Jan 19, 2022
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Presentation
Operator
00:06 Thank you for standing by and welcome to the Northern Star December 2021 Quarterly Results Call. All participants are in a listen-only mode.
There will be a presentation followed by a question-and-answer session. .
00:26 I would now like to hand over the conference over to Mr. Stuart Tonkin, Managing Director.
Please go ahead.
Stuart Tonkin
00:34 Good morning all and thanks for joining us. With me today is Chief Operating Officer of Australian Operations, Simon Jessop; and Chief Financial Officer, Ryan Gurner.
I'm pleased to report quarter 2 gold production with 392,000 ounces at an all-in sustaining costs of A$1,631 an ounce. And with an outlook of stronger second half of FY '22, we maintain a full year guidance for production and costs.
I'd like to acknowledge the efforts of our team to continue to improve that great safety performance and maintain the precautions necessary to mitigate the impacts of COVID on the health of our employees and communities. 01:11 We continue to implement these controls and out prior learnings in the phase of the WA border relaxation.
We are well prepared, but the extent to any operational impact remains largely unknown. Simon will speak to the Australian operations that are performing well, and -- which underpin significant organic growth in near term.
01:29 In North America, our Pogo operation delivered a similar quarter to quarter one, and it's pleasing to see the development physicals meeting the desired level to build additional production products. The Pogo operation remains mine constrained and so we maintained 1,500 meters a month to build more stope production stocks to deliver 1.3 million tonnes per annum to the mill.
01:51 In the near term, we have supplemented mill trade with lower grade development ore, which impacts the average grade and recoveries. The focus of Pogo for two remains on building mine volumes through increased development and lifting the production contribution from higher grade stoping activity.
02:09 For the group financials, during the quarter we delivered strong cash earnings with the half one results estimated at A$425 million to A$440 million. Our dividend policy targets 20% to 30% of this cash earnings metric.
We maintain a net cash position of A$288 million after our organic growth investments, the exploration and the acquisition of Newmont power, as well as the convertible funding agreement with Osisko Mining. We retain a very strong balance sheet to fund our growth and our organic growth activity.
02:43 During the March quarter, we will publish a sustainability report providing important ESG disclosures and highlighting the significant positive contribution that was to our communities, the environment and the economy. The gold price remains very strong, above $1,800 and A$2,500 providing strong operational cash flows to Northern Star to meet our business first strategy with profitable growth of 2 million ounces from a centrified assets base.
03:11 I would now like to pass to Simon to cover the Australian operations.
Simon Jessop
03:15 Thank you, Stuart. For the Kalgoorlie production center, including KCGM, Carosue Dam, Kanowna Belle and South Kalgoorlie, we sold 245,000 ounces of gold at an Australian all-in-sustaining cost of A$1,538 an ounce, up 5% on gold from the September quarter.
This production produced a mine operating cash flow of A$239 million and we spent A$51 million of significant growth capital projects. Of this major growth capital total A$26 million was spent on open-pit mine development at KCGM.
03:55 Specifically at KCGM, open pit material movement was lower than the September quarter at 15.3 million tonnes with a focus on the longer holes from Golden Pike and the base of the pit. Currently we have 12 of the new open-pit mining trucks 793F Class successfully commissioned or approximately 30% of the replacement program.
We are already seeing improved tonnes per annum and lower diesel burn per tonne for the new fleet. And we really look forward to having the entire fleet on site to commence further optimization.
04:34 Underground mining for the Kalgoorlie region, again delivered 1.6 million tonnes at a slightly lower average grade of 2.5 grams a tonne for 126,000 ounces. Carosue Dam increased mine tonnes by 16% to 685,000 tonnes, while the Kalgoorlie operations continue targeting the bulk areas at Kanowna Belle and continue to develop the HBJ underground mine.
05:01 KCGM processing volume was 3.5 million tonnes for the quarter with shortest shutdown durations and improved SAG mill utilization for higher throughput rates. Head grade also increased with planned delivery from Golden Pike delivering at 0.2 grams per tonne lift.
Free milling ore from KCGM's Mt Charlotte operation is now being processed at Kanowna Belle and the South Kalgoorlie plants, freeing up capacity at KCGM for the previously stockpiled high marginal ore. 05:36 Carosue Dam set a new processing record of 1.03 million tonnes for the quarter and has milled an impressive 2 million tonnes for the December half.
The plant continues to perform at 25% above D Zone and is operating at an annualized 4 million tonne per annum right providing opportunities. 05:59 At Yandal production center including Jundee, Thunderbox and Bronzewing, we sold 102,000 ounces of gold at an Australian all-in-sustaining cost of A$1,518 an ounce, which produced a mine operating cash flow of A$76 million, while we spent A$77 million on significant growth capital projects.
The Thunderbox mill expansion itself spent A$47 million of major growth capital during the quarter. 06:30 At Jundee, operation continued with another strong underground performance for breaking the recently set development record with a new one at 6.8 kilometers for the quarter.
This development will provide long-term drill platforms and the ability to access future ore areas earlier. The open pit of Julius as part of Jundee’s satellite ore feet mined an impressive 24,000 ounces of gold in the quarter.
Jundee also completed and commissioned the thickness of the processing plant, which will reduce water by 30%, plus their installed stockpile capacity. Both of these projects have significant environmental improvements which are now completed.
07:17 Our Thunderbox operation continues to invest in the pre-strip of design as the pit reaches the top of the mine ore zone with 23,000 ounces mined in the quarter. The underground improved mined ore tonnes of 44% quarter-on-quarter to 416,000 tonnes for the December quarter.
The mine will continue to ramp-up to greater than 2 million tonnes per annum as largest stopes come online primarily in the (ph) area. 07:49 The Thunderbox mill expansion project saw significant progress completed in the December quarter and we're sitting at now 60% of the project complete and remains on track for commissioning in H1 of FY '23.
We continue to be pleased with the progress of this material growth project as a key project of Northern Stars growth strategy. 08:12 I would now like to pass to Ryan to discuss the financials.
Ryan Gurner
08:20 Thanks, Simon. And good morning all.
As demonstrated in today's quarterly results, Northern Star remains in a very robust financial position entering the second half of FY '22. As set out in table 4 on page 7, at 31 December our balance sheet is strong with cash and bullion of A$588 million.
The company has recorded strong cash earnings for the first half of FY '22 which is estimated to be in the range of A$425 million to A$440 million. And a reminder that our dividend policy is based on 20% to 30% of cash earnings.
09:01 As mentioned, during the quarter the company completed the acquisition of the power business from Newmont making a balance payment of $70 million and a funding agreement with Osisko Mining through a convertible debenture totaling C$154 million. After funding both of these acquisitions, the company remains in a net cash position at 31 December of A$288 million after allowing for corporate bank debt of A$300 million.
09:30 Figure 5 on page 7 sets out the company's cash movements for the quarter with closing cash, bullion and investments of A$774 million, which included the payment of the Newmont Power an additional A$38 million in borrowings drawn. At KCGM, the focus on Golden Pike and Morrison ore zones in preference to waste movement at (ph) resulted in higher open-pit production, lowering all-in-sustaining costs and gross capital cost allocation.
With the completion of the purchase of the power business occurring early December, KCGM would have realized immediate savings on power costs. 10:08 The Kalgoorlie production hub recorded A$239 million of operating cash flow during the quarter and A$450 million during the first half of the year.
At Yandal, the Thunderbox underground and D Zone open-pit operations reached commercial production early into the December quarter. Meaning, the costs associated with mining and processing ore along with the revenue relating to gold trials are recorded as part of all-in-sustaining metrics as opposed to being presented net on the growth capital.
10:40 The Yandal production hub recorded A$76 million of operating cash flow during the quarter and A$173 million during half one. As Stuart mentioned, Pogo had an improved quarter with increased ore tonnes mined and milled tonnes with an anticipated step-up in mining rates in the second half.
11:00 Table 5 on page 8 sets out the company's committed hedge position at 31 December. The overall hedge book now stands at 1.1 million ounces at an average price of A$2,405 an ounce, which reflects approximately 20% of our forward three-year production profile.
The average hedge book price has increased A$58 per ounce quarter-on-quarter. 11:25 I will now pass back to the moderator for the Q&A session.
Thank you.
Operator
11:31 Thank you. Your first question comes from Daniel Morgan with Barrenjoey.
Please go ahead.
Daniel Morgan
11:55 Stuart and team, just on Pogo, I'm just wondering if you can talk through the development needed and what's planned for the rest of the year? Do you think you've now got in place the TAM and equipment and productivities in December quarter to now, maybe where you needed it?
Thank you.
Stuart Tonkin
12:15 Yeah, thanks, Dan. So look, we've got the thing with disruptions regarding restrictions that have been in place over there.
So again, with the borders relaxing, the ability for exports to move backward and forward on that frontline jumbos, that's been better. And we've digged just over 1,500 meters 470 meters in December, so we have place for the exit rates importantly at quarter two.
We need to maintain about 1,500 meters throughout rest of the year still by stoping fronts, pretty pleased with the performance to date. I am sure we can do it.
It's really about maintaining at that level through, so that's key to obviously deliver this year's guidance, but then exit this financial year with that development stocks and stoping fronts available to make that 300,000 ounces next year.
Daniel Morgan
13:12 Thank you. And on COVID in WA, so the border is scheduled to open up in early February and there's a lot of trepidation industry about this.
Could you just expand on the measures that you're taking to deal with this expected risk? I know a lot -- there is a lot of stuff, how do you handle in this regard, but just the measures you're taking and the plan for this risk and the impacts?
Thanks.
Stuart Tonkin
13:39 Yeah. So I think all the companies are very well prepared and I've particularly given our experience in Pogo.
We have implemented a lot of the same things just to mitigate the amount of contracts client are having and with a lot of contingency and diversification of where operations and activities and skill fit. So from that side, I think, everyone is well prepared.
The trepidation with COVID, it's probably more related to the ranging of quarantine related to positive cases and/or close contacts. And that's been reviewed by health minister and then a lot could be modified and it could align with changes and restrictions there.
14:22 So it is set for 14 days, which is the design -- structural design of that oscillation, there comes problem as you dominate more cases, but we believe that will be reviewed and will be a risk-based approach and it will involve a lot of the stocked up on as well. So I think everyone will grow from here, but it's still difficult to estimate what the actual impacts could be.
Daniel Morgan
14:53 And just last question. Can you elaborate on the process of the Windfall asset and the convertible note that you acquired?
And just, what is the process now for decision making or decision tree?
Stuart Tonkin
15:08 Yes. We are in a period where there is due diligence, we've got things on ground in Quebec and we've gone through the prices as towards negotiating the joint venture with the Osisko team.
So couple of months of exclusivity data to work with them through that. And in other way the prices from here twined to establish a joint venture of the Windfall project.
The debenture funding agreement is in place and that's was a achieved during the quarter. And I guess that can led into a value farming into the joint venture structure or can be equity base on Osisko or can just be retained as it with the coupon side.
Really from here it's just continuing to do the due diligence work towards a joint venture going forward with Osisko.
Daniel Morgan
16:04 Okay. Thank you Stuart and Team.
Stuart Tonkin
16:05 Thanks, Dan.
Operator
16:09 Thank you. Your next question comes from Matt Green with Credit Suisse.
Please go ahead.
Matt Green
16:16 Hey, good morning all. Just back on Pogo, if I may.
Look, it's encouraging to see upgrade right step up, but just on your comments on performance being slightly below expectations, was this more on development rates or are you seeing any initial challenges with the upgrades milled there?
Stuart Tonkin
16:34 No, it's really -- the answer to that, you'll see that reflected as well in the all-in sustaining costs, given the denominator. The leading indicators in development we outplaced and having achieved that exit rate of A$1,500, really it's best.
And if you look at the physicals and the titles it will show the mining at about 857,000 tonnes per annum and we milled bit over a million rate. And what we did there was supplement that with some low-grade development of all the added stockpile.
So the under-grade was down as well as recoveries, let's say, it's below expectations, 50,000 ounce a quarter would have been on plan with some extra mining volume. 17:18 So we've absolutely got good visibility in the second half and exciting fronts in the grades, we'll return to those levels, but we are down probably 300,000 ounces short where we had a plant.
Matt Green
Okay, thanks. That's helpful.
And then just on the KCGM, it's just deferring up waste movements, what drove this decision? And I guess should we expect this to continue into the second half?
Simon Jessop
17:44 Yeah, thanks Matt, Simon here. It was really around access to Golden Pike and the base of the pit.
So whenever we get an opportunity where the floor is drilled and available and blasted, then we will always hit down to Golden Pike, because of the low strip ratio, good ounces from the base of the pit. So it's really cycle-dependent as to when we're down there, but certainly, in the back of that quarter we had a lot of tonnes to access from Golden Pike and we'll always go back to the -- and the impact is it's just along the whole --- much along the whole distance than from the top of the pit.
Matt Green
18:29 Okay. That's great.
And if I could just squeeze one more in. Stuart, just on the Osisko JV that -- just under the JV agreement two words, would it be a joint operatorship or will the operator there if you were to consider the JV?
Stuart Tonkin
18:44 Look, yes, they decided, but acknowledging the significant experiences just got in that developing operations and over the grade advancements already on the project. But I think what the true partnership is, is relating on some of the underground base strength and technical skills that we have to establish that, excuse me.
So absolutely joint -- 50-50 joint everything in decisions investment and likely see we'll leveraging off both parties skillsets.
Matt Green
Okay. That's all from me, gents.
Thanks so much.
Operator
19:31 Thank you. Your next question comes from Hayden Bairstow with Macquarie.
Please go ahead.
Hayden Bairstow
19:39 Good morning, guys. Just a couple, just I guess Simon touched on the truck replacement at KCGM, obviously there have been a lot of talk here about the strike we had at the port earlier on in the late last year and the ongoing impacts of that potentially posted further impacts.
Are you seeing any easing in the sort the supply chain within WA to make sure all those trucks get to site as scheduled? And is there any impact potentially on the case AGM sort of outlook, particularly sort of stripping in into next year if that fleet replacement takes a bit longer than expected?
Stuart Tonkin
20:15 Yeah, thanks Hayden. Look, as far as the short answer is, no.
We don't expect it and we're not seeing any further impacts to the truck delivery schedule. So we had some small impacts in Q2, just not quite probably only one or two trucks short, but they'll be caught up in the second half and in the upcoming quarter, we're actually seeing nearly 18 trucks getting delivered.
So yeah, that's all well behind us now and no impacts going forward.
Hayden Bairstow
20:54 Great, thanks. Just on Pogo following up on Dan's question maybe.
Is it purely just going to be a grade story that get its production back to the 300,000 ounces? Or is there other things you're relying on in terms of efficiency as well to deliver a better outcome?
Stuart Tonkin
21:09 Look, it's mine volume and obviously returning to the high-grade reserve grade. So mine volume, you can see, in the quarter, the run rate was only at 850 ounces, we got to get that up to the 1.3 and that's going to be sort of 30% ore, but really it's about pushing all the development to get where there has been to add a lot of what we've built at Jundee, having multiple production fronts and diversification the way grow in your old firm.
21:37 As far as efficiencies go, there will be a point of stability before we can then start running the unit cost down, so we still have compensated for some fleets, it could experience and otherwise continue to see their side or get to that answer right and then work on reducing overall with all those upside in place equipment there to reduce the unit cost. So I think first point of all is mining volumes at the right quality then start to optimize.
Hayden Bairstow
22:12 All right. Thanks Stuart.
Operator
22:16 Thank you. Your next question comes from Mitch Ryan with Jefferies.
Please go ahead.
Mitch Ryan
22:24 Good morning, Stuart and team. Just staying on Pogo, can you just -- are you talked to the grade profile stepping up and all of the metrics that will deliver that, but can you please put some color around what the trajectory of that will look like and what the exit rate will be?
Will it be at that 8 gram reserve by the June quarter or will it just be exiting or will it still be trending up?
Stuart Tonkin
22:48 I will ask -- the schedule side will be above that 8 grams, so its contribution is higher, it could be a bit above that. But if you say the part of the second half, we kind of need to be at that 121, 140.
So you're in a 50 plus and likely a 70 next quarter. So you're exit rate of quarter 4 will be stronger than quarter 3 and it will be a good platform to meet FY'23 guidance.
Mitch Ryan
23:21 Thank you. And then more of industry-wide topic in the way you work with partner throughout WA, can you give any commentary on what you're seeing with regards to workforce turnover at your asset level and therefore also within your head office?
And how that trends relative to normal or historical?
Stuart Tonkin
23:41 Yeah. I got a high 20%s and 30% turnover.
It's slow, but it doesn't come backwards. So -- and I don't expect the border relaxation to help it.
I actually think there'll be a bit of flood of stock. So with that considered, we are still prioritizing what activities would be first and making sure that we consider any discretionary activity that's been in the labor.
Yeah, so the turnover has still been -- had been high. It has had some labor cost pressure as people are competing for, you still see we have commodities build up again and I think we see a lot of other commodities attracting high sentiment and therefore got development targets and new jobs being developed.
So I think this year we'll still retain some high pressure on labor to scale and converts through to cost before it gets relaxed.
Mitch Ryan
24:41 Okay, thank you. Really quickly last one, the timing for the new KCGM mill feasibility study within the June quarter, do you have the front end, back end or?
Stuart Tonkin
24:53 It'll be like in the back end of that. We're doing the work underway at the moment and looking necessarily wait for a decision and what are the fundamental metrics around how big it would be, what would be the ideal side, what would be the used cost to back into it, the CapEx to get a timeline .
Mitch Ryan
25:28 Okay, thank you very much. I'll pass it on.
Operator
25:32 Thank you. Your next question comes from Matthew Frydman with Goldman Sachs.
Please go ahead.
Matthew Frydman
25:40 Thanks, good morning, Stu and team. Firstly on KCGM and Simon talked a little bit just interested in that trade-off between buying from Golden Pike and progressing the pre-strip obviously it's quite buckle dependent at the moment, depending on the schedule of that remediation, but just wondering if we should expect that the delivery of why pre-strip volumes and exit volumes are going to improve going forward with this additional freight that's being brought onboard.
I guess I'm just trying to get a feel for, it's called out the December quarter was really harvesting the benefit of where you're at in the cycle or is that level of production is going to be more sustainable going forward with that additional play?
Simon Jessop
26:21 Yeah. Thanks Matt.
Of course, when you actually look back, we've improved material movement at Casey Jim from 30 million tonnes to 60 last year and we're ramping up again targeting sort of 75 to 80 million tonnes this year. So as the fleet comes in, our material movement will consistently improve and we will see further material movement in the second half as more of the truck fleet gets replaced as well as we're training a lot of operators and bringing people through.
So you'll see more tonnes come through from KCGM in the second half and certainly more wide-stripping along with similar sort of tonnes from the base of the pit as well as from OBH. So the other thing is, the cut back on OBH is absolutely on track and we are on plan for getting past that stripping over the next couple of years.
Matthew Frydman
27:31 Yeah, Simon that makes sense. Maybe switching quickly to Pogo, why you have the run to address this, the growth capital spend in the quarter, that A$22 million, is that the bulk of the spend on the mill expansion down, is there any key growth capital items remaining of Pogo that we should be thinking about?
And then I guess more broadly you've already seen a ramp up in your ability to utilize that expansion in purchasing at 1.2 million tonnes. Does that give you confidence around potential further debottlenecking projects down the track on that mill obviously dependent on mining rates, but is that early sign promising?
Ryan Gurner
28:11 So, yeah, a small amount of CapEx, Matt, in relation to finalizing the mill upgrade, but a lot of it actually is development, so as they're developing new areas, as Stu mentioned, open up. So that's probably the majority of the cost there, debottlenecking is still going on.
Stuart Tonkin
28:30 Yeah, it's more just any flight plan you want stability and from that you will slightly be lifted throughput rates at the moment just maintaining consistency secondary crushing or any crushing is likely going to help. So we're considering how that would fit into the main circuit, but ultimately you're limited by the powering in the mills and given everything built inside the box with us for limited way of CapEx to do -- to restructure rate format that plant, we've really lifted from the 1 to 1.3 very cheaply and we really want to get that very consistent 1.3 stabilize and efficient before we start looking at further expansions from that.
Matthew Frydman
29:17 Thanks Stu. just touching back on that again Ryan, you mentioned that the bulk of that CapEx like growth CapEx in the quarter actually attributed to developing new areas.
How should we think about that it's required spend for that going forward. Obviously, it's not something that's pulling in all in sustaining cost that when did that capitalization of development of new areas roll off, what the kind of current quarterly spend that we should be thinking about going forward?
Ryan Gurner
29:43 Well, I mean probably for this year at least I'd come back to absolute guidance, Matt, where we've got that 70 mill. As part of that infrastructure, part of that development, I think for this year, I just point to that as to what at least the delta that we've done from the half to the next half that's the amount that we're looking to sort of invest in that area and I'll speak to that for now.
Matthew Frydman
30:12 No problem. Thanks, Ryan.
Well I've got yet another quick one, cash back outflows, I guess for the reminder FY'22 nothing at the point to there in the waterfall in terms of cash back, obviously you've got sort of lingering background from past acquisitions there'll be you got regular pay. So can you give us an indication of maybe what you're thinking in terms of cash back outflows over the remainder of the financial year?
Ryan Gurner
30:40 Yeah. Good question, and it is -- there is a lot going on around tax at the Northern Star, so yes so first of all, the -- it should be about 9 times, so we're waiting on waiting on the government to provide an assessment and then we look at that and we've done all the work and we essentially make a payment.
So back in for last year, we sort of said to the market estimates that A$225 million, it could be less than that, but we're waiting on that process. 31:24 Timing-wise, again I began uncertain because we're waiting on an assessment, it's probably likely maybe to be Q4 around the timing of that.
In terms of corporate tax, so if I come back to 30 June balance sheet of the business, I think there was A$150 million there as a receivable and no liability. So again coming back to that merger around tax synergies, the company will be basically receiving a tax refund for the prior year, which we expect this quarter.
And then looking ahead, I think certainly for the remainder of this year, financial year corporate tax pace will be close to nil.
Matthew Frydman
32:02 Yeah, okay, got it. Thanks Ryan.
So my kind of summary is that -- in terms of my simple head is that even though you do have an liability on minus for in the next six months and then first we've got a that's going to offset some of those other corporate tax requirements?
Ryan Gurner
32:20 Yeah, that's right. Now look that be -- yeah, that's exactly right.
Matthew Frydman
32:25 Great, okay. Thanks.
Final one for me quickly, you touched on it before and I guess that should be. Just wondering maybe at a high level can you sort of talk to what attracted you to participate in this project, why do you think it's a good fit to Northern Star potentially and I guess any particular aspects that you're focusing on as part of your due diligence, if you can sort of highlight anything in particular?
Stuart Tonkin
32:51 Yes, I mean it's still lot. So I don't want to -- it's a very stellar on all our discussions and negotiations today, but one writing the Osisko team highly, their ability for somewhat in all Northern Star and typical Golden Pike that we explore, discover and develop, so great partner to work with.
Secondly, you look at the quality and you'll see recently an upgraded resource update on Windfall and that they're receiving with new drilling that's adding to that site. 33:23 The grade, the quality, the scale, the underground material at all, it's world-class deposit and it's going to be top North American mine, so beginning to one of those daily, we've always said that things maybe after some of the peaks to get into a project daily and do it from scratch has always been something desire to be able to do, instead of upside, that's the interest.
33:51 Timing is never up and whenever things are available, but importantly, that derisked due to the partnership arrangement and working closely with Osisko team. So going to the bridge, I don't think it's absolutely on strategy on all the things with set and what we do in our business strategy so it's netted all of those metrics and it's a very high quality deposit, so you'll see things unfold over the next couple of months as to how we advance that and as that backstop we've got that debenture there that fits there as well.
So with that, I guess, we'll give you an update in the next quarter.
Matthew Frydman
34:35 Got it. Thanks very much, Stu.
Thanks all for the detailed answers.
Operator
34:40 Thank you. Your next question comes from Alex Barkley with RBC.
Please go ahead.
Alex Barkley
34:48 Hi, Stuart. I won't ask any more questions on Pogo.
So just one on the new utilization across the Kalgoorlie region. I'm think at Kalgoorlie operations mill capacity is probably not being used across Kanowna Belle and South Kalgoorlie.
Is there a more immediate near-term option to use some of that capacity with all coming from KCGM, I appreciate the study in progress. But is there perhaps a more near term district opportunity?
Ryan Gurner
35:23 Yeah. Thanks, Alex.
Look we -- what I can say is, we absolutely are using the full capacity at Kanowna Belle. South Kalgoorlie, obviously, we had some changes there from taking away the Kundana assets feeding today and now we're topping up that process plant with ore from Mt Charlotte, free milling ore.
And KCGM is running at full noise as well. So the numbers are certainly at the back of the report, but we are utilizing the full capacity of the processing plant, the 3 main plants in the region.
Alex Barkley
36:08 Yeah. Okay.
Thanks, Ryan.
Ryan Gurner
36:11 Thank you, Alex.
Alex Barkley
36:12 Yeah, okay, thank you.
Operator
36:16 Thank you. Your next question comes from David Radclyffe with Global Mining Research.
Please go ahead.
David Radclyffe
36:25 Hi, good morning, Stuart and team. I had a bit more of a high level sort of question on the portfolio.
Given that you sort of finished the year with Kundana sold and now the perspective JV with Osisko. So just trying to understand when we think the '22, are you happy with the position of the portfolio, maybe you could share some color around here.
Are there assets that may be still quite fit or are there areas you'd like to move into, just sort of thinking the Osisko might be we are thinking about trying to add some more long-term optionality to the portfolio. Thanks.
Stuart Tonkin
37:00 Thanks, David. And look the interest on Osisko is commercial production like it has been coming to 2025, 2026, it will be as they've been A, mine life on current plan; B, this thing is different I guess to what our current plan and guidance is .
So we well look at that . We're very we have both quality and all of our producing assets contributing strong cash flow and that's what we've guided our five-year strategy on.
We continually assist that on a yearly basis to say just the contribution and how they are moving, what we expect out of them, but presently I am now just making some exploration assets or otherwise we streamline by producing us at the moment are all contributing strongly and made organic growth from 1.62 million to 2 million ounces over the next five years. So pretty same of that.
37:56 Our general attitude is, we don't pull a lot of other things. We make sure we run the business first and we focus on the contribution.
We hope -- we know which is our high cost areas. And if like to get shorter, otherwise we tend to migrate our people to where the best returns and efforts applies for mining site.
So all of that's on strategy and the assets that we hold are important.
David Radclyffe
All right, great. Thank you.
Operator
38:28 Thank you. Your next question comes from Peter O'Connor with Shaw and Partners.
Please go ahead.
Peter O'Connor
38:39 Good morning, Stu. Happy New Year.
Back to Windfall and Osisko, just wondering since you're actively looking from an M&A perspective on an ongoing basis, does that mean you had exceptional balance? How do you think about balance of the portfolio?
Is it just about being first year or within that first year portfolio is there an international focus given the learnings from Pogo?
Stuart Tonkin
39:04 Yeah, so from that strategy, I think we showed -- organic growth still funded 1.6 to 2 from the assets we hold. Importantly that Pogo delivering 300,000 ounces and talking about it being that placed in North America and you've also seen the restructure -- we had same with Simon Jessop who head couple of the Australian operations, what price to overseas Pogo is running Chief Development Officer which includes reviews of North America including the Osisko due diligence.
So absolutely stabilized booking to make sure that we're not missing out on quality opportunities, but again we've got to reassess against the inorganic growth options and the best returns on that capital for our shareholder's. So all that things are in mind.
When you look at that up against our strategy, the plus 200,000 ounce equivalent contribution, the low cost, high margin, long life, style jurisdiction in Tier-1, very favorable mining jurisdiction is Quebec. All of those things makes our strategy, so it shouldn't be a surprise to people with those type of things coming to our view.
Peter O'Connor
40:23 It sounds opportunistic, so who approached who?
Stuart Tonkin
40:28 Good question. We guide for the market four years ago in regard to just watching the development and team on understanding what's happening, not too different to many emerging deposits and discoveries around the place.
We're going to as taking to and contact. Our partied did a -- doing great things and if you can learn things and bring prices, that's what we do.
So, yeah, it's been a number of years of us watching and ultimately the funding arrangements allow them to continue to advance the project and give us exclusively to work with them on a partnership. So, still a lot of and it doesn't mean there's any deal done, but I guess that's the early stages of that work.
Peter O'Connor
41:25 So the why now question would be, could it gave you the trigger to do this deal, it sounds like?
Stuart Tonkin
41:32 It's really about finding agreement to fill funds to advancing the project. So I think they are going to do that in a many different ways.
And obviously our ability to come in and provide that option like debenture assisted in doing that.
Peter O'Connor
41:51 Could you explain the conversion premium if you choose to elect that work? So in the headlines at the time will be conversion premium of 125% are still in the project, if any interest in the property sale, will that take you above 60%?
And how do you think about that working?
Stuart Tonkin
42:08 It will push effectively the C$112 million we put in A$192 odd million as conversion into a joint venture interest. And I think the debenture was a pullback and they tied pullback now.
So again they got a natural mechanisms, they are not familiar that much in Australia, but they are very common I guess in North America to set up.
Peter O'Connor
42:41 So you can go -- you can and will go about 50% if you convert?
Stuart Tonkin
42:47 Sorry, no, the target is a bit up to 50%, 50-50 joint venture in the asset level. So that's what we're trying.
The conversion of that on that debenture conversed at premium under that scenario of the JV filing.
Peter O'Connor
43:09 So like conversion of equity or the property?
Stuart Tonkin
43:14 Well, equity, joint venture interest in the Windfall asset.
Peter O'Connor
43:20 Okay. Got it.
And in terms of the development pathway, you mentioned 25-26, that's a long dated option, what do we think about its key milestones. You talked about couple of months more of DD, so when do we expect you to come back with that DD?
You have to get a month in mind or quarter in mind? And then cash outflows, when would they occur and how should we think about that?
Stuart Tonkin
43:38 Yeah, it's best references for Osisko public announcements on the TSX and you talked the BPI in relation to that and you can look at -- they are updated. Resources are just published this week.
They have set out all the metrics and timelines, await commentary anything outside of that. I guess, we're still in that process of doing work.
Peter O'Connor
44:04 So, we should heading back to being a couple of months you said earlier?
Stuart Tonkin
44:09 Likely, yes, we will definitely get remarkable data disclosures.
Peter O'Connor
Thanks, Stuart.
Operator
Thank you. Your next question comes from Kate McCutcheon with Citi.
Please go ahead.
Kate McCutcheon
44:25 Hi, Stu and team. You've noticed some term from Mt Charlotte this quarter, how is that material performing?
Are you getting the benefit that you expected? And then can you just remind me how your accounting setup that gold and also those costs from that material?
Simon Jessop
44:42 Yeah, thanks, Kate. I'll just comment on the performance of that.
It is performing very, very well. We're getting improved recovery of approximately seeing around the 90% mark when we take that either to Kanowna Belle or South Kalgoorlie.
So we're getting an improvement in terms of gold recovered by doing that and we're -- the main point is we're actually filling up the Carosue Dam mill with the marginal stockpile that has no mining cost attached to it. We still look circa 18 million tonnes of that.
So it's really just completing synergies across our processing plant in the region, but it certainly gives us a benefit and performing very well.
Kate McCutcheon
45:37 Yeah, yeah. And then just can you remind me how are you going to account for that gold where that will be attributed?
Stuart Tonkin
45:42 So the accounting on the KCGM. So even though that all move and gets prices dealt elsewhere, it gets internally cost back the income, the revenue and the cost associated with it get reported in cost back at KCGM.
That's roughly the early question around whatever it was 600,000 tonnes business, is it 800,000 tonnes, it's because of that accounting of moving those tonnes back on the KCGM being milled appropriately.
Kate McCutcheon
46:17 Yeah. Got it, thanks.
And so you maintain cost guidance and on an annualized basis what it looks like we got to get two hedge downs later. How are you feeling about cost inflation?
How are you going with critical set and what we're seeing with supply chain bottleneck? Any comments around that.
Stuart Tonkin
46:34 Yeah, look, the second half, most of that cost is quite sticky and contracted and burned, so you typically don't see tough escalation, there's quite a lag associated with that. We are already going with 35, 40 in the near term of practice ability of what that is, what the second half really driven by the ounces improved, volumes and checks written very, very similar.
It's really the quality and great uptick and obviously the denominator getting a uniform sustaining cost downside. So in the near term, we have really good visibility.
It's really the view of the impacts of COVID and then what run rate you think next financial year in regard to any other cost escalations we haven't understood yet.
Kate McCutcheon
47:22 Yeah. Got it.
Thank you.
Operator
47:27 Thank you. Your next question comes from (ph) with .
Please go ahead.
Unidentified Participant
47:34 Yeah. Good day, guys.
I guess just returning to those high border openings, I wonder if you could give us, I guess, a bit of color around through what curve scenario modeling you're doing? And a better color around, I guess, what you've learned from the experience in Pogo and what you're doing now in WI, the tax we wouldn't have done if you didn't have the sort of the Pogo experience?
Stuart Tonkin
47:58 Yes, thank you. So it's probably two things done.
One is the true health impacts should someone have their symptoms and the absolute domical of that through. We've no actually testing with understanding and saying symptoms and checks all of those things that you do is a screening and or testing to get the positive and you see all of the sites haven't done as well through the medical systems along.
That's actually what's happening. 48:30 Then there is the, let's say, framework to impose artificially to try to reduce that.
So this 14 day quarantine or you are in close contact with face to face for 15 minutes and all that sort of things, that's the part that really gives you the structural impact to your operations and that's the part where they are on the side of caution. And we are looking to review does that had any benefit.
The 14 guys going to be 10, going to be 7, going to be 5, can you check someone ever died. So that's the modifications at the moment, learning's we've had from Pogo.
And also just understanding a lot of that can be asymptomatic without symptoms and basically still be positive and/or not affected in a workplace. 49:19 So, importantly the material things we do is reduce the team interaction, reduce them balancing around and being in multiple places, ask them to be responsible with all of the community-based precautions in regard to scanning in places knowing with a hotspots of being and mask wearing, hand cleaning, also doing good cleans across our vehicles, offices, buses, those sort of things heighten cost.
And then again, just splitting down and fitting out those interactions to mitigate the domino effect. 49:57 So they were looking at the work and managed through the Pogo and are still doing that and that's things we expect to see the strength of our Australian operations full in play out is much, it's easier to maintain and control and it's the residential where we see the continual interaction in the community and then coming back to where those challenges are.
To be honest, really goes on the stock to step up and understand the risk adverse in regard to the gatherings should they be a community outbreak.
Unidentified Participant
50:36 Thanks, Stu. Appreciate that.
Thank you very much.
Operator
50:42 Thank you. There are no further questions at this time.
I'll now hand back to Mr. Tonkin for closing remarks.
Stuart Tonkin
50:51 Okay. Thanks for joining us on the call today.
And as you've heard, we remain on track to deliver full-year guidance well advanced on our organic growth projects funded from a strong balance sheet position. I look forward to reporting our progress to lift product to 2 million ounces for 2026 and lowering our costs to drive strong financial returns to shareholders.
Have a good day.
Operator
51:14 That does conclude our conference for today. Thank you for participating.
You may now disconnect.