Northern Star Resources Limited

Good morning all, and welcome to the Northern Star Full Year Results Presentation for FY '23. Joining me on the call today is CFO, Ryan Gurner; and COO, Simon Jessop.

We have a presentation we'll be referring to this morning as published on the ASX named Results Presentation. And in that presentation, I'll start on Slide 3.

We are in an exceptional position on the conclusion of another financial year whilst advancing our five-year profitable growth strategy. Northern Star is a global leader as well as one of the largest and most liquid gold expert exposures across the Asia-Pacific region.

Northern Star continues to build from strength to strength, and this is achieved through our deliberate and simplified portfolio of three large-scale production centers in Tier 1 jurisdictions, producing one commodity, gold. As you will see in our update today, we continue to execute our clear, low-risk strategy, which is generating superior returns for our shareholders, today, tomorrow and into the future.

Our focus remains on operational excellence at a disciplined and a mature approach to investing shareholder funds. I'm particularly proud of our people and their commitment to safely and sustainably execute our value creation strategy.

Our people delivering through our core values of safety, teamwork, accountability, respect and results, should be proud of the achievements of FY '23 and ensuring we secure our bright future ahead. I'll now pass to Ryan to review the highlights.

Thanks, Stu, and good morning, all. It's been great pleasure to present to you our financial results for the year ended 30 June 2023.

I'll be referring to the slides in our presentation released this morning. Firstly, to Page 4, which presents an overview of the key financial highlights achieved during the year, with record cash earnings of A$1.2 billion, which represents the Company's strong sustaining free cash generation.

Underlying EBITDA of A$1.5 billion, the Company made a statutory profit after tax of A$585 million. When adjusting for normal items post-tax of A$284 million, which is set out on Page 17, the Company made an underlying net profit of A$301 million.

These abnormal items largely relate to the non-cash write-back of low-grade stockpiles at KCGM following the approval in June of the KCGM mill expansion project, which now provides certainty over the timing of processing these stockpiles. This resulted in the reversal of A$437 million inventory write-down previously recorded in FY '21.

A final unfranked dividend of A$0.155 per share, which is up 35% from the prior year final dividend. This takes our total declared dividends to A$0.265 per share for the full year, which equates to a payout of 25% of full year cash earnings.

During the year, the Company bought back A$127 million of its shares through its on-market share buyback program. And today, I'm pleased to announce the Company is extending its share buyback program for a further 12 months, which is consistent with our proactive capital management strategy and in recognition of the confidence in our free cash flow outlook.

And finally, we remain very well positioned to deliver on our near-term profitable growth strategy with our strong balance sheet, which presents a net cash position of A$362 million at 30 June. Turning to Page 5.

I'm proud of the team for delivering our FY '23 production and cost guidance in a year that has seen challenges. Gold sold was 1.56 million ounces at an all-in sustaining cost per ounce of A$1,759 per ounce.

We are two years into our five-year profitable growth strategy with another good year of progress across our three production centers with highlights being a 26% increase in material movement at KCGM, commissioning of the Thunderbox mill and Pogo's record performance in Q4. Over to Page 6 now.

This slide highlights the significant cash generated by the business during the year with A$359 million of group underlying free cash flow. The waterfall chart on the left illustrates the positive 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-related costs of A$118 million are deducted as is net interest cost and tax paid of A$3 million.

The A$1.2 billion of residual capital, which is cash earnings, is available to deploy for capital management, growth-related investments which meet our hurdle rates and balance sheet management. Pleasingly, all production centers contributed well with Kalgoorlie, our largest center, comprising 53% of the group's cash earnings for the year.

We expect the expanded mill now commissioned at Thunderbox and optimization at Pogo will translate into higher percentage contributions to group cash earnings in FY '24 for the Yandal production and Pogo production centers. I'd like to point out a reconciliation of statutory NPAT to underlying EBITDA and cash earnings has been provided in the appendix of this presentation on Page 18.

Now to Page 7, which highlights EBITDA margins achieved for the group and each production center over the year. All three production centers performed strongly and achieved healthy EBITDA margins.

When normalizing EBITDA for the non-cash charge resulting from the processing of the KCGM acquired stockpiles, group EBITDA margin for FY '23 rises from 37% to 41%. Pleasingly and as illustrated by the column chart, contributions from all production centers improved significantly in the second half of the year.

Notably, Pogo's second half performance, lifting its EBITDA margin from 22% to 33% was achieved from higher physicals and productivity with grade optimization stope ore contribution a key focus area. Now to Page 8.

The Company is now two years into its five-year organic profitable growth strategy. Over this time, we have delivered major milestones, which are key in achieving our plans, including the major equipment fleet investment at KCGM, which is a key enabler for us in lifting material movement at the operation to gain access to high-grade open pit ore.

We're achieving -- we are achieving our goals here with 83 million ton moved during this year, and we will continue to build on this. Completion and commissioning of the Thunderbox mill expansion to 6 million ton per annum, which is a key pillar for production growth at the Yandal hub.

And at Pogo, we've also upgraded plant infrastructure and invested in underground development and infrastructure to improve performance at this asset, which we are now realizing. Over the financial years of FY '22 and FY '23, along with the progress made on our strategy and the capital investment undertaken in our operations, the business has generated just over A$1 billion in cumulative free cash flow from operations.

As you can see on this slide, there are great opportunities within each production center to continue to build on that free cash generation. As illustrated on Page 9 now, the Company maintains a strong balance sheet with A$2.2 billion in liquidity at 30 June and has access to long-term capital funding options with an investment-grade credit rating from all three major agencies, which are reflective of the strength of our business and the positive long-term outlook underpinned by the Company's significant reserve back production profile.

Our balance sheet strength supports our strategy and gives us flexibility through the cycle to fund opportunities that may arise to enhance our portfolio of assets to deliver long-term superior returns to our shareholders. Example of this has been the decision to invest in our largest and longest life asset KCGM to expand the milling capacity from 13 million ton to 27 million ton per annum.

Once delivered, this will see the operation materially lift its production, lower its cost profile resulting in a significant positive step change in sustained free cash flow generation. The Company continues its demonstrated history of returning funds to shareholders.

Including the FY '23 final dividend, the Company will have returned over A$1.3 billion in dividends to shareholders and bought back A$127 million of its shares, totaling A$1.4 billion in capital management over the history of the business. Over to Page 10.

The plant expansion investment at KCGM will strengthen Northern Star's portfolio, materially increase our free cash generation and progress our long-term strategy to be within the second quartile of the global cost curve. This project is financially compelling and is a significant enabling step towards delivering our strategy to generate superior returns to our shareholders.

Further, the project is important in our sustainability journey and will also sustain hundreds of local jobs, economic and social investment and local procurement opportunities in the Goldfields region. On Page 11, we have set out the key elements of how we deliver value, which is through owning world-class assets in Tier 1 locations and applying our DNA of operational excellence to deliver value to our stakeholders.

We do this in a safe and responsible way with a demonstrated track record. Our portfolio of long-life assets and their locations provides us with flexibility and optionality to extract value and employ capital prudently to where the best returns can be generated.

And as a foundation, we maintain a strong balance sheet, which enables the execution of our strategic framework through the cycle. Page 12, which presents our FY '24 guidance provided during our Q4 call last month.

Please note, we have provided additional guidance in relation to depreciation and amortization per ounce and the group's estimated effective tax rate for FY '24. And as previously flagged, the Company is not expected to pay tax for the Australian operations for at least the next 18 months.

Therefore, this will see any anticipated potential dividends to be unfranked for at least the next 18 months. And finally, please take time to familiarize yourself with the all-in sustaining cost to cost of sales reconciliation slide in the appendix.

Thanks very much. I'll hand back now to Stu to finalize the presentation.

Thanks, Ryan. On to Slide 13, you can see our profitable organic growth strategy planned out to FY '26.

I would like to emphasize that this growth path has low-risk delivery and is executable from our existing assets. FY '23 was another year that we made significant progress.

At KCGM, we grew our material movement to 83 million tons per year, up 26% from FY '22. Our new fleet continues to operate very well there.

The Thunderbox mill is well positioned to operate 6 million tons per year in nameplate capacity this year. While at Pogo, we delivered a record operating performance in the June quarter, achieving above our key objective of 300,000 ounce per annum run rate.

We are well on track to deliver our growth plan to 2 million ounces per year by financial year '26. Our Fimiston mill expansion at KCGM Super Pit is in addition to this plan and will be commissioned in FY '27, enhancing organic growth and returns to shareholders, as Ryan highlighted.

Now to Slide 14. We maintain a significant mineral resource base above 57 million ounces, with reserves above 20 million ounces.

We have very effective exploration programs across our significantly endowed geological systems to replace and grow our mine lives. And in FY '23, we continued to add resources at an industry low cost of A$31 an ounce.

Further, we have a 10-year reserve backed production profile, which provides significant visibility to enhance the delivery of superior returns to our shareholders. On Slide 15.

In addition to the financial results, Northern Star has today released a number of sustainable development publications, including the sustainability report, corporate governance statement and modern slavery statement. I would like to recognize Hilary Macdonald and her team to produce these outstanding documents highlighting the great achievements of Northern Star over the financial year.

And I would encourage you to review these annual suite of publications on our website. In FY '23, Northern Star maintained a sector-leading lost time injury frequency rate and safety record and continue to build a strong safety culture powered by critical risk management practices.

On decarbonization, we continue to our reduction of our Scope 1 and 2 absolute emissions by 35% by 2030 and Net Zero ambition by 2050. In FY '23 at Jundee, we approved a solar farm, battery energy storage facility and four wind turbines designed to reduce Jundee's Scope 1 and 2 emissions by between 35% and 50% by 2030.

So we're advancing these projects well. Now to Slide 16.

We continue to execute on our clearly defined strategy of generating superior returns. The FY '23 results presented today are outstanding and the result of our team's efforts on safely delivering operational excellence in parallel to a disciplined approach to investing shareholders' funds.

So I thank you for listening to our presentation. I'd now like to pass to the moderator for Q&A.

A couple of simple ones, I think. Firstly, just on the write back up of the low-grade stockpiles at the Super Pit.

Can you just remind us of the physicals there? What sort of tons and grade are we thinking?

And is that already reflected in the reserve update?

Yes. So it's already in the reserves.

It's about 120 million tons at 0.7 and it stood at about 2.7 million ounces. So it's already in reserves and it's there.

We obviously rated down when we weren't going to be milling it. And then as we've done the mill upgrade approval, we brought it back on the balance sheet.

Right. And so there's no other desktop wins to be had there, I guess?

Well, Levi, the value, so I guess they were -- it was fair value at the time when we essentially bought and merged with Saracen. So gold price back then was 50% lower than what it is today.

So no desktop wins. But certainly from a value perspective, we certainly know that we're going to generate a lot of cash from processing these stockpiles.

And then if you couple in the fact that we're going to materially lower processing operating costs with the expansion, that then gives it another leg up. So yes, it will be a really good cash generation element of the business once we have the mill upgraded.

Yes. Great.

And just an operational question. So three shuts across your hubs this quarter.

Can you give us an update on how they've gone?

Yes, good as planned. And again, we highlighted that the guidance we've given for FY '24 is second half weighted, so with the recognition that there was planned maintenance occurring at all the plants in quarter 1.

So yes, just reminding people that quarter one is the lowest of the four quarters. But we're still very pleased with the momentum and progress we've made out of quarter four from FY '23.

So it's all going to plan.

I just wanted to follow up on the stockpile question that Levi had. I guess, what are the broader implications from the mill expansion regarding the in-pit reserves?

I imagine -- have you applied the new cost structure to your in-pit reserves? And should we expect upgrades over time from conversion of inferred resources and even mineralized waste?

Thanks, Dan. So if you kind of recall that the mill expansion business case was supported or really simple base case was supported by that ore grade stockpile.

So there's a technical element of the financial accounting of it, but the actual premise of cash flows and the asset was on the -- that stockpile going through the expanded case. We recognize that inside the existing pit shell, there will be material that would be the same economics or better than what's on the stockpile, and it would preferentially go directly to the new mill.

And then we have yet to run a lower cost through the reserves, and we won't necessarily do that because in three years' time is when we enjoy the lower operating cost. So it's really assessing that at that time.

But, yes, we recognize that we weren't going to be depleting that stockpile unless we expanded the plant. That drove the business case in the -- near the 20% IRR at a modest gold price.

The technicality of just bringing this stockpile back on the balance sheet is because it will be drawn on within that sort of five- to 10-year profile, which it wasn't going to be under a non-expansion case.

Yes. Okay.

And maybe more an accounting question for Ryan with regard to the write-back. If I've heard correctly, it's been written back to the fair value assumption, which was made at the Saracen acquisition.

And I imagine there's additional margin over and above the number that you've written back onto the balance sheet.

Yes, that's right, Dan. That's exactly right.

So we can't write back -- we can't write it up to fair value, but certainly, we could write back what we had originally impaired or written off, which was the A$436 million. So absolutely, as I was saying, that when that fair value was struck, gold prices were around A$2,000 an ounce.

So the actual fair value is much, much, much more than that number, definitely.

But you also can understand that it's been mined, it's sitting adjacent to the mill to pick it up and mill it under the new operating cost is well under A$20 a tonne, it's 0.7 grams. So you can see the cash margin inside that stockpile.

We're talking about a couple of billion dollars.

And then just a little bit of interest in that buyback being extended. What is your management team's view on how to deploy that buyback because obviously you haven't been active in the market in recent months.

What would cause you to change -- this an opportunistic buyback where there's a trigger on share price weakness or something of that nature. What would cause you to trigger to actually buy back stock?

Yes. So we've got a pretty clear framework in our head.

And obviously, we sort of allocate that outside of blackout trading periods for the third party to do those volumes. Ultimately, in the last sort of six months, appreciate, we were evaluating the Fimiston fit decision right.

So we also went and secured the USD 600 million bond. So those were quite a few things that were weighing up deploying cash at the time versus pulling it into these capital investments internally.

So we're sitting here now with a very strong balance sheet net cash with good outlooks with a pretty modest hedge profile, but really good outlooks on fully funding all of our organic growth and we see surplus cash. And so the capital growth does not impact dividends, which are linked to cash earnings.

That's not affected by any growth capital. So we're just -- we're forecasting surplus cash flow that could be deployed to this buyback.

So it was prudent that we extended the time. The total value was still A$300 million, but we've extended that 12 months.

And as gold price changes, our internal NAV changes, we will make calls on that. But yes, we're just looking for the best returns from our investments.

I might, I guess, continue on that buyback discussion. And I guess the question is in two parts.

The first point is that Ryan mentioned that part of the reason that you've chosen to extend the buyback is your confidence in the free cash flow outlook. And obviously, that's interlinked with the spend on the KCGM mill expansion.

So I guess the first question is, can you remind us how much of that A$1.5 billion budget for the mill expansion is locked in with the circa A$1 billion contract you've got Primero -- with Primero, I should say. How much of that A$1.5 billion you're sort of still exposed to in terms of, I guess, pricing and capital risk?

And then how does that, I guess, then flow into your view on the potential to, I guess, upsize the buyback further as that capital spend profile gets derisked?

Yes. So of the A$1.5 billion, there's about A$1.15 billion, A$1.2 billion committed contract did secure it.

And that was at 85% of the non-contingency component. So again, that stuff, long-wait items being ordered, secured, construction is underway, contracted works.

If you kind of think of the relativity, the buyback is a rounding error compared to those work and the scope and the profile of that investment sort of three years at sort of A$500 million per annum. So it really -- the two are separate, it's around surplus excess cash and redeployment of that.

We've got different ways to do that understanding that the dividend we just announced A$0.155 final is unfranked. So certainly it also has franking credits in the near term.

And we just see buyback, capital returns, dividends, all these things to be assessed to ensure that we're providing a good capital management back to shareholders. So yes, I know I'm giving you a bit of a roundabout answer, but these are -- it's not one versus the other.

We're able to do all of these things. And it, again, just demonstrated the strength of the business.

Okay. I guess the question then is what would trigger you to revisit the size of that buyback if you've already derisked 85% of the capital spend profile at KCGM, which is obviously your biggest single capital commitment?

Is it just a matter of I guess, assessing the cash flow that's coming in across the business over the course of the year and I guess, rethinking what the appropriate level or size of that buyback program is?

Two things. Once that one is exhausted, revisiting it and the other one is our consideration of the returns we generate from it versus other options.

Really quick one I think. Can you just talk to me about the logic of maintaining a DRP whilst also conducting a buyback?

Yes, Mitch -- yes, it's a good question. We had contemplated changing that.

But we figured that -- look, we have a 1% to 2% take-up of that DRP. So we've kept that.

The buyback, it will -- we will trigger that based on our internal sort of view of things. So we don't want to keep them -- we sort of figured that we would keep them -- hit that dividend reinvestment plan out there, even though we are contemplating buying back stock over the year.

The different audiences as a way I'd say the buyback is us using company cash to reduce that register, but the DRP is individual people's choice of how they manage their own capital. So I think that I get the point.

But...

And I guess the DRP -- remind me, there's no discount on the DRP. Is there?

No, no.

Another quick one on the KCGM inventory write back. Is that going to be depreciated or non-cash cost?

And if so, would that have an impact on the guidance you put out in FY '24 or the longer steady state or in sustaining cost number?

Yes, Alex. Now look at, one, it won't impact guidance because it's -- they won't be processed for a few more years yet or starting.

So it won't impact guidance. In terms of how the sort of unwind, I guess, is will start to unwind similar to how the stockpiles we're processing now on the line you see in our quarterlies, you see that non-cash inventory movement.

They'll just be expensed that way. And so if you just take your A$430-odd-million of balance sheet and divide that by your ounces, that sort of cost per ounce on a non-cash sort of inventory movement that you'll see when the stockpiles start to get processed in a few more years.

Okay. So it would be outside of that A$1,425 long-term guidance you put out?

Yes, correct.

It's non-cash, Alex, just to be clear, it's a non-cash charge. So it wouldn't be an all-in sustaining cost.

Maybe just one on Thunderbox. Just wondering if you could give us an update there as to how things progressing in terms of the mill ramp-up and broadly just the works around Raleigh and establishment of Wonder as things have progressed there?

Yes. Thanks, Hugo.

Simon here. Look, it's going very well.

Over the course of FY '23, we built the mill, started commissioning it, ramped up over the course of the quarters. And we're steadily commissioning that and improving on plan into FY '24.

So really happy with the progress of how the processing plant is beating in and really, it's just into optimization now for going forward in FY '24. And in terms of Raleigh, look the material movement up there is going very well, certainly on plan and looking forward to putting that through as a key fee source for the next few years of the operation.

So again, tracking well. I'm very happy.

Just a quick question on M&A. I know that you've said that you're looking at organic growth within the portfolio rather than acquisitions.

But I was just wondering whether perhaps you would look to divest any of the higher cost, smaller assets within the portfolio given there's been a little bit of action in that space over the last six months. And then perhaps you could deploy the cash from that into sort of upgrading the portfolio within -- around your current assets?

Thanks, Meredith. We've already referred to that Slide 13 in the pack, which is around that five-year strategy, and that's been delivered from all the assets we currently have and are operating and are growing.

So there's no motivation to divest anything. They're all quality assets that are all contributing towards it.

And that sort of final box on that Slide 13 shows what we believe is quite a sustainable business, that three to five production centers, 1.8 million ounces to 2.2 million ounces, et cetera. And that is without the Fimiston expansion coming in three years' time.

So our attitude is always reviewing everything, active portfolio management, generate the best returns. We don't need those proceeds and any cash from a sale to reinvest.

We're net cash, we're fully funded with all of our plans. So that's not the motivation.

But you're seeing our journey as a business. These things get assessed from time to time.

But, yes, at the moment, we're very pleased with the portfolio we have and it's delivering on our strategy as we intended.

Yes. Perfect.

And another one, please, if I could. On KCGM mill expansion, how comfortable are you with the CapEx given the inflation, access to equipment and labor?

I know you've got contingencies factored in. But how you -- are you seeing any uptick in those CapEx in, I suppose, the costs so far as you're progressing?

Yes. So we're obviously one month into a three-year build.

We're very happy with what we've secured and the long lead items and time lines and indications, and we've got a good Owners team working really closely from the start in managing risks and starting with works and controlling those things. So very good communications with all the contractors and very confident, and that's what gave us the confidence to make the investment decision.

We are going to manage it very, very closely throughout the build, and it's a three-year build. So yes, we're absolutely very confident how we deploy and expend that money.

Just appreciate as well. It's only a bit over 10% to 15% of what we're currently doing in business activity across the whole company per annum.

So it's not a game-changing or very different program or project to what we're already doing and the type of work we're doing, which is also being managed very, very closely.

Just a quick follow-up on your comments in the opening remarks, just around the 24% EBITDA contribution from the three hubs. Just trying to get a sense of how you're thinking where they might land in 2024 and maybe beyond your kind of long-term -- long run mine plan assumptions?

Yes. Well, thanks, Al.

We won't talk about EBITDA because it's obviously gold price linked, but it's about the lift of the percentage of margin showing half one to half two in FY '23. And obviously, the momentum we've got entering into '24.

But obviously, we've given production guidance, AISC guidance, CapEx guidance. EBITDA will be related to gold price, and we've modestly hedged through that period.

Thanks very much, everyone, for joining us today. It's clear our strategy is delivering strong returns as demonstrated in our financials and balance sheet strength.

And so thank you, and good morning.