Northern Star Resources Limited (OTCPK:NESRF) Q4 2022 Earnings Conference Call August 28, 2022 7:00 PM ET
Company Participants
Stuart Tonkin – CEO
Ryan Gurner – CFO
Conference Call Participants
Levi Spry – UBS
Daniel Morgan – Barrenjoey
Matt Greene – Credit Suisse
Peter O’Connor – Shaw and Partners
Al Harvey – JPMorgan
Stuart Tonkin
Good morning, and thanks for joining our FY ’22 full year financial results presentation. With me on the call is Chief Financial Officer, Ryan Gurner, who will shortly present the financial highlights of what has been a transformational year for Northern Star as we report the first full year as a merged business.
We’ve got the presentation up there today on Slide 3, we’ll start. You’ll see throughout this update our purpose of generating superior returns for shareholders’ has been enhanced. Despite the challenges, the resources sector currently faces with cost pressure, labor constraints and carbon intensity, Northern Star continues to build from strength-to-strength as seen in the results today.
This is achieved through our deliberate and simplified portfolio of 3 large-scale production centers into Tier 1 jurisdictions producing one commodity, gold. The strength of this strategy is demonstrated in our operational and financial performance, and I’d now like to hand to Ryan to discuss.
Ryan Gurner
Great, Stuart. Thanks, and morning, all. It gives me great pleasure to present to you our financial results for the year ended 30 June 2022. I will be referring to the slides in our presentation and release this morning. So firstly, to Page 4, which provides an overview of the key financial highlights achieved during the year with record cash earnings of $1 billion, which represents the company’s strong sustaining free cash generation, record underlying EBITDA of $1.5 billion, which is up 31% from the prior year.
A final dividend of $0.115 per share fully franked, up 21% from the prior year final dividend. This takes our total declared to $0.215 per share for the full year. In addition to the final dividend, today, the company announced its intention to buy back up to $300 million worth of shares over the next 12 months. The company has made a statutory profit after tax of $430 million. When adjusting for abnormal items post tax of $157 million, which are set out in the appendix on Page 18 and largely relate to divestments during the year, the company made an underlying profit of $273 million.
And finally, we remain well positioned to deliver on our near-term profitable growth profile with our strong balance sheet, which includes $628 million in cash and bullion at 30 June.
Turning to Page 5. I’m really proud of our team for delivering our FY ’22 guidance in a year that has seen extraordinary challenges. Gold sold was 1.56 million ounces at all-in sustaining cost of $16.33 per ounce. We are 1 year into our 5-year profitable growth strategy. And as you can see, it was a busy year across our 3 production centers.
Now to Page 6, which highlights the significant cash generated by, the business during the year with $477 million of group underlying free cash flow, up 33% from the prior year. The waterfall chart on the left illustrates the contribution from each production center to the group’s cash earnings for the year.
Cash earnings for each production center is represented by the EBITDA generated minus the sustaining capital spend at that center. Corporate technical and exploration labor costs are deducted as is net interest costs of $4 million and tax paid during the year in respect of FY ’22, which amounted to $79 million.
The $1 billion of residual capital, which is cash earnings, is available to deploy to shareholders, growth-related investments, which meet our hurdle rates and balance sheet management. Pleasingly, all production centers contributed well with Kalgoorlie, our largest center comprising 61% of the group’s cash earnings for the year.
We expect the mill commissioning at Thunderbox, which is planned for the first half of FY ’23 and the additional investment undertaken at Pogo during FY ’22 will translate into significantly higher percentage contributions to group cash earnings in FY ’23 for the Yandal and Pogo production centers.
I’d like to point out a fulsome reconciliation of statutory NPAT to underlying EBITDA and then the cash earnings has been provided in the appendix to the presentation on Page 19.
Now to Page 7 which highlights EBITDA margins achieved for the group in each production center over the year. All 3 production centers performed strongly and achieved healthy EBITDA margins. Pleasingly, and as illustrated by the column chart, contributions for all production centers were able to be held or better in the second half of the year despite the cost pressures experienced, reflecting the resilience of the business and the ability to adapt to the conditions.
Notably, Pogo’s second half performance, lifting its EBITDA margin from 21% to 39% was achieved from higher physicals and productivity on the back of the capital investment undertaken in the first half of the year. Our operations in Kalgoorlie continued to be a significant contributor, delivering 54% of EBITDA contribution, followed by Yandal at 36%.
Over to Page 8, now. The company’s scale asset optionality and investment decisions are providing flexibility to navigate and excel in current challenging environment, including on the mining front, the successful commissioning of new open pit fleet at KCGM is helping to offset increases in fuel prices and reduced overall unit costs.
Lower fuel burn rate and greater ramp speeds are improving cycle times and productivity along with reduced maintenance costs and material reduction in old burn rates compared to the old fleet. This investment is an important pillar of our strategy as KCGM increases material movement to 80 million to 100 million tonne per annum by FY ’26.
Operational flexibility at Kalgoorlie Production Center has ensured a seamless transition of the processing facility at South Kalgoorlie to care and maintenance with old fleet now directed to Kanowna Belle and KCGM. The optionality in the portfolio will result in a $20 million increase to free cash flow this year through reductions in sustaining CapEx and TSF works.
In the current environment, flexibility and scale is advantageous. And we continue to apply a sharp focus and drive cost savings initiatives by leveraging our large supply chain and relationships with suppliers to source lowest cost items and receive best terms.
These include extending terms from strategic partnerships to new operations. Some of the cost-saving initiatives we are reviewing include reduction of potable water usage at KCGM, reviewing fuel options for power generation and recycled grinding meter used at KCGM to supply other operations.
We go to Slide or Page 9 now. The company continues its demonstrated history of returning funds to shareholders by today announcing a final fully franked dividend of $0.115 per share, totaling $134 million. This takes the total dividend for FY ’22 to $0.215 per share, being 25% of FY ’22 cash earnings, which aligns to the midpoint of the company’s payout ratio of 20% to 30% payout.
Post payment of this dividend, the company will have returned over $1 billion in dividends to shareholders. The record date for the final dividend is 7th of September and payment date of 29th of September.
Page 10 now. This highlights the key elements of our capital management framework to maximize shareholder returns, including allocation, the importance of our balance sheet and risk management. Our business has always employed capital prudently to where the best returns can be generated.
In addition to the fleet investment, FY ’22 has seen great inroads into our multiyear profitable growth strategy across all operations. Our returned-focused mindset has seen the company manage its portfolio by divesting assets during FY ’22 not required for delivering our strategy. Our balance sheet remains in great shape and support our strategy.
At 30 June, we had $1.5 billion in liquidity, with cash and bullion at $628 million and access to $900 million in undrawn bank facilities. At 30 June, we remained net cash with corporate bank debt of $100 million in equipment finance of $271 million. Overall, our cost of debt remained below 3%.
Today, the company announced its intention to undertake an on-market share buyback of up to $300 million over the next 12 months in recognition of the confidence in our outlook. And we maintain a sensible approach to risk management with 20% of the next 3 years of forecast production hedged above $2,550 per ounce.
And finally, Page 11, which presents our FY ’23 guidance, given at our Q4 call last month. Please note; we have provided additional guidance in relation to D&A per ounce and the group’s effective tax rate for FY ’23. Thanks very much, guys. I’ll hand back to Stuart to cover off the final part of the presentation.
Stuart Tonkin
Thanks, Ryan. So on Slide 12, you can see our profitable organic growth strategy planned all the way through FY ’26. And we’ve made significant progress in FY ’22 at each of the production centers with KCGM moving 56 million tonnes per annum and the new fleet delivered now growing these volumes.
At Thunderbox, as Ryan said, the mill has been expanded. It’s 99% complete and in the final commissioning phases’ to ramp throughput during the first half of FY ’23 to 60 million tonnes per annum. And Pogo is now focused on growing mining volumes for increased stooping to fill the expanded 1.3 million tonne per plant with all development on track.
On Slide 13, we maintained a significant mineral resource base above 56 million ounces with reserves above 20 million ounces. And we have a very effective exploration programs with this year’s budget of $125 million committed across our high-quality geological systems to replace and grow our mine life.
On Slide 14, it shows our visibility to implement renewables projects across each of our assets to reduce our carbon footprint. We have commenced planning of these projects to enable a 35% reduction in Scope 1 and 2 carbon emissions by 2030 and a net 0 target by 2050.
Slide 15 shows the publications we are proud to have reported on today, with our annual report and our sustainability report providing visibility and transparency on all of our business activity in FY ’22.
And I thank the team that produced the actuals and physicals and the teams that produced the documents is amount of work that’s gone into all of these publications, we’re very proud to publish them today.
So now I’d like to pass back to the moderator for Q&A. Thank you.
Question-and-Answer Session
Operator
[Operator Instructions] The first question today comes from Levi Spry from UBS.
Levi Spry
Nice results. I guess the main question is just around the buyback and maybe you could share with us how you came to the quantum and things you considered, things in your control, things outside your control and how you weighed up against some of your growth projects?
Stuart Tonkin
Thanks, Levi. Yes, absolutely. We’re still obviously the second year now into our 5-year profitable growth plan. So that organic growth takes as we know that that growth capital this year is $650 million. So we weighed up against our dividend policy, which is unchanged, so that sits about 20% to 30% of cash earnings.
For the full year, that’s $250 million declared now. And when we look at our forecast cash flow, we see feeding our organic growth. We see our dividend being maintained and growing. And with outlook, we see surplus cash. So this is one way to effectively return cash to shareholders through, so the buyback, $300 million over 12 months. When we see where we believe value is that, we see a very effective way to increase or to share for shareholders.
Operator
The next question comes from Daniel Morgan from Barrenjoey.
Daniel Morgan
Stuart and team, I note that in the release in some of your comments, you talked about taking some of the surplus equipment at Pogo out, which you were putting in the — get on top of development rates for deliverability of your plan. So what — can you just go through what has changed presumably productivity is a lot better? And does this have implications for your cost and capital guidance?
Stuart Tonkin
Yes. Sure. So if you recall, so to catch-up on the first or second half of ’22, we added a jumbo to really pick up the development meters. And our exit rate of FY ’22, we’re above 800 meters, per month. So we’ve pulled out a jumbo load of truck, parked them up. So we still got 7 — sorry, at 7 jumbos, about 6 and really just reducing overall cost because our saturated Pogo in the second half of ’22 to get those physicals in place.
And now we’ve demonstrated the physicals and we’re working on reducing the cost base, so starting with the fleet and the people being redeployed. We’re already working with a lot of vacancy there. But Pogo at the moment is really about getting the cost and productivity stabilized.
Daniel Morgan
And in your comments, I think you also outlined the Thunderbox that you’re entering the commissioning phase for the expansion. Can you just talk about when that started and progress? And how long you expect that to take and ramp up?
Stuart Tonkin
Yes. So it’s the period we’re presently still running through a 3 million tonnes per annum. And we are literally at the final point at the moment the dry commissioning things and getting anything energized to power up and turn that mill. We’re going to re-commission it and then we’ve been trying to bring the 6 million tonne per annum online. So that’s happening literally in the coming weeks.
It doesn’t mean that it’s full noise straight at the gate. So it’s really that early stages’ of just testing and rolling all of the engineering designs. And again, credit the team on site and congrats for doing a fantastic job to getting it on time, on budget, very impressive installation.
And we’re looking forward to its success over the next few weeks.
Daniel Morgan
And do you feel you’ve got sufficient ore available to keep the thing for once it ramps up, like how the mining piece going to fill that mill?
Stuart Tonkin
Absolutely. So the underground is really performing well. Obviously, that came into commercial production in ’22. We also have large stockpiles to feed this expanded case. So the capital being spent this year is really on the — really a pre-strip. So that will be feeding in FY ’24. But we have ample stockpiles and feed from the Thunderbox mine open pit and the underground.
Daniel Morgan
And last question, I mean, you’ve outlined the shut schedule at the KCGM mill this year. Just how substantial are these shuts and how we should think about ultimately throughput or production impacts?
Stuart Tonkin
Yes. So it’s normal business. But I guess what we’re trying to give is visibility that our guidance for FY ‘23 is in a straight line. We obviously have swings around about as per our schedule site, the early shutdowns across mills in quarter 1. It’s just typical as planned. But it does have those spikes and troughs throughout the year. So bear with us. We’ve given full year guidance. And we’re confident we can deliver into that.
Operator
The next question comes from Matt Greene from Credit Suisse.
Matt Greene
You’ve answered some of my questions on the results. So I want to turn to KCGM and the medium-term outlook there and more around just I guess, the CapEx requirements.
If I take a look at the slide with the presentation, thanks for providing the strip profile there. That gives us some context around the open pit CapEx profile. We know what the mill expansion will cost if you go ahead of that. So my question is just really around the underground development. You’ve stated in the past, if I recall that you wanted to get Mount Charlotte back to 2.5 million tonnes by FY ’25.
But I noticed in that presentation that, it’s showing you’re getting closer to 3 million tonnes and then increasing from there. So you just please provide some color on what you need to do to achieve this? Is this just the case of developing enough mining areas? Or are you also required to upgrade any infrastructure to support those volumes?
Stuart Tonkin
Yes. So you’ll see from that presentation, the slide presentation, where it gives Mount Charlotte has a potential actually got 4 million tonnes per annum. And we’ve mapped out with the expanded resource and confidence of what we’re drilling out at it below low 31 level that there’s a huge opportunity to grow the volumes there.
What that does do is take some pressure off activity across the rest of the operations at KCGM as we can put in that higher-grade underground fleet, so it really takes out a view and it’s beyond FY ’26 because it was around our view of when the Fimiston underground would come into the play. We’re basically saying we could expand and grow Charlotte to displace that. So yes, there’s no major capital assigned to that.
But when capital comes in, it will come commensurate with the grade of underground. And it will likely feed into a view on an expanded Fimiston feasibility. So if we were to make a large-scale, low-cost cave type arrangement in Fimiston, it certainly has CapEx with it.
But with that comes the grade, the ounces, the uplift, and then that gets feed to an expanded plant case. So those things are being iterated at the moment. We’ll still need all of 6 months or so to evaluate what they look like. So that will be publishing a good time.
Matt Greene
Okay. Just to confirm that 4 million tonnes at Mount Charlotte; does that, are you relying on the haulage shaft to get that volume or we can do that through the decline?
Stuart Tonkin
No, the haulage shaft only — well, it’s decommissioned from a haulage perspective. It only has a bit over 1 million tonnes when it was commissioned. So this will be reliant on trucking. And currently, it trucks out to the — its northern end of the super pit and gets picked up by the big trucks and delivered to the mill.
So if you got to look at our sustaining CapEx embedded in those costs, it can be around $300, $350 an ounce. That’s the sustaining CapEx that feeds the development extension. We don’t have to have big structural changes across the mine to do an-uplift in production.
We’ve already put in some power and vent upgrades throughout Mount Charlotte. So there’s certainly some growth CapEx assigned to it, but it’s far — not 10,000, 20,000.
Matt Greene
Okay. And Stuart, you did touch it on the Fimiston underground, and I appreciate you’re still conducting your study were concepts. But I guess if you just take a step back, how do you see this potentially developing? Are you looking at, say, perhaps a more selective stopping operation that leverages off those exploration declines you’ve got in place to start with and then potentially a bulk of extraction method sort of towards the back end of the decade. What’s your sort of thinking here? Any sort of color on that would be great.
Stuart Tonkin
Yes, so all of the drill drives that we excavate, we typically – we created them as a truck rolled way and they can have dual purpose. So they’re ready to be utilized as infrastructure for future production. So I guess plenty for success.
So the 31 level, all those things at the bottom Charlotte, the extension of the ore body is there. And it was cut off on a gold price was about $400 an ounce when it closed 20-odd years ago. So our view is around the big bulk, lower cost per tonne mining methods.
And if – so it’s not selective mining, it will be big but low cost, ultimately, then that feeds into the expanded mill case. So if it wasn’t that being selective, trying to target 4 or 5 grams and fill it into the mill would be a target, but the overall value driver for that that significant gold mill is getting every ounce at the best margin.
So it typically would be a 2 or a sub-2 gram underground, but at very low cost per tonne. So these things take longer to evaluate and assess to build up. So the Fimiston we’ve added 5 million ounces of inferred resource for the Fimiston. We see that growing significantly. We’re drilling it actively at the moment. So we just need that runway to plan it.
Operator
[Operator Instructions] The next question comes from Peter O’Connor from Shaw and Partners.
Peter O’Connor
So, just to follow up on the Thunderbox, ramp-up profile was hardly talked about it starting in the next few weeks, and it’s obviously going to take time to ramp up. How should we think about the profile in this half and also for the full year FY ’23 for that mill?
Stuart Tonkin
Yes. So it’s second half weighted. So we’ve guided for the Yandal region. We’ve guided 480,000 to 520,000 ounces. And you appreciate that Dundee sort of sit static at that 300,000 ounces. So it’s really the growth coming from the expanded mill.
We have allowed buffer. We’ve allowed shutdowns and interruptions this half. So I know you’ve run bank this already, they start next week. We’re giving us this full first half to even put lower grade material pit through while we’re ramping it up and stabilizing recoveries and the like. So our guidance basically said 480,000 to 528,000 at Yandal for the full year and the second half weighted.
So as we know, when you turn things on, it’s all great in theory until you practically turn it on. We’ve got that built into our guidance.
Peter O’Connor
Okay. We’re 2 months each into the current fiscal year. We ask you these questions; I’ve like to asked back on the last call about the expansion of the mill and inflation, both CapEx and OpEx.
And we’ve had lots of calls in the last week or 2, we had lots of questions, but I like to talk to see where things are tracking. Just want to get a sense for how you’re seeing inflation from an operating perspective for the first couple of months of this year? Are they higher or lower, same? And also from the CapEx, we had a call and fire somebody noted that CapEx pressures were actually coming down and I was wondering how you’re seeing that and also in Australia versus Alaska breakup? Is that much different between the 2?
Stuart Tonkin
Yes. So I mean, you obviously saw our guidance, our interesting cost guidance lifted for FY ’23. So that’s $16.30 to $16.90 is inclusive of all of our visibility on our current escalator pricing, which is, again, not where we want it to be, but it’s reality. I haven’t seen it materially come off. But I’ve seen our operations team come up with lots of great ideas to reuse, reduce, remove costs out of the business.
So we’re still seeing on the retendering of materials or service contracts, request for increases. We’re just making sure that that’s not embedded over multiple years. It’s only recognizing costs that are up at the moment. So I haven’t seen it come off and the comment on CapEx, I recon that’s probably because people are turning projects off.
And therefore, everyone may be understanding that you both price up too much, but nothing happens. But we haven’t seen that CapEx savings come through yet so most of our CapEx is driven by physically moving waste at Super Pit. All of the long lead items, it’s related to kind of steel or services around work is contracted and understood.
But when we’re looking at things like the Fimiston feasibility, there’s still unless you’re locking in and committing to long lead items at the moment. There’s still rubbery flex on CapEx. So we’re very conscious of that at the moment. So I haven’t seen us come off the other side of the hill yet.
And the difference, sorry, you asked again, between North America and Australia. There’s just a few options in Alaska on supply chain. So you have to work really closely with the current providers to find savings. So you can’t just switch to a different use.
So yes, we’re working very closely with them. And there’s also a lot of activity happening across the U.S. that attracts labor to their operations as well.
Peter O’Connor
To the buyback, I thought the board kind have done a great year and a great done, very well done. And Ryan made the comment about it reflects the confidence in the outlook.
Can you link that back to confidence in the share price or where you’re at — is it a confidence on the outlook or is it a reflection of your value or both?
Stuart Tonkin
Absolutely, Ryan can answer the confidence in the forward view of cash flow generation. So we do see all — we can fund all of our activity and build cash. So that’s one way to return that cash to shareholders. But absolutely through the lens of how we value company NAV versus share price means that this is a very effective way to return value to shareholders.
Peter O’Connor
And the flex in buyback versus shares, is that a franking issue related? Or is it again — is it back to the value of the shares versus the dividend potential or how did you come to — to leave those questions that the balance between the 2, other than the payout ratio driven another side?
Stuart Tonkin
Well, we have a dividend policy that we maintain, but when we look at the buyback, it’s value.
Operator
The next question comes from Al Harvey from JPMorgan.
Al Harvey
Just wanted to touch on Slide 12 in the park. Scott mentioned there that you’re looking at 3 to 5 production centers. I don’t think that’s changed. But I just want to get an understanding of if that is over the next — if you think about that over a 5-year time frame, is it rolling? And I guess given the $300 million buyback you’ve announced today, does that kind of indicate that there’s not many appealing opportunities out there from an inorganic acquisition perspective?
Stuart Tonkin
Good way to look at it. So yes, all of our focus at the moment is on our organic growth and delivery of this profitable growth plan. Ultimately, we’re saying by the end of that plan or what’s a really strong sustaining business for us with our team and everything we know that that 3 to 5 asset base means that there is opportunity to acquire a follow through of 5% over that period or even beyond that. We don’t have to. We can materially grow the ones we have presently to deliver into that.
But that’s what leads into that 1.8 million to 2.2 million ounce range. So basically, if you’re noting that fourth of 50, probably at the lower end of that ounce production profile because there’s just so few assets that sit above 300-plus-thousand ounces globally or in the Tier 1 jurisdictions that we operate. So don’t read into that, but we’re active M&A.
We’re not – we always look at things, but most compelling options are organic. And as you just highlighted, the buyback at the moment is one of the most compelling value opportunities for us, and we’re taking advantage of that.
Operator
At this time, we’re showing no further questions. I’ll hand the conference back to Mr. Tonkin for any closing remarks.
Stuart Tonkin
Excellent. Thank you very much, and thanks, everyone, for joining on the call today. It’s clear that our strategy is delivering strong returns as demonstrated in our financials and the balance sheet strength. I look forward to continuing to update you on our progress. Thank you, and good morning.
Be the first to comment