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

Thank you for standing by, and welcome to the Northern Star KCGM Mill Optimization PFS Update Investor Briefing. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. We will be taking questions from both the teleconference and the webcast. [Operator Instructions] I would now like to hand the conference over to Mr. Stuart Tonkin, Managing Director and CEO. Please go ahead.

Thank you, and good morning, and welcome to Northern Star's KCGM Mill Optimization Pre-feasibility Study Update. With me on the call today, we have our Chief Financial Officer, Ryan Gurner. Ryan has been on board with the business over 8 years. And we've also got Steve McClare on board as our Chief Technical Officer, joined us over a year ago, and Steve has extensive experience on large value-enhancing projects. And he will go into some of the details of this exciting opportunity in front of us today. So when we look into where the business is currently placed, we -- to reinforce again, we are a world-class gold producer. We are located in low-risk jurisdictions in Tier 1 locations across Western Australia and Alaska. And our purpose is to generate superior returns for our shareholders. We've got a very simple and focused business, 1 commodity across 2 countries and 3 material production centers, underpinned by visibility of reserves of 20.7 million ounces and a resource base of 56.4 million ounces. When we look and zoom in at the KCGM opportunity, we're going to be discussing this at length today. KCGM, to remind us, is one of the world's most significant gold mines. If you look at it purely on a reserve base on a global scale, it sits on one of the top 8 global reserve bases. And the significance is ranked -- of this ranking is underpinned by over a century of production and 65 million ounces that's been mined to date from this Golden Mile. We already have a growth plan to deliver growth to 650,000 ounces per annum by FY '26. And that's unchanged by the information we're publishing today. And it's an exciting part of the combination of Saracen and Northern Star to get this single asset under its single ownership and to be able to liberate material value from this in its absolute history. When we look at this coupled up against Northern Star's strategy, it's very clear to how compelling a growth opportunity like this provides. When you look at just our responsible ESG, and this supports increased social investment in the community of Goldfields of Kalgoorlie-Boulder and the broader surrounds. There are material and significant opportunities to reduce emissions and water intensity in relation to this project. As you move through profitable growth, the opportunities of the mill expansion provide an increase of 200,000 ounces per annum, which again underpins the multi-decade outlook across our assets and a sustainable 2 million ounces per annum that we're growing to over the next 4 years. When you look at the lowering costs, very important in this inflationary environment. This enables us to look at the opportunity to reduce our all-in sustaining cost by $200 an ounce and move us further and deeper into the second quartile cost curve. Then when you look at the long life and opportunity, this is a multi-decade asset and can absolutely underpin that outlook for decades to come. Ultimately, how is that reflected in shareholder returns, we can see that in increased cash flows and improved NAV across our asset base. So to remind us on what we do in our general cycle, and this is a common theme to all of the assets we've acquired and renovated over our journey, we look at the geology first, we drill intensely, we expand and grow our resource and our reserve base. We optimize our mining physicals and make them as productive as possible, and then we've looked at the processing facilities to utilize stockpiles a bit built up over time. So KCGM is no different to Jundee or Thunderbox or Pogo or our Kundana belt. It's no different to any other methodology of the cycle of building up our assets as we have across the journey. It's just on a much larger scale. So to remind us on the progress over the last couple of years of having KCGM under our ownership, we've increased the resources to 27 million ounces and our reserves are nearly 12 million ounces. We've established the first underground portals, which are basically establishing drill drives in the North Western wall, the first portals within 25 years to get that drill drive and added 5 million ounces of inferred resource in the Fimiston underground. So the geology is sound and it's underpinned by a fantastic history of scale on the Golden Mile. When you look into the mining efficiency and productivity, we've over-doubled the movement, the material movement in KCGM in the Super Pit to 65 million tonnes per annum. And we've just got the new fleet fully delivered to site, new 39 -- 39 new 793F trucks on site driving volumes up and driving efficiencies and costs down at KCGM Super Pit. So the mining activity on the geology is very sound and underpinned. And in the same period of ownership, we've maximized the capacity through the existing 13 million tonne per annum plant. It was sitting around 12 million, 12.5 million when we first moved in there, utilizing low-grade stockpile, and we've worked very hard to optimize and maximize the throughput. But we did recognize that it was 2 trains of the processing plant. It was a high cost plant relative to the throughput that it had, and the only way to really drive down costs was to review and assess a longer-term simplified lower cost option. And that's where we're at today, to be able to go through what we've considered over 20 options. We've refined them down to just 3 key pre-feasibility scenarios. And we wish to advance detailed engineering and design criteria based on one of those to take forward to assess for an investment decision. When you look at the current capacity of current plan, our pathway to 650,000 ounces per annum by FY '26 is unchanged, and it's utilizing the existing mine plan, the multiple sources of ore from the pit from Mount Charlotte underground, from the significant stockpiles that sit there, 3 million ounces in stockpile. And then coupled with our regional Kalgoorlie operations to take, the growth of that region above 1 million ounces by FY '26. It has steady cash flow, and it funds all of its existing growth projects presently. And so this is an enhancing project on top of the opportunity that exists today. So it does not detract from the current growth plans that exist. If you recall last year, at our Investor Day, we highlighted some of these opportunities that existed and how we were thinking about it and what we'd be working on this year. So to remind us here, these aren't in the current 5-year plan. No mill expansion capital or production output was designed and planned within that, but we saw the opportunities to study these things. And we said that we would give you a market update in the second half, and here we are today to provide that. So if you recall, on this table, we talked about simplifying the plant to drive down unit costs. The current arrangement of the Mount Charlotte circuit and the Fimiston circuit meant there's 5 mills producing at 13 million tonnes per annum. And there's a lot of logistics and movement as this has been shantytown built up over the 35 years of its production history. So we looked for a few scenarios to simplify this throughput, and we looked at the scenarios here at '17 and '22. We've done some refinements since then. And the next slide, Slide 10, really to give you the detail of what we're assessing today. So steady state is sound, it's compelling, it generates significant cash flow, it delivers us to 650,000 ounces in the next 4 years. But when we look at these expanded cases, they're very low risk and the opportunity to expand the plant are significant. So when we look at the 3 scenarios from the base case today, adding some bolt-on infrastructure to take the throughput to 17 million tonnes per annum, we're calling that bolt-on. It doesn't drive the lowest unit cost. It does give us increased throughput, so therefore, added cash flows. But it really doesn't give us the most compelling returns from a total cash flow and total NPV perspective. We're really focused on the internal rate of returns of these. The capital intensity and looking at the longevity of any capital that spent in a cornerstone assets such as KCGM. If you look at the other extreme of fully rebuilding Greenfields' 22 million tonne per annum stand-alone plant, of course it's going to give us -- it's going to be the largest CapEx. There's a lot of infrastructure to replace and establish and start with Greenfields' plant. And therefore, it doesn't give us the best internal rate of return related to the expenditures that we put in place. Still very compelling, but not the best is what we've got. So diversions of scrapping what you have, replacing with new versus adding on to what we have. We've got a hybrid that sits in the middle, and that's the 24 million tonne per annum option, which effectively replaces nearly 70% of the current circuit, and Steve will talk to this in detail shortly. But ultimately, it drives a very balanced CapEx for the longevity of the asset, and it gives us a very compelling internal rate of return towards 30%. So what we can see from these metrics and appreciate the CapEx range that we've given you here is quite wide. I will narrow that 24 million tonne per annum case that sits in the middle there and the refurbishment sits at around $1 billion of CapEx and has that payback period within that sort of 2 to 4 years, depending on what gold price assumptions get placed. But this is still a pre-feasibility state level, and we are working to advance feasibility level information and derisking in understanding what we can do to improve on these metrics. So we think this has actually been quite a conservative view of costings, and we feel that these are reflective of the current elevated cost environment, reflective in what you may see quite large CapEx numbers. It is relevant and new information on the back of what we've adjusted in the market today. So look, these compelling options that sit here were driven in our shareholder returns on compelling investment thesis. We've looked at those IRR, the payback periods, derisking of these things. We understand that this can be completely self-funded from cash flows without deteriorating our cash earnings. Therefore, our dividend policies remain maintained. This is a financially compelling option. I will also say that we can absolutely do nothing. So it is weighing this up against other options that sit out there, but this is something we're very excited to present today and pursue into the next stage of the feasibility study steps. And from there, I'd like to pass to Steve to get into the content of the filings today. Thank you.

Thanks, Stu. Just a context...

Sorry, Steve, you are on mute.

Yes. I'm the Chief Technical Officer at Northern Star. As Stu said, I joined in July last year. And I guess my role is I focus on the period from budget plus 1-year outputs. So Simon Jessop looks after the Australian operations. And so my part in this study is we look at the studies and projects, as well as mining, processing, reserves, resources, ESG and matters like that. So we take the calmness and time to actually build the long-term plans. And as Northern Star grows, that becomes more and more important. So in this slide we're looking at, at the moment on the screen. Looking at the diagram on the right, there are 4 cases across the bottom. The first, as Stu touched on, is a 13 million tonne per annum steady state, as is, and that's what we continue to do, and we'll do it through this entire project. The 17 million tonne option was expanding on that, as is, and putting a bit more milling, a little bit more secondary crushing and upgrading that option to see what we could do with what we already have. The 22 million tonne option was actually all new, including its footprint in a remote location away from existing operations. And then the 24 million tonne option uses 30% of the plant, as is, and adds 70% new. So when you're looking at the diagram from the gold color that's there, as you step through these options, we get an increase across options until we get to the 2 last cases, where we're really getting to the limit of tried and tested. And so our gold ounces lift and then plateau. And then in the bottom of the chart, in the orange, you'll see our all-in sustaining cost declines to those options. And then once again, the 2 larger of the options, we get to that economies of scale limit of tried and tested. So what we're trying to do here is basically not set the world on fire, not be on the bleeding edge, but we're trying to implement what we do and know every day and take what other people have done and optimize it, improve it and then embed it in these various plants. So in the first 10 years, that means our gold output lifts 100,000 to 200,000 ounces per annum. And importantly, with a focus on costs and all-in sustaining costs of the business going forward as part of our strategy, it brings those numbers down at KCGM by $200 an ounce over that first 10-year period. The most important thing to note in the financials Stu just went through is this excludes the iterations. So normally, in a processing plant upgrade, you would look at the process costs, you would then try and optimize it, you would put it through your cutoff grades, you then optimize your mines, you'd feed that back, you'd look at your imports like energy and electricity, trying to refine that, and you keep going around the iterations until you could find a compelling case. The important thing in this pre-feasibility study is we didn't have to do that. We've constrained all options to a common parcel of all that we thought was reasonable and then tested it against it. It has none of that upside. Moving to the next slide. What we can see on this side in the white boxes is our current sources of ore. So we have our open pit, our underground and our stockpiles. As I just touched on, through the 3 expansion cases in the gold boxes, what we actually do is we accelerate the open pit feed, the underground feed and the stockpiles. And it's important to note that those stockpiles have their mining cash costs already expensed. So they're sitting there waiting to be processed. And that has been a key focus of the PFS in how we consume those stockpiles and convert them to cash. As we go through that, the important things are it's simple, reliable, tried and tested, but it's a common parcel of ore. We haven't looked at what we could do in an expanded underground. We haven't looked at alternative open pits. And very important, we have large land holdings throughout the gold fields within close proximity, and those regional options are ignored in the financials that Stu presented. Moving on to the next slide. This is the 24 million tonne per annum case. So the items in green on this slide are the new components. The bit in the white are existing. So we've taken the better, more suitable parts of the plant, and in close proximity, actually replaced 70% of the components. That's to get rid of the multiple upgrades and moving and shifting and shuffling that we've had over the years that this plant has actually been running. It's a very -- in doing this, we're looking at simplicity, with a key focus on reliability, operability and maintainability because that's what drives our cost base. And then the economies of scale of doing that stuff well means the imports actually come down. For instance, some of the lower costs through doing this stuff is reductions of the order in this case of about 15% water intensity, 50% for maintenance consumable intensity and 60% for contract labor intensity. So much simpler, much more engineered to be able to maintain and operate. The next slide, we previously released our renewable strategy. That strategy, and I should point out, is a strategic pathway. It's not a detailed design. But we have done a lot of modeling, engineering. And we have, in my team, we have people who have been leaders of energy companies before and including managing director of an energy company, and we have designed most of these things we talk in this picture, and we continue to enhance and build on those designs. The important thing is when we went through and put the 35% commitment to reduction by 2030 in our emissions profile is we actually have purchased the Goldfields Power which includes not only the parks and power station, which is capable of powering all of KCGM and the expansion, but in addition to that, it has the potential to be a firming option through all these renewable cases, which is reasonably unique. In addition to that, through Goldfields Power, we actually had 52 megawatts of power we can pull on or sell into the grid. And as part of that, we actually hold a retail license. So we can actually -- we have a Northern Star power, and we can basically have a lot of cards to be able to optimize our energy costs and build in the renewables. In looking at the expansion, what we actually said in the orange box -- sorry, one up, thank you -- in the orange box on this, the added emissions, we have had 100% offset through our strategy. The beauty of the Kalgoorlie region being grid connected, having that connection to the grid, having the luxury of being able to go private behind the meter or connecting to the grid gives us economies of scale and flexibility not common to most mining operations. So essentially, we believe and have done the fundamental in engineering and designing just believe that in the next phase of feasibility, we can have both significant emission impacts and deliver on lower costs, which have not been included in this PFS nor the financials. All of those options are up to 60% renewable power as a first phase pre-2030. Next slide, please. So from here, there's a lot of work to be done. We have conducted or commenced the feasibility study that is well underway. So from this pre-PFS, we've moved into the feasibility. The first step of that is to refine these options and basically optimize which of the options will take forward to a refined design. In addition to that, we basically are looking at the operational emissions and fit further cost savings that come from that. So we'll have a design flow sheet. We'll then look to optimize things like the rate, the recoveries, the throughput, the energy plan and then evaluating the site. And as Stu said, we can, at that point, decide expansion, if any, where to go forward. On the diagram, if we were to do that in much the same way as we've done on the box at the financial investment decision, where you see the engineering and designing, top green bar [ start ], we would be in a position to order the major components and lock in that project risk at financial investment if the Board chose to. In addition to that, we then have the build that goes from midway through year 1 to midway through year 4. Very importantly, as we finished the project and only when we finish and get ready for time at the final stage of the project would we have any impact on the operations. So our throughput in 13 million tonne per annum would continue right through until the project is complete, and we leave our tie-ins much the same as what we're doing at Thunderbox. We leave the tie-ins until we are complete and ready, and we don't turn off the cash flow until we are ready to roll. And so Simon Jessop's team continuing to work through that throughput and cash flow, works in with my project team to make sure we're ready. And at Thunderbox operation, we're doing that now. We're in the next quarter in one of his operational shutdowns. We do those tie-ins with only a minor impact on cash flow as we do that. And the intent is to try and do the same at KCGM. You can see in the bottom line of this graph in the options, the spend profile, it's not a big bullet payment at the front. These payments are indicative of all options in the expansion. And to give perspective, this isn't doing anything anti or out of the box. This is doing what Northern Star does very well. Our tried-and-tested method applies good operating cost control, gets the structure down and then looks for expansion options and drives it for the long term. And those type of expansion in that 24 million tonne case, for example, that constitutes about 10% of our group spend at any one time. And with that, I'll hand over to Ryan.

Thanks, Steve. Good morning, everyone. I'm on Slide 16 here. So this slide highlights the key elements of our capital management framework. So how we think about allocating capital, the importance of our balance sheet and risk management to maximize shareholder returns. Our business has always employed its capital prudently to where the best returns can be generated. FY '22 has seen growing inroads into our pioneer strategy, with the Thunderbox mill expansion on track, on time and budget and ready for commissioning in the first half of next year. At KCGM, as Stu spoke about, the fleet replacement is finalized, and we're seeing great increases in material movement in the open pit and increases in our activity and production out of Mount Charlotte underground. And at Pogo, with the increased physicals we're seeing to demonstrate the 240,000 ounce run rate in the second half of FY '22. Our returns mindset has seen the company manage its portfolio through divesting assets not required for delivery of our 5-year strategy. And the company has a proud demonstrated history of increasing returns to shareholders via dividends. And as Stu mentioned, in respect of cash earnings and the fact that the KCGM expansion should have been selected is growth, our dividends won't be impacted. I'm looking forward to this project [ to see out ] ahead. The company is in a very strong position to deliver our current strategy with $1.4 billion in liquidity and a net cash position at 31 March. And over the years, the balance sheet and the strength of that balance sheet has provided our ability to act and plan opportunities that meet our investment hurdles. We anticipate being able to meet the project capital profile of the mill expansion options with organic cash flows generated from the business. And the company maintains a sensible and consistent approach to financial risk management with modest hedging providing growth certainty of cash flow generation and earnings. Moving over now to Slide 17. So the current environment experienced by the sector remains challenging in part. However, the company's size, scale and diversity is a strength, and it acts to buffer some of the impacts of these challenges. In respect of the potential expansion, advantages include: the Tier 1 location of Kalgoorlie, which has substantial existing infrastructure to support successful project delivery; our ability to leverage our existing highly skilled internal project team, who is doing outstanding job at delivering the Thunderbox expansion on time and budget during what is a challenging time; the ability to derisk prices and long lead time lines, which Steve mentioned. We don't expect interruption or impact to the existing production plan and operations, and therefore, cash generation during the build phase under all the expansion options by leveraging the company's established global supply chain to source materials in the most cost-effective way. Should an expansion option is selected, we expect that the project will attract the best new people in the industry. And all 3, as Stu mentioned -- all 3 expansion options present compelling financial metrics at a relatively modest gold price environment. And whilst we are confident and well positioned to pursue a mill expansion at KCGM, give access to our highly skilled workforce and our recent major capital project experience, maintaining the 30 million tonne plant milling capacity is absolutely the option that remains on the table for us. I'll hand now to Stu to conclude before we open to questions.

Thanks, Ryan and Steve. And look, the opportunities today are pretty clear in regard to what we said we would do and update you on. This extra and above growth -- organic growth opportunity is significant, underpinned by this Tier 1 asset of KCGM. It provides us, at the asset level, a huge opportunity to expand this Tier 1 global gold mine, whilst lowering our costs and lowering our carbon footprint and water intensity. It is hinged on the back of a significant resource and that we continue to explore, develop and grow, as well as the mining efficiencies that we're driving and the production outcomes that we're getting from the operations, both in the pit and in the underground. It's absolutely leveraging our extensive technical and operating skills in our own backyard, very close to all of the significant network that the Goldfields provides us to back on. As you look in the broader Kalgoorlie, lifting net ounce profile, driving more cash flows allows us to increase our further social investment into that region and consolidates all of our tenure that sits in and around the Goldfields. When you look at up to the group level, our ability to self-fund this from our existing operations on the back of Pogo growth being delivered, Thunderbox expansion, the 3 million tonne per annum plant expansion is imminent, but those things outside this focused Kalgoorlie project are stable, embedded and supportive of taking on these type of projects, coupled with the existing investment that's occurring at KCGM to drive us to production of 650,000 ounces by FY '26. I think it's a challenge for us to not look past the compelling IRR that this project currently presents. We're going to be doing the work, as Steve spoke about, to advance onto that feasibility level on that 24 million tonne per annum option of the 70% replacement-refurbishment option that's there. So those next steps for us is really embark and continue that final study phase, look at the risks associated with any execution, delivery, costings. We feel that we've incorporated all of our experience into that presently. So it is about making sure we've got some hard science behind all the numbers that sit into that study and the study's work. We'll give you progressive updates over FY '23 on the outcome of that feasibility study, and we'll obviously go through the same disciplined approach we do to all of our organic investments throughout our structure and our Board approval settings. But look, today, I'm super pleased to be providing you with the detailed work that our teams have completed. It's not just a project for project's sake. It's certainly driven by our purpose of generating superior shareholder returns. So I think with that, I'd like to start to move to questions. I will say, please, that our focus today is on this PFS presentation. So if you can keep your questions related to that. Anything related to the broader business or forward guidance, we typically give that in late July as we do each year. So if we can keep your questions focused on the new information provided today, that would be great. Thank you. I pass over to questions.

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

Stuart and Tim, my first question just relates to asset integrity of the existing mill. Does it need a big refresh to last to 2040? Or otherwise, are reliability and maintenance issue is going to start to mount? And I guess related to that 30% under the hybrid approach that won't be replaced in the plant, does that have good asset integrity?

Yes. Good question. And look, effectively, it's where and why our milling costs sit elevated at the moment for a mill of that 13 million tonne per annum capacity. So we recognize that you've seen it in our quarterly reports and the like of maintenance disruptions or elevated costs. It's a 35-year-old plant. It's been maintained as best it can to keep that going. There's no significant material bullets of replacement costs associated with that, but we budget a continual replenishment and keeping the reliability in the infrastructure is there. But without replacing it or simplifying it and making fewer larger parts, we can't structurally change the cost base. So it's embedded currently in our sustaining capital, but for us to really make a step change in the cost base at the milling cost there, we need to replace and make fewer larger single parts. And that's been the lens of how we've approached this pre-feasibility in this regard and how we'll advance to the feasibility stages. So there's currently 2 circuits, simplifying that and reducing intensity of labor, operational labor, maintenance labor and putting reliability back into that as well. That's what you get for those CapEx numbers.

And clearly, no surprise the market to build things in WA is very heated. A prominent company deferred the mill expansion yesterday, worried about deliverability of a project. All these things you're outlining look very good on a spreadsheet. But how deliverable are these scenarios?

Yes. Look, we're right on the back of completion of the Thunderbox expansion. So look, we took back from 3 million to 6 million tonnes per annum. Most essentially, 95% complete on that. So in the same environment, people are talking about we've been able to do that on time, on budget. Interestingly, when we look at the numbers, and they get you wrong, Steve and myself and Simon and Ryan have pored over to please explain the uplift. If you kind of took like-for-like, year-on-year, some of the things that we bought and have used for Thunderbox can almost have double the lead time and 40% extra costs for the same thing. So that's what's reflected in these costs. Steve spoke to the point on that investment decision, you can absolutely lock in and secure known lead times, known prices and derisk those things. But it just -- it's like you put an extension on your house and put in a new swim pool at the moment. You have to decide whether you want to pay that price in today's terms, whether you think it's going to come off. We're very confident from the execution phase that we have the depth and the capability to do it. So Steve highlighted that on any given day, this is only 10% of our activity, whether it's an expenditure or an added labor, it's actually only about 10% of our current businesses' activity. So relative to what we're doing and managing every day of the week, it's very manageable for Northern Star. And the fact that it's in our own backyard in the city of Kalgoorlie-Border derisks even further.

And you presented some compelling IRRs for these projects. But if my model is correct, you could get a similar double-digit IRR just from buying back your stock at less risk. Is the buyback under consideration and potentially competing to this?

Look, Ryan has highlighted the opportunities on our balance sheet. My view is we could probably do all of these things. So we can still fund organic growth. We're still dividend paying there. We're funding our exploration efforts to build out our resource and reserves and building retained cash, and absolutely discussions are held around share buybacks. So we will be reviewing those things as part of all capital management.

Your next question comes from Kate McCutcheon with Citi.

Can you talk me through Slide 12? It looks like you're considering more underground to come into the mine plan or even some open pit material. Is the picture likely to change given the lower OpEx? Or is there a change to the cutoff grade because those existing shells, I guess, I'm just trying to understand what needs to happen to enable those higher rates match the mill that you're showing now for the mine.

Yes. So in that -- at the moment in our plan, there is no Fimiston underground material in the current base load plant because there's still obviously exploring drilling, building that out. We have 5 million ounces of inferred material, but we're still drilling out that. And we're trying to make sure that no Fimiston underground or doesn't detract from the activity in the pit, putting small gear into the big gear, the traffic management or any stability or concerns in regard to that. So a lot of the growth comes from Mount Charlotte. We've obviously significantly grown the reserve at Mount Charlotte, with the likelihood of doubling the throughput of Mount Charlotte over the near term. So that's where we see the best opportunity. We've got drill drives at the bottom of Mount Charlotte and all the way through the mine, growing that mine plant out. So that 4 million to 6 million tonnes per annum coming from an underground is the bulk of it in early days is Mount Charlotte. And in time, throughout the life of the asset plan is the contribution of Fimiston underground that starts to be fed into it. It's unlikely that, that mill will ever be fulfilled by primary ore from pits and undergrounds. Therefore, the derisking of it is utilizing the current stockpile. But interestingly, in the current life of asset plans, the current stockpile doesn't materially get depleted with what we're seeing in opportunities to expand from the pit and the underground. So this is -- it's almost the opportunity cost of doing nothing here. We start to see some of that value be pushed out in the life asset plan, which then gets discounted and drops NPV. So each of these cases, including the do nothing, is a strong cash flow case, but each of these cases give us that uplift of IRR in relation to that investment.

So the IRR numbers that you've given, have they just assumed stockpiles to incremental fee? What's been assumed there?

Look, in different cases, they're there. But if I took the 24 million tonnes per annum case, half of that gets fed from your pits and underground, and half of that comes off the stockpile that's currently like, I don't know, we've got 3 million ounces there at about 0.7 grams per tonne. So -- but throughout the life asset plan appreciate as we're moving the waste in the Fimiston South and we've finished the East Wall Remediation, got back into gold and pipe grade in the floor as we're developing and building our underground volumes, year-on-year, this changes. So it's all relative to steady state today, the ability to add up to 200,000 ounces per annum and drive down costs by $200 an ounce is that immediate 10-year impact to a project like this. But every year as new information comes in, as we explore and build out our reserves, we will be continually -- this is not a [ setup for gap ], we'll be continually optimizing the ore sources to maximize cash flows.

Yes. Okay. Understood. And the asset cost-out that you mentioned, you did mention some percentage numbers to components. But what are we looking at on a dollar per tonne basis in terms of the processing cost benefit you're expecting to see?

Yes. Look, so we're sitting up around $20 per tonne. And so we're looking to drive at least $5 a tonne out of that operating -- that milling cost. And there's opportunity to go further. We know mills around the state that can do lower unit cost than that, but we've been quite conservative, and this is refractory circuit. So that's obviously added on flotation, ultrafine grinding activity that happens at the back end of this, but it's essentially targeting a minimum of $5 a tonne reduction.

Okay. And then the rest of the delta is obviously a larger denominator.

Yes, large denominator. So more ounces contributed in increased throughput, a reduction in cost per tonne over every tonne. Steve spoke about, this is yet to iterate through an expanded resource or other efficiencies that drives through the mine plans. But just based on simply economies of scale of a larger kit, lower unit cost saving every tonne that goes through the plant and then the incremental revenues from the subgrade coming through give you the cash flows, which drives that 2- to 5-year payback period in the IRRs towards 30%.

Your next question comes from Mitch Ryan from Jefferies.

Just following up on Kate's question with regards to sort of changes to mine plans potentially. Have changes to the fleet requirements being factored into the CapEx numbers provided? Or will there be requirements for additional fleet?

Look, we've got the new fleet, the new 39 trucks arrived on site. I think the last couple are getting their trades fitted and will, be operational within weeks. We've retained some of our older fleet, perhaps to catch up on some waste movements and increase some of those physicals to ensure that Fimiston South is uncovered and ahead. And that's many ways to address some of those waste movements that have impact in year 6, 7 or 8, just making sure we're ahead of the curve in doing that. So there's no extra capital requirements in regard to material company requirements with regard to fleet. And that new fleet is being commissioned and utilized is also driving down our mining costs, mining unit costs. So yes, this is purely looking at the processing facility infrastructure and everything associated with that. And as that strip ratio reduces over the life of asset plan, our requirement of fleet diminishes as well. So we feel that the contractor use or the extra older fleet is used for this early stage, and it can be parked up as we move through the mine plan in the next couple of years.

With regards to time line, I know you said you provide updates over the course of this financial year. But do you have a formal date for when you expect to release the full feasibility study and/or the FID stage?

No. We don't have a formal date. But all I'd say is we're going as prudently as we can to be accurate and correct. So there's no prize on doing this fast and getting it wrong. It's really important to make sure that the works are -- that we've derisked as much as possible and that we present that to our Board up against where the rest of the assets are operating, where the business is sitting, what our attitude is out in the full environment. All I'd say is we'll keep you updated throughout the next couple of quarters on what we're thinking here. And Steve's team is quite advanced on the next level feasibility stage studies in relation to the 24 million tonne per annum case. So it's really about when that data gets in and gets locked, we can stand back and look at it from that derisked perspective. But at the moment, it's just been complete. So it would be foolish to commit to something that we haven't locked down yet.

And you've clearly talked to -- the IRR hurdle rate is probably one of the primary metrics that you're looking for with regards to greenlighting this. And you talked to derisking the project. But when you look at it and compare and contrast between the 3 expansion studies, does one have a higher risk of impacting production? And how are you accounting for that with regards to your IRR?

Yes. So in all of the cases, other than, say, a stand-alone plant, but then you've got decommissioning issues with the existing plant. The other 2, as Steve highlighted, you basically are building it adjacent to within the existing footprint that's all approved. You can work in and around the existing plant as we're doing at Thunderbox. And then whether it's days of cut over or transition over and then there's a period of ramp-up, that's where the operational disruptions occur. But that's very minimal compared to you're driving cash flow all the way up to you're stepping up. And we'll say this is TBO, we're moving at 3 million tonnes per annum. You'll have a couple of days of moving and switching over to your new circuit. And then essentially, you're up at the -- you're ramping up to that 6 million tonne per annum run rate. So you've got some free capacity and you can work with your stockpiling grades and that assets. So in each of these cases, which is, again, unique to comparable companies' organic opportunities, which is a development project stand-alone and you're in a J-curve spending money until you're into cash flow. This is cash flow all the way through and it is very low disruption to the existing team, and you literally have fences separating the construction crew from the day-to-day operating crew and all of that activity. Project management is managed separately.

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

Just a bit of a follow-up question on costs, because my understanding was the big focus of the study was reducing those unit costs to sort of that sub-$20 level. You sort of set a target of $5. Could you maybe just be a bit clear about which of the projects deliver the better unit cost outcome? And then within that, maybe a comment on recoveries. And is there much of a difference in terms of the upside of recoveries that are delivered from the 3 options?

Sure. So I think Steve had presented on Slide 11, which showed that as you move through those targets, both the '22 full rebuild and the '24 refurbishment kind of cap you out at known optimization and optimized level of cost reduction, so that $200 an ounce of in those 2 cases, very similar, albeit the CapEx associated with the brand-new greenfield plant was materially higher. The 17 million tonne per annum sort of add-on is just doing more of what we're doing there today. So you've got Fimiston, you've got Charlotte, you're kind of adding on another one. You're not reducing your unit cost, you're just getting more throughput of the lower grade material generating cash from that. So it really didn't materially drive down from a lower cost per tonne, but more some overheads carried across all of those tonnes and ounces. So we still just see that to get down into those mid-teens, light-teens on a cost per tonne basis, utilizing -- not wasting infrastructure that sits there and has still got life in it, adding some larger single, simpler format structures and just simplifying the whole logistics, putting some oversight autonomy into the plant, some new tech, gives us the best ability to keep that. And you've seen us do that at each of our plants. So you've seen us do it at Jundee, you've seen us doing it now at Thunderbox, we're obviously doing it at Pogo. All of those plants have had that investment phase subsequent to the geology, the mining and the processing. This is no different to that philosophy, just on a much larger scale.

Okay. And on recoveries?

Look, each of the cases, we have in fact a huge recovery reduction. I think we've said around that 84%, 85% is there. So we still see some opportunity to improve on that. We haven't baked in with flat line of recovery improvement through all of those cases, but we haven't differentiated the one's better than the other. It primarily comes down to grind size and it primarily comes down to after the milling and each of those outperform [indiscernible] and comes back in Carbine, bringing it all back to the centralized flow at Fimiston, creates and simplifies and can improve recoveries. But we're not talking material percent, we're talking maybe 0.5% to 1% overall.

Okay. Maybe moving back to sort of the IRRs and the gold price, which you've given. But can we pin you down a little bit on what you think as a hurdle rate for a project today? And then I guess, holistically, looking at this, this is sort of half the equation, i.e., it's sort of the milling solution for the project. And it sounds like the mining optimization, underground potential and whatever is still coming down the pipe, do you just wait until you've got a whole story before committing to this? So you got both sides of the equation. Is that way to think about it?

Look, I now look at the IRRs of each of these versions, they're compelling enough. And whatever one typically got to do on a pre-feas or a feas is break it, right? So you try to really load it up with all the things that risks in and see if it can withstand and withhold those variances and those sensitivities to all of these things including gold price, cost pressures and the like. So I think what's compelling here is that we can still derive very strong IRRs even on a very risk case. So we don't have -- I'm not saying we've got a minimum hurdle rate that we must achieve, we look at maximizing returns. And Steve is not finished yet with this theme of optimizing the downstream benefits here. One of the key drivers is energy cost into this plant, coupled with the emissions reduction plans, driving unit cost and power down, are key to the economics of this and that can improve IRR. So their key inputs and elements are still need to be fed back through the plant.

Okay. And then maybe just last one. I mean if it sounds like the 24 million tonnes is currently looking as the sort of preferred option. I mean that capital intensity looks very attractive at sort of circa $40 -- or $40 million per tonne of capacity. There's a benchmark to industry norms, but this is obviously not a greenfield project. But is there any color you can give us on what you've done here, maybe a little bit different, maybe a little bit outside the box that has kept that capital intensity so low. And then what's the sort of the effective date for that estimate? Is it sort of already a couple of months' old given that things are moving pretty quick it appears?

Look, I might throw it to Steve just to give you, again, confidence on how advanced we are and how close we are on some of those numbers. But yes, Steve, if you can just give greater detail on that.

Yes. We've -- these numbers are from a little while ago, as you said, but we've retested them within the feasibility, and nothing's jumping out or surprising us as we go through that. What we've basically done is we've taken, as we said in the presentation, tried and tested. So if you take that 24 million tonne option, for instance, we take the existing sale. We put alongside the Thunderbox copy, so we do exactly the same we've done at Thunderbox. We learned from what we've done at Thunderbox box. We have common components. We have savings in that space. And then when you go through to ball mill, we've looked at people around the world that have used that scale mill. And in this instance, we benchmarked one, particularly in Panama, and we've looked at what was right with that, what was wrong with that and made it a bit longer optimized, and that has helped with some of the cost savings, et cetera. But the biggest driver in the cost savings is, as we start to look at recoveries, as we basically get closer on contingency as we can define and lock in capital components, et cetera. And then mostly importantly, as we bring all of those operating costs down and get energy down, we then apply that back across the mining, and that's where the real potential and the start of the iterations. So the intent of my team is to make this a compelling case that the Board would be capable of accepting and taking forward. And then at the same time, in parallel, we are running all the mining studies, et cetera, doing the work. And our geology team is looking at improved drilling efficiency from underground platforms and stuff like that. And we start to unlock the next journey in this beautiful deposit that's been running for over 128 years now.

Your next question comes from Peter O'Connor with Shaw and Partners.

Hey, Stu, Steve and Ryan, a clarification is due firstly. So the feasibility study is taking 3 options, yes?

We're going to push the feasibility forward on the 24 million tonne per annum, 70% refurbishment option. So the pre-feas is these 3 options, and in our view, at the moment, is to advance the 24 million tonne per annum option.

Okay. Great. And then a couple of intensity questions. So just circle back to that $1 billion, 24 million tonnes, $20 a tonne milling cost. And Steve's answer was that you did that a while ago, but you're happy with it today. And then you talked earlier in the call about a 40% change in some of the capital inflation pressures compared to Thunderbox. So does that mean I should inflate that $1 billion by 40%? Or is that $1 billion already inflated by 40%? Or how do I think about that?

The way to think about that is we have inflated that to those known numbers, and the exact example we'll give is that same identical mill a year ago that would be fitted into this is 40% more and is twice the lead time. So until you put that order and you lock it in, yes, it can still move, but the pricing and the numbers we've applied is the commitments that have been given to us in relation to the things, how they've moved. So the question comes is, do you think it will have a drop? Do you think it could be cheaper? No, you should not escalate the numbers that are in here. We believe they have 20% contingency in them already, and they are as up-to-date as we have with all the knowledge that we're currently doing this with the teams that are able to deliver this. So Steve's job now is to get his team to really advance and pin down those long lead items and get some security around what the variances are, such that we can at least present it in a case that can be considered against all other options in the business.

And just circling back to my other question about the CapEx since you got, call it, $1 billion for the 24 million tonne case. That just is milling -- footprint milling capacity. It's got nothing to do with the mine. So on that slide that Kate talked about with the underground open cut expansions required to feed, there is no CapEx for fleet/anything in the open cut outside of the mill.

So if you recall, there is already significant CapEx being invested into the waste stripping to the Fimiston South. So all of our material movements are 65 million tonnes, taking up to 80 million or 100 million tonnes per annum is largely that multiyear project of waste stripping to Fimiston South to liberate the millions of ounce of new added reserves there. Then the East Wall Remediation being -- getting access back to the top pipe floor, there will be -- there's CapEx associated with that expanding the Mount Charlotte underground. What's not in it is underground -- Fimiston underground. That is 5 million-ounce of inferred resource there that's still being discovered and explored. So the baseline plan with all of the pit, the 30 million tonne per annum existing plant utilizing stockpiles, is already in the marketing guidance in capital, and it's multi-years to build out that 650,000 ounces a year by FY '26. So this is a stand-alone plant, that $50 of standalone plant in regard to doing that, and you could do nothing more than just feed more stockpiles. Before you can accelerate, so during the existing plan, as we get down into Golden Pike and we get to the Morrisons and Fimiston South, we would be stockpiling or we could be filling more of that primary ore to get the ounce profile. So it allows us to actually bring in more and more direct floor into that plant. So there's no -- at this stage, there's no addition to any capital or required to change mining volumes, and it's because of the low-grade stockpile already cash sunk, sitting there adjacent to the existing mill that can be basically rehandled and filled to that now.

But does that mean you've got lazy capital now? You've -- basically on Slide 12, you've got 4 million and 6 million and 1 million and 2 million tonnes on ground open cut. So 5 million to 8 million tonnes of material to be moved to the mill, and that will become 6 million to 8 million and 4 million to 6 million, so around 10 million to 14 million. Are you grossly overcapacity and overcapitalized at the moment? Or do you just -- did that ahead of what you expected to do anyway?

No. So the key thing is that the primary movement of the amount is waste to get the lid off the South to open up those resources and the East Wall Remediation...

Okay. That's total material, I should think about it as -- okay, I got it.

I mean in that blend -- at any point in time, the waste is removed and we can get direct ore from Golden Pike from Mount Charlotte expanded and Fimiston South. You can fill up your 30 million tonne per annum capacity plant with primary ore and get a significant uplift in ounce profile. Whether it's staying throughout the life of mine plan is the question, but what we're saying is this allows us to be 200,000 -- up to 200,000 ounces above that baseload plan and drive the unit cost of all of those ounces down by 200,000 ounces.

Perfect. I know you asked for the study duration, et cetera, the cost of the study. And also based on that slide, should I -- and comparable feasibility, should I think about a year as a guide broadly?

Look, we're appreciating that as time goes by, pricing stales. So my view is within the quarters, we want to be on point with what's to be derisked and what the same time line and commitments are. The cost for the study, look, we think we budgeted a couple of million bucks in there, Steve, at the moment on some of the general resources that are in there. As you start moving into securing longer lead items, you're having deposits down on things to secure build advantage, et cetera, which we did -- if you go back to Thunderbox, we do that early in anticipation that we're going to move ahead of that deposit on -- that's on [indiscernible]. And we will keep the market fully informed and up-to-date with our thinking in this regard, in regard to derisking the plan and when our commitments are made in those regards.

There are no further questions from the teleconference at this time. I'll now hand over to Sophie Spartalis, Investor Relations, for questions from the webcast.

Thank you. The first question we have is from Paul Phillips at UniSuper. Are there any potential constraints or impacts to increasing throughput of the current plant ahead of completing a full expansion option?

Sorry. Just on constraints to existing 13 million tonne per annum, is it...

Yes. Could we potentially increase the throughput of the current plant ahead of undergoing any expansion option?

No. So you've seen us -- I guess you picked it up a bit over 12 million tonnes per annum capacity and has worked hard to get stability through the mills and to optimize the feed and all that. So yes, currently, we've struggled to get beyond 13 million without adding hardware. So we feel that, that's pretty well capped out.

Okay. Thank you. The next question is, can you provide a sense of the dollar per tonne reduction in processing costs for the 24 million tonne case? And if you proceed, will it change the grade production profile out to first production from the expansion?

So it won't change the grade. So the mining plan is we'll be keeping the same mine plan, it's the 13 million tonne per annum capacity as we acquire. We're not going to save -- stockpile different material preferentially do anything different. So that will be business as usual throughout that period. We're targeting at least $5 a tonne reduction on expanded plant from today's 13 million tonnes to a 24 million tonne per annum plant and a lot of feasibility goes into securing that, that is achievable as a minimum to underpin the base case here. So yes, that's what drives the payback.

Okay. And the final question we have from the web is around water demand. Can you walk through the demand on an expanded option, particularly for the 24 million tonne case? And also any comments on the permitting processing required for the expanded options.

Yes. Steve, do you want to pick those up?

Yes, from a water point of view, the big differences between what we currently do and what we're doing, the expanded 24 million tonne cases, we're actually ticking the tails. And that means we get a lot higher return of water back into the plant and reuse. The other stage of what we're doing very importantly is we're trying to actually minimize our use of quality water and basically have multiple grades. So we will have numerous grades of water and use them as applicable through the plant. So we make sure we minimize particularly part of the water, but we try and use the least quality water we require or the least treated water for its applicable use. That's the main driver for water at the pre-feas. And in the feas, we look to take that to the next level and say how do we increase that reuse and push into there. In terms of the permitting, the permitting is important in the 24 million tonne case that we are fitting the expanded or 70% new within the approved footprint. And the work required as part of the open pit expansion and stuff is independently underway with this. And some of our commitments have been made strategically to make sure we stay within our existing limits. So things like emissions, et cetera, we keep them net zero to make sure we stay under our current limits, and we commit to that future. So our greenhouse gas management plans, et cetera, will form part of that approval, but we're not asking for more.

Thank you. That concludes the questions from the web. I will hand it back to the operator.

Thanks, Sophie. So I'm looking -- closing on questions. I appreciate everyone's attention today. I'm super pleased with what we've presented. We said we would give you an update by now. And in my view, the returns that are available to us in each of these options are very compelling to keep doing more work. So we're very fortunate to have this cornerstone asset by KCGM, and certainly have organic investment options like this that underpin those significant shareholder return that we keep delivering. So again, I look forward to keeping you updated with the study findings in due course. Thanks very much, and have a great day.