ounces go, FY '22 is the last year of the netting off of those preproduction ounces against capital based on accounting standards. And then in FY '23 onwards, it will change. But as far as this FY '22 goes, they're all gross and there will be commercial preproduction ounces in our books during FY '22.

Your next question is from David Radclyffe of Global Mining Research.

My question is on the emissions targets, so slide 24. Could you clarify -- you've put out the 0 target by 2050, but is there an interim target for 2030, which is reasonably standard these days? Also, it seems like it's a pretty embryotic sort of policy when you compare it to your senior peers. In terms of the strategy, would you look to make direct investments in power? Is that sort of the key emission source? Or is it more your reliant providers to provide solutions for you? And will you actually provide budgets in the future?

Yes, absolutely. So we're -- in our sustainability report that we do on a calendar year we'll publish, so January, February '22. We will give that and we'll give that near-term 2030 target and really we're doing all the -- have been doing all the work, and we're holding that, David, on absolute and intensity near-term targets. So I guess what we've really got to demonstrate here, Slide 24, 25, is we understand our emissions profile. We understand those baselines. We understand the current existing technologies that allow us to give immediate reduction. And it is on the scope 1 to power generation. That's pretty much 70% of our emissions. And it's really driven by replacement of gasified diesel stations with renewable solar, wind, et cetera. So whether we're the owner of that capital or whether other parties are and it's PPA, the beauty is we've got long-life assets that we can secure that long-term commitments with, to deliver that. And then we pushed back out given everyone talking of 2050, what are the types of things that allow us to do that final reduction and there is a lot of technology and innovation required to make those final changes, particularly in underground mines where it's energy-intensive, pumping, ventilation. So if you're trying to reduce those things, you're better off making sure that the energy going into your mine is plain, before you try to electrify everything. So -- and then ultimately, you'll still also need carbon storage offset. So that's the first window and project for our commitment. You'll see a lot more content and detail in the sustainability report. Yes, and appreciate that's the work we're doing to date.

Your next question comes from Peter Ker of AFR.

A couple of questions on Pogo. Almost 3 years now since that acquisition. And it looks as though net mine cash flow after CapEx and exploration and everything else you've done there has been roughly neutral over those 3 years. And I noticed a further AUD 70 million of CapEx going in there in the year ahead. So I'm interested to know, when do you guys expect Pogo to become a significant contributor on a net mine cash flow perspective? And I guess that ultimately leads us to the question over what payback period do you have in mind for this acquisition? Should investors be thinking that 10 years is sort of reasonable from the 2018 acquisition date?

Yes. Thanks, Peter. So FY '23 is the go-steady 300,000 ounces run rate, and that's when it will generate significant U.S.-denominated cash flows. We're already -- it's already contributing now and covering its cost plus exploration. So really going forward, it's starting to chew into that payback period. So I think if anyone -- the experience of Pogo, we feel, has been absolutely successful with our first foray offshore, and we've put an enormous energy into renovating that asset into driving productivity, extending mine lives, including discovery and resource and reserve update. But it's not like harder effort going into a project like that. So -- we've got a lot of learnings, but it's a significant asset that's meaningful to stay in our business for a long time, and it will absolutely contribute from FY '23 major cash flows in U.S. dollars. Look, the target is to get initially below that USD 1,200 all-in sustaining cost and then ultimately below USD 1,000 all-in sustaining cost in the first target, but it has potential to go -- given the grade, it has potential to go much further down. So it will be a low-end profile of 300 against the other assets, it will be a significant cash generator at a really low quartile cost base.

And has owning a North American asset had a meaningful impact on the way you are viewed and received in North American capital markets?

We were largely -- we're over 50% offshore-owned U.K., U.S. anyhow or North America anyhow. Look, there's a lot of eyes on Australians that embark on that growth. We focus purely on Tier 1 jurisdictions. We've been really clear on our strategy, Australia and North America. And look, yes, it's -- everyone has been looking at that asset understanding it was going to close with a 3-year mine plan. So 3 years on, we're sitting there with over 1.5 million ounces of reserves. And a really good outlook will be putting maiden resource on the Goodpaster discovery and people's eyes are on that project and particularly our brand, our DNA and our performance, and we're out on a poster for that. So we're very pleased with the current progress. We were set back obviously with a year of pandemic, but it's a credit to our team to be persevering and really delivering here.

Your next question comes from Hayden Bairstow of Macquarie.

Just a couple for me. Firstly, Stu, on Thunderbox versus Jundee, just to understand different economics of the 2 mill expansions and why Thunderbox looks better than Jundee. And then just circling back to Doyon, I just want to confirm what you were talking about before about $400 million proceeds being reinvested. So is that -- to get the return on that, is that [indiscernible] and it's more likely to be lowering the cash cost at KCGM? Is that sort of where the potential return comes from?

Yes, Hayden, it's Luke. I'll answer the first question with TBO. But the absolute sort of the detail of it, Thunderbox gives a better dollar per tonne saving, because you're going from basically just 2 mills. So we're just putting a big stag at the front and using the existing ball mill, whereas Jundee had 2 ball mills. So we would have put a stag at the front, but running 3 mills versus the 2 mills just increases your cost by about a net average of the buckets and across the region. So that sort of point in the Thunderbox is the best mine. Conveniently, the weight of tonnes is to the south as well. So it really is closer and then all the sort of regional resources around Thunderbox really come into that plan and deliver that sort of $5 a tonne savings over the year to $30 million or $100 an ounce. What was the second question, sorry, Hayden, on KCGM?

Just on the $400 million from the Kundana sale. You sort of said it's not -- you're looking at investing it, but it's not on ounces. I mean, what is it, is it mill experiences to drive costs lower? Or all that should be used to grow ounces as well?

Look, I think if we could have that feasibility done in a hurry, I think it's really the most efficient onset plan of that. There's some -- in the go-forward guidance, we've got some hatched boxes showing what the profile could deliver it, I guess, restore KCGM to that north of 700,000 to 750,000 ounces and beyond. It's around getting like what we're doing with TBO, a single net and taking that Fimiston Charlotte circuit from sort of 5 mills down to 4 and down to 3. So no doubt, you move from 13 million up to either 17 million or 22 million tonnes per annum. You're doing it with fewer moving parts at a much lower unit cost per tonne. So that $400 million proceeds, Morgan is going to be looking at it on the balance sheet and guarding it and making sure it's not deployed until it's in the best use. And I think we're quite comfortable to sit with that, with the growth profile we've got in the next couple of years. We've also got the debt pieces that we've refinanced out in the year 4 and 5. So we just want to -- maybe we are conservative with leverage, but it's a good problem to have.

Your next question comes from Patrick Collier of Crédit Suisse.

I'm just looking at Slide 36, where Kundana offsets it's equivalent margin, [indiscernible] 12 million to 25 million is unchanged just following the investment.

Sorry, Patrick, I missed that question, mate. Could you please repeat it?

Yes. So I'm just on Slide 36. Kundana ore as being equivalent margin between the CDO Mill and Kanowna Belle mill. Just wondering, does that $12 million to $15 million annual benefit from the district milling change at all following yesterday's divestment?

Yes. Thanks, Patrick. Simon here. I suppose with the announcement yesterday, yes, we need to review that. But the simple answer is moving the dirt around. We managed to get a better recovery from our dirt. That's a quarter 4 number that we achieved. But we improved the recovery. We get a lower milling cost. And really, what that does is just give us access to high free cash flow per tonne margin from KCGM. So more of that we can process the higher that number can actually be. So yes, with the divestment of the Kundana assets, we'll review that going forward as the best way to optimize the ore across the process plans we have.

That's -- that slide just highlights what we've done today and that optionality, quality optionality. So we've already seen that benefit doesn't fall away with that divestment. In fact, we free up million tonnes of capacity for that 20in the region, because we don't sell a mill with those mines.

Your next question is a follow-up from Mitch Ryan of Jefferies.

Luke, I might be getting into the weeds here mate, but in the quarterly, you called out that at Jundee, the Julius open pit would start to displace low-grade stockpile mill feed in FY '22. But if you sort of look at the guidance you've given, you've sort of held it flat year-on-year. Just wondering if you can sort of help square that circle?

Yes. The simple way to look at it, Mitch, I think is like Jundee underground produced about 2 to 2.2 sort of that 4 grams, so just north of. We've got numerous sort of potential in the resources in the region. So we saw that with Ramone. Julius comes in, it knocks out sort of 1 gram stuff with 2 gram stuff in the mill, sort of 1.02. So it builds it back up to that 300,000 odd ounces. And ultimately, what we're going to end up with is 300,000 ounces in the north, 300,000 ounces in the South. Double the tonnes at half the grade in the south or half the tonnes to what's the grade in the north.

[Operator Instructions] Your next question is a follow-up from Sophie Spartalis with Bank of America.

Stu, can you help me understand Slide 58 around the synergies. There's 2 pie charts there. For example, how much reduction in cost base have you received by renegotiating, say, you drill and block contracts? Can you just talk through that slide, please?

Yes, and I'll let Morgan pick it up, but there's obviously average reduction of 6% spend across those contracts. And we're putting obviously the agreement slightly about $30 million already achieved per annum as a run rate. So I think people look to the $1.5 billion to $2 billion worth of synergies, I appreciate that was an NPV over 10 years. So when you actually look at what we go forward an annual rate, this is to demonstrate how much progress we've made on that. We do have legacy contracts, which still need to be renegotiated. We believe we just renegotiated the Jundee underground mining contract, 1 of our largest mining contracts and we usually do a 3 plus 2 year contract, which is fairly the $750 million, and we're basically knocked in that pricing for that period. So they are examples and I'm not going to give -- commercial confidence away rates for our suppliers and providers. But this slide, I'll let Morgan just cover the key highlights that we have achieved.

Yes. So us exactly right. We do have a little bit of a commercial and confidence restriction. We have long good term -- good long-term partnerships with a number of these providers. And the combination of economies of scale and the relationship and the outlook has seen a number of them come to the party and want to maintain that relationship. So we've seen some good wins there. Offsetting that, of course, is the macro environment where costs are going up. So the fact we are realizing on average across the contracts we've revisited the date circa 5% is the best we can do without and I've tried to give some categories for you there to give you a bit of a feel. But I'd be lying to go any more granular than that. But as you said also that, that $30 million, that's a real number that we've achieved in calendar '21 already. And I've also tried to show that it's only 30% to 40% of our contestable spend in this company. So we still have work to do. As contracts come up, we will revisit those throughout the course of the next 2 to 3 years.

Okay. So of the 5 -- so you've addressed $540 million, so of the $540 million that you're spending, you've got a savings of $30 million of the -- out of that $540 million. Is that the way you interpret it?

Yes, that's the way to think about it, so yes.

Your next question comes from Daniel Morgan of Barrenjoey.

Page 41, so that's the underground potential at the super pit. It's not in the mine plan. I'm just wondering if you could talk through what is the time frame for the drilling contemplation and when might earliest feed occur if it was a mineable proposition, basically, just looking for you to step me through how this opportunity might evolve over time?

Yes. Thanks, Daniel. It's Simon here. I suppose the really exciting thing about this is the first portal in over 20 years at KCGM. And this is our first drill platform of a kilometer to really start targeting and growing to 50 million tonnes and 2.5 gram 4 million ounces that we've got. The size of the system is massive here. So it's over 5 kilometers, 900 meters in width. And our average depth is still only 500 meters of mining, yet we've still got hits over 1.5 kilometers. So look, this is going to evolve. We'll obviously keep updating as we drill it. But really, this will fall to [ Steve McClare ], really to drive this large-scale project over time. So it's a lot of drilling in different areas of the pit. But look, this is our first start. But Steve's experience on large-scale mines will really lead this study over the next few years. And it absolutely will be ounces on top of the plan once we develop the way to tackle this enormous system.

Maybe just a follow-up in your experience. So the company -- this is something the company has done with regenerating assets in the past like West Jundee, et cetera. What's been the experience of putting in these drill drives in terms of timing through to production?

It's a good question. Look, we've just picked 1 quadrant obviously put -- these Western portals in and get this 1 kilometer drill rig. So we're trying to make sure we don't interrupt the open pit activity with the underground accessing both parts of the ramp on that. And so it is drilled out first to final. And you could just strut in there today and get some site ones out, but we want to make sure we understand the full size of the price. So we've got that runway and it's important that we do that. So the same as the mill feasibility expansion, we're already now a format today that we could spend money and get it up. But then you're going to be discovering more ore and then having to expand it again. So we just want to make sure that we're -- we've really worked out what the ultimate end game is and then we set it up, almost do it once well and set that up for the long term. So like this isn't a size asset that you rush hard into, because you could spend a lot of money and not end up with where -- what the optimum result is. So I think we've really got a solid baseline. It's important that we do the prudent feasibility work to make sure that the capital efficiency -- and if you compare us against peers, our capital efficiency, albeit the big numbers in our plan forward here, the new comp is up against peers. Our capital efficiency is well ahead of the pack in that regard. So just give us the time to do the work and then put it into the model. The same as that $400 million is if it means we haven't got a great use for it, we will return to shareholders as special dividend. We've done that before as well with Plutonic when we did do a sale of an asset. But I absolutely believe we've got options inside our business to get the greatest return to shareholders for that.

Your final question comes from Sophie Spartalis of Bank of America.

Just coming back. Two questions from me. Firstly, the synergies, how much of the synergy is outside of the all-in sustaining cost?

Sophie, it's Morgan here. I don't have a really quantitative answer for you on that. But certainly, you see the section on tax, which is a large part of synergies. That tax cash savings falls outside the all-in sustaining cost and some of the other synergies we realized are on capital base. So they also fall out.

Okay. And then Page 16 of the deck, you talk around sustainable 20-plus year mine life. Is that -- do you believe that, that is the case across all the assets?

On those production centers that we put there, absolutely. The focus on the geological systems while we've got into the suburbs in the Tier 1 locations is with that focus. So you've seen the track record, and we continue to invest in exploration to extend that resource reserve. We've got this target of 20 million ounces reserve maintained and the 60 million-ounce resource means that the balance with the resource conversion we have on these deposits means that we can keep that pipeline into our -- in our life of mine plan. And look, these things are finite. So we've got ability to acquire and move from 3 to 4 to 5 of these synergies with the bandwidth of the team we have. But that's our planning to target that.

There are no further questions at this time. I'll now hand back to Mr. Tonkin for closing remarks.

Yes. Thanks, moderator. And look, you did hear from Marianne or Hilary today, who are here in the room and please assure that they are both very, very active in the team to look after our people and our governance matters and social responsibility. So please follow up any of those questions, and you'll see more of them on the ESG roadshow. But look, the conclusion today at Northern Star, we operate as a business first with disciplined capital management to deliver superior shareholder returns. We operate a simplified business with scale exclusively in Tier 1 locations, and we offer profitable growth for accounts at our high-margin, longest-life operations and we actively portfolio manage our assets to ensure our efforts to yield the greatest returns for all stakeholders in a responsible and sustainable manner. Thank you for your time today.

That does conclude our conference for today. Thank you for participating. You may now disconnect.