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Operator: Good day, and thank you for standing by. Welcome to Bank OZK Fourth Quarter and Full Year 2025 Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jay Staley, Managing Director of Investor Relations and Corporate Development. Please go ahead. . Jay Staley: Good morning. I'm Jay Staley, Managing Director of Investor Relations and Corporate Development for Bank OZK. Thank you for joining our call this morning and participating in our question-and-answer session. . In today's Q&A session, we may make forward-looking statements about our expectations, estimates and outlook for the future. Please refer to our earnings release, management comments, financial supplement and other public filings for more information on the various factors and risks that may cause actual results or outcomes to vary from those projected in or implied by such forward-looking statements. Joining me on the call to take your questions are George Gleason, Chairman and CEO; Brannon Hamblen, President; Cindy Wolfe, Chief Operating Officer; Tim Hicks, Chief Financial Officer; and Jake Munn, President, Corporate and Institutional Banking. We'll now open up the lines for your questions. Let me now ask our operator, Shannon, to remind our listeners how to queue in for questions. Operator: [Operator Instructions] Our first question comes from the line of Stephen Scouten with Piper Sandler. Stephen Scouten: I wanted to start with one kind of around the loan sale in the quarter and kind of your outlook on credit, net charge-offs and such. And maybe wondering what could lead you all to potentially lean further into the potential loan sales like you had on that 1 credit this quarter? And kind of given the commentary and the management comments around 2027 loss trends and a belief that those will improve kind of what gives you confidence to that end? And in that kind of positive outlook as we get beyond the CRE cycle? George Gleason: Yes. Great question. Thank you, Stephen. I appreciate it. Brannon, do you want to talk about the loan sale first, and then I'll take the second part of his question. . Paschall Hamblen: Absolutely, Stephen. Good morning. Great to have you, great to have the question. Appreciate it. Yes. We would be happy to say that contrary to some speculation that was out there. We sold that loan at par. We collected all our outstanding principal, all our accrued interest on the note sale, but I would reiterate what we said in our comments, Stephen, that the note sale does not reflect any change in our strategy. We've sold our ESG loans from time to time in the past in this particular case, and I would say that our note sales historically have been sort of one-off unique cases. In this case, there was an overlap between the project that was -- that secured that loan in multiple situations where the sponsor there and its equity partners were no longer willing to or able to support those projects. And that would include the large land development in Lincoln Yards that we sold in the third quarter, the Lincoln Yards life science project that's classified of standard nonaccrual so it's a particular fact pattern. It doesn't happen often. It's not a change in strategy. It's just the normal course of business as those occur. George Gleason: All right. And Stephen, on the other question you asked, we've given guidance in our management comments that we expect our 2026 results to look a lot like our 2024 and 2025 results in various respects. We've also detailed in considerable length in the comments there, the challenging environment that our sponsors have been operating in for a number of years. And that should be no surprise to anyone because we've talked about it, particularly at length over the last 14 quarters as we have built that ACL up, and we've depicted that ACL build in a chart in figure 23 of our management comments. So there was a build based on the expectation that the longer this challenging cycle drag on for our sponsors, the more likely it would be that individual sponsors on some individual projects would run into trouble and either choose to no longer support their projects or become unable to support their projects. And we've seen that over the last couple of years. And I think we've managed that really well and the ACL build was a prudent preparation for the environment we're in. I think we're getting towards the later stages, really in the later stages of the CRE cycle. We're seeing a lot of green shoots out there on leasing and property sales, we're seeing a lot of refinances because of the surge in credit availability, liquidity that has really manifested itself in the sector in the last couple of quarters. And obviously, the 100 basis points of Fed fund rate reductions in late -- in the last 4 months of 2024 and the 75 basis points of additional Fed fund rate reductions in the last 4 months of last year are providing some relief to sponsors on the interest cost. So we're not all the way through the cycle, but we think 2026 is pretty near the end of working through that cycle. And we think we see a decided upturn in not just improvements in the conditions for our sponsors, but also new volume and so forth. There's been a real constraint on new origination volume in recent years, and a lot of that is just the lack of equity and the fact that the market needed to balance supply demand, we're seeing that come more and more into balance in various markets on various product types across the country. So we think our guidance is good, and we're very optimistic about 2027. We think 2026 is another year like 2025 where we're just working through the environment with our sponsors. Stephen Scouten: Got it. Very helpful context there. And then just one other one for me around fee income growth potential. I mean, I know that it's never really been a big part of the story or a demonstrable proportion of kind of income at OZK, but it sounds like there's a lot of tailwinds there with the investments that have been made in CIB. So I just kind of curious what that could look like, not only in 2026, but kind of beyond and if there -- if you feel like there's really longer-term tailwinds there on the fee income side of things and if that could be a multiyear kind of growth pattern. George Gleason: Stephen, we're early in the process. So we haven't talked about it a lot. But clearly, if you read our comments closely, not only do we want to continue to achieve this diversification in our earning assets, which is well in tow and clearly evident. But we also want to see longer term. And you won't see huge strides in this in the short term. But longer term, we want to see fee income become a much larger part of our revenue. So we're so early in it. We've not talked about it a lot. We've given some general hints about it. But perhaps Jake could comment on CIB and then I'll comment on a couple of other items. Jake, do you want to talk about the fee income pieces of what you're doing. Jake Munn: Yes, happy to, George. I appreciate it, Stephen. Good question there. As you all know, we've discussed on previous earnings calls, our loan syndication and Corporate Services business line within CIB was planted about 18 months ago and continues to build. Those services provide kind of shared services bank-wide, including our capital markets program. It includes our interest rate hedging program, our loan syndications desk, our permanent placement solutions and also include some foreign exchange capabilities and some additional capabilities in cities that George alluded to that we'll be rolling out here over the course of the next couple of quarters. All of that will continue to grow in line with CIB. CIB is their primary customer base for those shared services. But that being said, we're starting to see some nice penetration, for instance, with the interest rate hedging providing caps to our RESG customers, whether that be that or swaps that we're providing to some of our community bank customers. We are starting to see some nice growth and lift there through LSCS and some of those noninterest income initiatives that we're rolling out. George Gleason: And then -- thank you, Jake -- outside of CIB, obviously, we're into now or about to start our third year in the mortgage business. It was a very slow rollout. In year one, we gained traction in this last year, and we expect to continue to gain traction. So mortgage lending fee income by originating loans as many, many banks do, most banks for resell in the secondary market is a good source of fee income for us. And then we've really put an increased emphasis on growing our trust and wealth business, really venturing into the wealth sector more so than just the fiduciary trust business that has historically been what we've done, but we're growing both those parts of that business. And then we've also launched a private banking business. It's small. We're just really working with the first group of customers that we've carefully selected to help us work out all the bugs and make sure that we're delivering the quality of service and enhanced experience that those private banking customers need but that is a good opportunity for revenue. And of course, we're enhancing and working really hard to increase our treasury management services, which is a large lift because we really want to improve that because of the fact that a lot of our CIB customers have needs in that regard for specification and products that we've not had in the past that we did not need for our smaller commercial bank C&I customers. So we've spent a lot of money, hired a lot of people, built a lot of technology, acquired a lot of technology to launch all of these different lines of business. I think you'll see some incremental improvements in the noninterest income line in '26. As a result of that, I think you'll see the real impact of that in 2027 and subsequent year. Operator: Our next question comes from the line of Manan Gosalia with Morgan Stanley. Manan Gosalia: So I wanted to start on credit. You called out uncertainties, particularly in office and life sciences in the management comments. Can you give us some more color on what you're seeing there? I guess, especially on the life sciences side, how long do you think it will take for the life sciences market to rebound? What you're hearing from sponsors? How have those conversations changed? And if you could also remind us on the levels of protection that are built into some of the larger life sciences loans. George Gleason: Brannon, you want to comment on life science and office as well, if you would like to? Paschall Hamblen: Absolutely. Thanks for the question. And as we've said in the past, we've seen different results, different projects, different markets. We've got some that have had great success and others that have been slower. I think the segments obviously faced some strong headwinds, you've had all the different macroeconomic factors that we've experienced and very specifically cuts to funding from NIH and its impact on demand for space over the last couple of years, a lot less in sort of the venture capital raise space. But the good side of that coin is there hasn't been really any additional spec life science start across the country. There have been starts with pre-leasing in them. And we actually see that our originators see those out there. And we've got -- we see tenants expanding so it's a little bit of a dichotomy in some of those outcomes. But again, the good news is not additional supply being added to the challenge and you've got continued, albeit muted demand in some markets chewing into that. It's going to take time. You see a great impact from -- in certain markets, demand that's really stimulated capital investment in AI that's starting to push in to Life Science as you've got markets that have a dearth of traditional office space. And as we've said, life science provides a great alternative for those users. So you've got some winners, you've got some losers, but you've got absorption slowly moving forward. It's going to take some time. As George said, we've seen this coming for a while. We've appropriately managed our ACL in anticipation of that. And we, as we've said, enter these deals at low leverage and with strong sponsorship. And we're pleased to see a number of those sponsors continue to support those. You've seen some, obviously, that are no longer willing or able to support them. And we've been clear reporting on those. But it's going to take some time, the bottom line, with life science. And we're, again, pleased to see the support in the interim. Office has really been a positive story for us. Really pleased with the trends that we're seeing in some office markets in our portfolio, in particular, especially some projects that had more limited activity over the last 12, 18 months are starting to see benefit. Office leases are 5- to 7- to 10-year leases frequently, and it takes a while for the portfolio of leases in any market to roll. And then again, there's continued sort of incremental positive impact from return to office. And as these tenants begin to look around, making leasing decisions about where their new home is going to be, that flight to quality that we've talked so much about historically remains very apparent. We saw good lease connectivity on a number of our projects in various markets during the fourth quarter. And we're tracking a number of other leases that are nearing lease execution in the near term. So on the whole, really good quarter for office leasing in many of our projects in many markets and more to come based on what we're seeing. And beyond that, office is showing a great deal of liquidity. As I reviewed the last 12 months, I realized that in terms of projects paying off, office was second behind multifamily. And I think that's true of the last six months as well. So we've continued to see good liquidity in the market, in particular on the credit side that is supporting refinance activity. So not just from a leasing perspective, but from a capital investment perspective, we've seen good results on the office side. George Gleason: And to put an emphasis on Brannon's point about the liquidity returning to the office space, I think we had four office projects refinance in the last quarter. One of our mixed-use projects that refinanced out had a significant office component within it. Some of the office projects we've seen refinance in the last year, a lot of them, in fact, have had no leasing. The liquidity is there, and people recognize the value in these high-quality buildings. The fact that the supply-demand metrics are normalizing and these things that have been slow to lease are getting to the point that leases are very likely to be in the near term. That's providing some support for the space and a lot of liquidity and new investment in refinancing product that is out there. And similarly, in some markets around the country, you're beginning to not have the office available in the market that's built that meets the needs of some of the sponsors. And that really is providing an opportunity for life science projects to fill with space that's office-use space or another alternative-use space. And Brannon mentioned, particularly in the San Francisco Silicon Valley area, AI is driving a lot of demand for that space and creating guys that are kicking the tires and walking and looking at some of the projects we've got in the life science space there for AI usage. So the environment is getting more constructive in a noticeable way. Manan Gosalia: Got it. . So your conversations with the sponsors there on the life sciences side kind of indicate that they're in for the long haul. They're willing to support the properties for more time. And any thoughts on, I guess, the protections that are built into some of the larger life sciences loans that you have out there? George Gleason: Well, we are dependent upon sponsor support to your point. I think the mood and the attitude is generally every sponsor is different. Every project is different. The mood and the attitude is somewhat improved. Our guys had a meeting with our largest life science loan, our largest loan, the leadership team, the management team on that. That group came to Dallas to just give us an update and a report on where they were. I was not part of that meeting, but my understanding that was a very constructive, very positive meeting with plans and commitments in place to really push that project on to a higher level of leasing and activity. So we're cautiously optimistic. Will every life science project get to the finish line and have a successful outcome with its current sponsorship and capital partners? Maybe not. There may be a casualty or two along the way. But I think generally it reflects what we've seen from our sponsors. And let me explain what I mean in that. In this cycle, we've had 4 RESG assets that went into foreclosure or we acquired title to. Really didn't, I think, foreclose on any of them, but acquired title to them in satisfaction of the debt. Three of those were liquidated in the last year, one in the third quarter, the largest at Chicago land. Two were liquidated in the fourth quarter. And the one project we had that didn't sell was under contract for a couple of years. And the sponsor paid us $12 million in contract extension fees and forfeited earnest money on that, that Los Angeles land. So a relatively small number of projects. Now, I will comment. Someone wrote that we had taken a charge-off on that LA land. That is not correct. We moved it to OREO at our book value, and the reduction in the value of that -- on our carrying value on that over the last couple of years is a result of forfeited earnest money, not any charge-off, so we've never taken a charge on that asset and feel like we're appropriately valued on it now. But we've got four loans in non-accrual, so a relatively small number of RESG assets where the sponsors have been unable or unwilling to continue to support the asset. The flip side of that is detailed, and we've been giving you this information for most of the last 14 quarters on figure 28 of our management comments. Just to give you a data point, last quarter we had 49 loans that had an extension of their term. We collected $56.7 million in reserve deposits, $7.6 million in modification fees, $45.1 million in unscheduled principal paydowns in connection with those loans. If you look over the last 14 quarters since the Fed started raising rates, that is $1.3 billion in additional equity contributions, $866 million of reserve deposits, $429 million in unscheduled principal paydowns. I don't know the fee number, but tens of millions of dollars in fee income to us on those loans. What that tells you is that 95% plus or minus of our RESG loans are experiencing and continue to experience good sponsor support. Will there be a few more fallout before we get to the end of the cycle? Probably so. But we built our ACL from $300 million to $632 million in anticipation that there would be a few bumps in the road. So we feel like we've prudently prepared for this. We feel like we're doing a really good job of working through and liquidating these assets when we've had cases where the sponsors have given up. And we're well-positioned to get through the rest of this cycle in good form. Operator: Our next question comes from the line of Brian Martin of Janney. Brian Martin: Thanks for all the commentary thus far. Maybe just in terms of it doesn't sound like much in the way of additional sponsors likely to maybe not be supporting these based on kind of your commentary. But just in terms of the resolution of the current level of non-performings, can you talk about maybe the timeline in terms of any big chunks you expect to see get resolved in time frames, just kind of how you expect to work some of that down as you go forward? George Gleason: Well, on the Boston property, for example, the sponsor on that project would have done an extension renewal and put up their part of the required capital to do that. Their two equity partners in that transaction really decided that they were not going to put up more capital until they got a lease, and our rule is you pay, you stay. You don't pay, you don't stay. So when they ask us to give them nine months or so, six months, whatever to work through the lease without making any payments on the loan, we just said that's not the way we operate. If you want time, you have to pay for the time. If you don't pay for the time, then we're going to move to resolve the asset, so the resolution of that asset can occur several ways. Number one is the sponsor in that transaction is out trying to put together new equity partners to continue with the successful outcome of that project. We're hopeful they'll be successful, but we're also dual-tracking our acquiring title to that property so that if they're not successful, we're ready to take that asset over and continue to move that asset forward in a constructive way, so obviously, if they raise new capital, that could get resolved, and our view on that could change dramatically and quickly. On the flip side, if we have to take that over, then we'll look for opportunities to sell it. If we can get a favorable price on a sale, we would sell it. If not, we'll lease it up and then sell it when we get it into better shape. I would comment also on that property. There was some commentary out there that the lease situation has blown up and gone. That is not our understanding of the situation. The sponsor continues to be actively engaged with the prospective tenant. The prospective tenant, our understanding is they just delayed their process for about six months and instead of making a decision early in the year, expect to make a decision mid-year, third quarter, or so forth. And I think our building is still in kind of the inside lane on the opportunity there to work out a lease with that sponsor. It's still early, but that activity is still ongoing, and we're working with the sponsor, and whether we acquire title or the sponsor recaps, we'll work very collaboratively with the sponsor. We have a good relationship with the sponsor. We'll work very collaboratively to make sure that those ongoing leasing efforts are maximized the opportunity. The office building that's on non-accrual in Santa Monica, we're pursuing opportunities that would result in a sale of that asset fairly quickly. The Chicago life science deal, the sponsor is working on a short sale opportunity on that. We've written it down based on our understanding of the financial metrics of that short sale. If they accomplish that, then we could be paid off quickly over the next couple of quarters, however long it takes to close that. If they don't accomplish that sale at a price that's satisfactory to us, then we'll take that property and sell it. The Baltimore land, we've talked about at length in previous conversations. We're working on a potential sale of that property right now. We're also working, continue to work with the current sponsor on our taking title and continuing to integrate our development and liquidation of that property with the other developments that the sponsor successfully achieved in that area. So it's hard to know when these things actually come to fruition. There are multiple paths that each of them could take, but we're working those things diligently, and sometimes you resolve things fairly quickly. The three pieces of OREO we sold last year that were RESG assets, all those were resolved in a pretty short time frame for sale of a piece of foreclosed real estate. The flip side of that is the one we've still got there while we've made a lot of money on extension fees over the last couple of years with that and got a nice paydown on our carrying value of that OREO through the forfeited earnest money. We worked on that thing two to three years with that prospective buyer. And it didn't come to fruition. And now we're back in the market with it. So some of them will work out fairly quickly. Some of them, for one reason or another, will take a bit longer to work out. We try to be very constructive about the way we approach these things. And I'll give you a good example. Our oldest substandard accrual asset in the RESG portfolio is that development near Lake Tahoe, California. And that thing has been substandard accrual since 2019 and was special mention for some number of quarters, I believe. But before that, I don't remember when it went on special mention. But you hear the adage a lot of times about problem assets. And the old adage that everybody seems to quote is, "Your first loss is your lease loss." Well, a lot of times, maybe a majority of the times, first loss is your lease loss. But as we looked at that asset, we said, "The sponsor's not going to put new capital in this, but the sponsor remains engaged." We can work out an opportunity here where we don't have to put new money in it, but we can work with the sponsor and help them chart a path to a successful resolution of that. So instead of blowing that asset up in 2019 when it went on substandard and probably taking a 10 or 20 or million dollar loss on it, we worked with the sponsor, developed a plan to address that. And we've earned $43 million in interest and fees on that loan. And our total commitment today is $43 million. And our outstanding balance is about $34 million on that. So we've earned more in interest and fees than our outstanding balance on that loan. And there's a very high probability that we get through that all the way to payoff with a successful resolution of that asset, earning money all the way and never taking a loss on that. So you've got to be thoughtful and constructive in the way you approach these and understand what the assets are and understand how to maximize the value from them. Brian Martin: Got you. Maybe just let me ask one follow-up and I'll hop off. Just in terms of the -- the margin came in better than expected, I guess, in the quarter. Just wondering if you could give a little bit of thought about that given the rate cuts that have already occurred and just kind of how you see the margin in a relatively stable environment here. And then just on the buyback, any commentary from Tim on kind of the outlook of the buyback here prospectively . George Gleason: Tim, you want to take the buyback first, and you're welcome to take the margin if you want to as well. Tim Hicks: Sure. Thanks, Brian. Yes. I mean, our buyback, obviously, we started a new authorization July 1. We said all along that we would be opportunistic in using that. And certainly, during the fourth quarter, as we were trading below tangible book value, that was just too good of a value to pass up. So we bought 2.25 million shares for an average price of $44.45. That was well below or a couple of dollars below our current tangible book value. So very accretive to not only EPS, but certainly accretive to tangible book value as well. We still have just under $100 million left in that authorization. And we'll be opportunistic if we're trading in similar ranges. I think we'll be pretty active in this quarter and could use it all this quarter. It expires at the end of June. And so either this quarter or next, depending on how we're trading. So at the same time, you may have noticed we increased our dividend for, I believe, the 62nd quarter in a row and also had our capital ratios increase. I think, Brian, you pointed out in your note, our tangible common equity increased 35 basis points during the quarter at the same time of buying back $100 million of common stock. And our preferred and common dividend combined is roughly $55 million. So very pleased about being able to grow capital ratios, grow capital in dollars, and still return a lot of capital to our shareholders during the quarter. On the margin, yes. You may remember, Brian, I mean, our margin held fairly well during the quarter. Our rates on most of our RESG loans reset on the tenth of the month. So on December 10 is when they're reset. That did not reflect the full impact of the move in SOFR. And there were still eight or nine basis points left that SOFR has moved down already from the tenth of December to January 10 when they reset again. So we benefited from that during the quarter. And Ottie and the deposit team did a really good job on really managing our deposit costs. I think those came in very favorably as well. So we were pleased with how our margin performed during the quarter. We did mention a few things you may remember. In the first quarter, we have two fewer days. So that certainly is a headwind to net interest income for Q1. We gave you a range there of where we thought we would land for Q1 net interest income. And we'll do -- our deposit team will continue to work really hard on getting the best execution on our deposit costs as well. So I think we were really pleased with how our margin was for Q4, but we'll continue to work hard on managing that moving forward. Operator: Our next question comes from the line of Janet Lee with TD Securities. Sun Young Lee: Starting off with credit. So you've mentioned that your 2026 trends on credit would be similar to what you experienced in 2025. You probably have a better line of sight into your credit and the situations with sponsors. So just to level set, are we expecting a similar range of net charge-offs that you experienced in 2025 into 2026? So call it 50 basis points. And if I were to extrapolate the NCO expectations for 2026 into what you would be willing to do on your provision and allowance for loan losses, it's more than doubled over the past three years. So, is a plan that you would draw down on your reserves in anticipation of any potential credit losses in 2026, given that you've built reserves for so long for a few years, or similar to what you did for full year 2025, you would be taking a similar amount of provision for whatever expected credit losses are for '26? George Gleason: Great question. And Janet, I would start off by telling you we're going to do the right thing, whatever that is. And that will depend on where the global economy goes, where the U.S. economy goes, where the quality metrics and risk ratings of our portfolio go. So if we need to build a reserve further, which is probably not my base case, but if we need to do that, we'll do that. We're going to do the right thing, whatever the economy and the models and the risk ratings tell us is the appropriate thing. We talk about this at length in the management comments. We've prudently built the reserve. So when we incurred the charge-offs that we incurred in the quarter just ended, a large part of that was already provided for. So we were able to absorb that and still run with all the models and put up all the reserves we needed to put up. And we carefully looked at that and rolled all those numbers forward and really validated that our decisions in that regard were correct. So I would anticipate that if the economy plays out as we think it does and as this CRE cycle sort of winds down in 2026 and early 2027, as we think it will, that ACL percentage may continue to do what it did in the fourth quarter. And that has come down modestly as we absorb losses that we've provided for, the likelihood and potential of. And we'll see where that goes based on where the economy goes and how the portfolio performs. But I think we were very prudent. The risk events build over time. Clearly, just the prolonged series of challenges that our CRE sponsors have faced going all the way back really to the COVID pandemic. For our purposes today, mostly from the last 14 quarters when the Fed started raising rates and sponsors were dealing with the aftereffects of COVID and inflation and work from home and all of that and then got into a higher rate scenario, it was a challenging time. As I said in the management comments, we think we are really in the late stages of working through that. If that bears out, then that reserve ACL percentage could continue to ease lower over the next year. Sun Young Lee: Got it. That's helpful, color. And I know it's hard to exactly comment on this, but I'll still try. So when you say 2026 will be similar to 2025, working through some of the credits in the latter cycle of CRE, is your expectation that you're going to see more of the migration into substandard non-accrual from special mention and maybe substandard accrual into the non-accrual category within that classified and criticized asset that you have, which have been pretty stable overall over the past year? Or are you anticipating more of the new credits that could be migrating over to the classified and criticized category over time? So basically, do you have a line of sight into some of the potential credits that could be migrating into special mention or substandard overall, or more of a potential credit migration within that classified category into non-accrual based on what you're seeing now? George Gleason: Well, a lot to unpack there. So let me start with this. The special mention category tends to be a fluid category. A lot of times, if we're having a very challenging extension modification negotiation with a customer, a loan may get into special mention while we're involved in that negotiation because our challenges to the customer may be, "You got to put up X dollars in reserves. We want to pay down on this. You've got to make these other enhancements and changes to protect our position." The customer may resist that because they've got other things they're dealing with too. And those negotiations may become very challenging and intense. And usually, we get those resolved in a favorable manner. So a loan that is in the midst of intense negotiation and we're unsure how that's going to play out may find itself in special mention. And then a lot of those get resolved. We get a nice paydown. We get reserves reposted. We earn a nice fee on the extension. It's kind of put back into a very healthy state, and it migrates back out into some level of pass rating. Then you have loans that migrate in that you're not successful in negotiating that, or maybe there was an issue with it that caused it to be in special mention, and that doesn't work out well. That will migrate into substandard or substandard accrual, and we'll give you more disclosure on that. So the special mention is not just a stepping stone to substandard. Loans come in that and go back out the other way, back into a pass status as well. And that happens very frequently. So there's a fair amount of churn in the special mention category. I would repeat what we said in the management comments. We've had a handful of sponsors who have been unable or unwilling to continue to support their project over the last 14 quarters, particularly the last couple of years. We expect that our experience in 2026 is going to be similar to our experience in 2024 and 2025. So sort of giving you a couple of years to look at as a comparison for our expectations for 2026. So I think we very likely will have a handful of additional sponsors who give up on projects. We have an ACL built for that expectation. And it's a case-by-case basis. And in dealing with sponsors, you're not just dealing with the sponsor, but you're also dealing with the sponsor's capital partners in a lot of these cases. So there are multiple variables at play, and we're really good at working through those. We have a great team that works through these negotiations and arrangements. I feel very good about that. But I think we've given you as good a guidance as we can give you at this point in time. Operator: Our next question comes from the line of Jordan Ghent with Stephens. Jordan Ghent: I just had a question on kind of the capital. It looks like you guys have $350 million in sub-debt that moves from fixed to floating this coming October. I think you guys have previously said you could redeem in whole or part beginning in October. If that's still the case, and then with that, how does that affect your buyback up until that point? Tim Hicks: Jordan, you're right. We do have sub-debt that goes from fixed to floating October 1. We've not made any decision regarding what we'll do on that right now. I mean, we'll make that decision as soon as we need to, but too early to comment on that. Our buybacks, we have a lot of capital. And you saw our CET1 ratio increase and our earnings -- we haven't talked about earnings a lot on this call, but we earned a lot of money. Earned almost $700 million, almost a record again this year, almost equal to what we earned, which was a record last year. So that earnings power does allow us to have a lot of capital that we can use opportunistically. In some years, we're going to have a lot of a strong amount of growth. Some years, we're going to have mid-single digits. When we have mid-single digits and we have levels of earnings that we're expecting in the coming years, we're going to increase our capital levels, and we'll look for opportunities to deploy that, just like we did in the last quarter. Too early to comment on sub-debt. We've had sub-debt outstanding really since for the last 10 years. Some level of Tier 2 capital is a part of our capital structure. That's over the long term. I would expect us to have a decent amount of Tier 2 capital. That's really kind of our long-term strategy there. Jordan Ghent: Got it. And then maybe just one more. Last quarter, you guys guided for loan balances to move lower in the fourth quarter in 2024, 2025. We didn't see this in management comments. Could you provide any commentary on what's going to happen maybe in the near term or kind of the trends you're seeing? George Gleason: Tim, you want to take that or I'll be happy to. Tim Hicks: Sure. Yes, we gave you loan guidance for the year. In Q1, I think we're expecting to be positive and not have a quarter like Q4, obviously, the payoff velocity sometimes moves around a little bit on us. And so -- but I think our growth will be -- will come mid- to late year Q1, I think, is still a positive quarter of growth but you could have a payoff or two that comes in or pushes out that can move that around a little bit. But I think we'll have growth that comes in throughout the year, but probably second quarter, third quarter, fourth quarter will be stronger than first quarter. George Gleason: Yes, I would agree with that. Our mid-single-digit loan growth guidance that we've given for the year is probably going to be loaded into the -- more in the final 3 quarters than the first quarter of the year. We've got -- we had a lot of payoffs that we are expecting in Q1. Operator: Our next question comes from the line of Catherine Mealor with KBW. Catherine Mealor: One follow-up on the credit conversation. As we look at the special mention category, and I know, George, you talked about how this is a fluid category where loans come in and out. But it was interesting to see that a number of the loans that are in special mention were highlighted on the appraisal chart, Figure 29. And it feels like a couple of them have pretty LTVs that are nearing 100. And so just curious if you could provide any commentary on some of those larger office special mention loans. And are there maturity dates coming up near term, or are there things that we should be aware of in the next couple of quarters that could perhaps drive some of those to move into substandard? George Gleason: Well, in respect for our sponsors, we really try to not talk about loans that we don't need to talk about, and special mention loans fall in that category, so I don't know that we have a lot to really add on that, Catherine. There's a balancing act between being totally transparent and providing full and accurate disclosure to our investors, and then going beyond that and providing disclosure we don't need to provide that's challenging, detrimental to our sponsors, so I don't have a lot of comment on that. Those loans we feel like are appropriately risk-rated special mention. That risk rating is reflective of the appraised values on them. We've talked a lot about how fluid and in and out our special mention is, so if those loans merited a substandard rating, we would have them substandard rated. If they merit a substandard rating in the future, we'll rate them there at the appropriate time. And we think special mention is correct. We gave you those notations there because we didn't want to convey the impression that, gosh, we had loans that were higher loan-to-value loans that we had gotten an appraisal that said the loan-to-value on it is a lot higher than where it previously was. And we weren't taking that into account in the risk ratings on them. So I think we're doing the appropriate and proper thing, prudent thing on those loans. Catherine Mealor: Got it. No, that's clear. I appreciate that. And then maybe another question. It might be the same answer, but I'll try it. But any update on the larger life science line out in San Diego, the RaDD property, just any leasing update or anything that you can? It's been a few quarters since we've had an update on that. Just curious if there's anything you can provide on that larger credit. George Gleason: Yes. I'll let Brannon comment on that. But you -- when I mentioned meeting with the management team on our largest loan in Dallas that was that loan. So Brannon, I know you don't want to get into too many details, but you might sort of give you a flavor and take on that. Paschall Hamblen: Sure, Catherine. Thanks for the question. And yes, I would just reiterate what George said around sponsorship and management. They have pulled in some new leadership that is extremely experienced in the segment. And you may recall that over the last couple of years, the sponsor has injected a significant amount of capital in that project specifically. But the company and its capital partners, I think they had a -- I want to say it was a $900 million capital raise. So with respect to the wherewithal, the sort of can do, they've got it with respect to capital, and they've got it with respect to expertise. We did have a great meeting. There has not been a lot of executed leasing activity. There are a number of proposals out, predominantly on the office side. That's probably all the detail I'll get into there as it relates to the leasing part of it. But this new management team is very impressive. The plan that they've laid out starts at the ground level. They are very much at the ground level and on a daily basis. And the exciting thing now is activation. You have tenants with their leasing improvements or tenant improvements wrapping up and starting to open here in the near term. So you'll start to get some good activation. And so we feel very good about where they are in their commitment to the project, obviously of outstanding assets. And we think these guys are going to have success in putting tenants in that asset. Operator: Our last question comes from the line of Timur Braziler with Wells Fargo. Timur Braziler: My first question's on the Boston property. It looks like in the third quarter, the reappraisal was done on an as-stabilized basis and implied a level that was much higher in 4Q, where it looks the appraisal was done now on an as-is basis. Can we just maybe talk through kind of what transpired between 3Q and 4Q that drove the more punitive appraisal? George Gleason: Well, it was the same appraisal, and it was using the as-stabilized versus the as-is value. And our approach on this is we use as-stabilized value when the sponsor is engaged in the project, supporting the project, and the expectation is that the project's going to achieve stability. If the sponsor is, in this case, then indicates that they're not going to continue to support the project and contribute capital and keep it current and keep it performing, then, as I said earlier, you pay, you stay. You don't pay, you go. And we're going to take property, then we shift to a liquidation value or an as-is value of the property. So we detail that in the footnote at the bottom of Figure 26, all of those substandard assets because sponsor support seems unlikely or is clearly not going to happen. All those substandard non-accrual assets are reflected at as-is values. The assets that continue to have sponsor support are reflected as as-stabilized value. So to specifically nail down the point, you asked what was the change. The change was we expected the sponsor when we were talking in October would continue to support the project to some degree. And they seem to be close to a resolution and a favorable resolution on the pending lease project because the prospective tenant extended their timeline to make a decision on their lease by six months plus or minus. The sponsor indicated they were not going to continue to support the project without a lease, or the capital partners did. The sponsor was still willing to support, but not the two capital partners. That lack of support and the elongated timeline on the lease decision led to the change in our appraisal selection for that asset. Timur Braziler: Okay. Got it. And then maybe just one more on the allowance. George, you had made the comment in one of the earlier questions on kind of working through the environment. I'm just wondering, in terms of allowance and the ability to maybe drive that lower, is that just working through the existing known problems? And I'm just wondering to the extent that we do get additional risk migration into categories beyond special mention, is that going to warrant additional allowance actions, or do you feel like the existing reserve that's in place today is going to be sufficient to work through whatever issues might surface over the course of the next 12 to 18 months? George Gleason: The ACL reflects our expectations for all of the current portfolio for the life of those loans. That's what CECL is all about. You calculate your expected loss for the life of those loans, so we have an expected level of migration that is embedded within that ACL. Even before, early in the interest rate raising cycle, we were building the ACL because of expectations. If this trend continues and goes on long enough, there will be some losses that will result. And obviously, the longer the cycle went on and the higher interest rates went, and then all of the other various macroeconomic challenges and uncertainties and impacts that occurred, that resulted in that full ACL build to a $680 million level where it stood at September 30. The environment is getting slightly more constructive, and we're resolving some of those specific losses by taking charge-offs on them and resolving them in the last quarter. So that's why the ACL came down. So based on our current expectation, there will be some migration in the portfolio. We don't know what specific loans are going to migrate, but we've got probability analysis basically on every loan, a probability of default or loss-given default. Some that we have loss reserves for will never become an issue, which will free up those reserves. Some that we have a loss reserve on will possibly migrate adversely and will need more reserve. But on average, I think we're in a really good position. And that's what your ACL does. It reflects your expectations for the whole portfolio. And you do it on a loan-level basis and sum all that up. But some of the vast majority of those reserves are not going to be needed for the specific loans they're on, but other things will get migrated to a more adverse status, and you'll need some of that reserve that's freed up from others to meet that. So it's an average process. Operator: Thank you. I would now like to turn the call back over to George Gleason for closing remarks. George Gleason: All right, guys. Thank you so much. We appreciate all your time today, your interest in OZK. We look forward to talking with you in about 90 days. Have a great rest of the day. Thank you. Operator: This concludes today's conference. Thank you for your participation. You may now disconnect.
Operator: Thank you for standing by, and welcome to the Northern Star December 2025 Quarterly Results Call. [Operator Instructions]. I would now like to hand the conference over to Mr. Stuart Tonkin, Managing Director and CEO. Please go ahead. Stuart Tonkin: Good morning, and thank you for joining us today. With me on the call is the Chief Financial Officer, Ryan Gurner; and Chief Operating Officer, Simon Jessop. As previously announced in the December quarter, gold sold totaled 348,000 ounces at an all-in sustaining cost of AUD 2,937 per ounce. A number of one-off operational events across our assets resulted in this softer performance and required us to revise FY '26 production and cost guidance. With these events behind us, our team remains firmly focused on driving productivity improvements and strengthening cost discipline to deliver a stronger second half for our shareholders. Our FY '26 outlook provides revised guidance of 1.6 million to 1.7 million ounces of gold sold at an all-in sustaining cost of $2,600 to $2,800 an ounce. Today, we also provide further detail for production and AISC guidance by production center. In addition, we have updated our capital expenditure forecast across the portfolio. Operational growth capital guidance remains unchanged at $1.14 billion to $1.2 billion. KCGM's growth in capital expenditure in FY '26 consists of several projects designed to prepare the operation for commissioning of the newly expanded mill from FY '27. And 2 aspects, which I'd like to highlight are the KCGM mill expansion project FY '26 capital expenditure is now expected to be in the range of $640 million to $660 million, and this reflects targeted increases in labor to ensure the commissioning in early FY '27. Also, the KCGM tailings dam activity is ahead of schedule with FY '26 spend now expected to be to $240 million to $260 million. While FY '27 forecast spend is lighter at $100 million to $120 million, which this represents approximately 10% reduced cost for the overall tailings dam project. And at Hemi, forecast spend is $165 million to $175 million, reflecting more optimization of engineering and design works there. Northern Star continues to work closely with state and federal regulators, key stakeholders and the broader Pilbara community. With gold price now exceeding AUD 7,000 an ounce, is an outstanding time to be producing and discovering gold in stable low-risk jurisdictions of Western Australia and Alaska. Our balance sheet remains in a net cash position and as our hedge book decreases, our growing exposure to spot gold, coupled with increasing production, positions us for a very strong increase in cash flows going forward. I'd now like to hand over to Simon Jessop, our Chief Operating Officer, to discuss our operational highlights. Simon Jessop: Thank you, Stu, and good morning. The Kalgoorlie production center delivered a lower-than-expected quarter driven by 2 main issues. The first issue was the previously announced partial suspension of mining at our Kalgoorlie operation. A new escape way was mined and installed over 9 weeks. Mining at Kal [ ops ] from mid-December has returned to normal operations. The second major issue was a lower-than-expected processing outcome at KCGM. The mill underperformed all quarter on throughput volume both rate and run time with the primary crusher failing in December. Since the fifth of January, the crushing circuit has performed in line with normal expectations and we have crushed over 700,000 tonnes in 20 days versus December's full month crushing performance of 600,000 tonnes. KCGM's total mining performance was an outstanding result with 207,000 ounces mined in the quarter, a new record for the site and a Northern Star Resources ownership. Open pit total material movement was $22 million for the December quarter and $45 million for the first half at the top of the 80 million to 90 million tonne annual guidance range. The open pit for Q2 mined 163,000 ounces at 1.5 grams per tonne, with Golden Pike's contribution of 117,000 ounces at 1.7 grams per tonne. The KCGM underground operation developed 8.7 kilometers for the quarter and mined 819,000 tonnes of ore. For the first half, the underground ore mined was 1.55 million tonnes above the annualized target of 3 million tonnes per annum. Due to the processing throughput issues, KCGM finished the quarter end with 1.3 million tonnes at 1.9 grams per tonne and 81,000 ounces of high-grade ore on the ROM pad. CDO performed -- sorry, Carosue Dam performed in line with expectations for the quarter and the half. Let me close on the Kalgoorlie production center by again sharing that the KCGM mill expansion continued well over the Christmas, New Year period with a workforce of around 350 people. The project has ramped back up to 800-plus personnel and for the remaining 6 months for final ores on construction and transition into commissioning and ramp-up planning. With the project remaining on time for an early FY '27 ramp-up. Turning to our Yandal production center, both Jundee and Thunderbox experienced a challenging quarter and first half. At Jundee, the previously announced localized structural failure of the crushing circuit works have progressed well. It has taken longer than it, but it has taken longer than anticipated. The Coarse Ore Stockpile Tunnel has been excavated, rebuilt and reburried with ROM pad loaders feeding the bin again as normal. The full completion of the tunnel works is on track to be restored by mid-February. The Jundee team has actioned these works safely and professionally for an extremely large job. The Jundee Airstrip is also less than 2 weeks away from its first flight and remains on track for flight savings and less rain interruptions going forward. At Thunderbox, 2 issues prevailed for the quarter. The first one, reduced throughput due to tank issues, which also impacted recovery by 5%. Less mined ore from Aurelia and the haulage of the high-grade ore to the mill. On the processing impacts, all tanks were back in operation at the quarter end with rectifications planned for H2, which will see us cycle through the 7 tanks. Secondly, on Aurelia, the resource is not performing as modeled in mined in the high-grade areas of the ore body. We have already reduced the mining fleet from 17 trucks to 11 trucks in order to manage the required mining practice changes, improved mining and cost efficiencies. The Aurelia open pit strip ratio reduces from here on in. Aurelia has an estimated life of 21 months and will generate 215,000 ounces at 1.4 grams per tonne. Meanwhile, open pit mining at Bannockburn ramped up significantly with first ore being stockpiled ahead of milling in H2, providing another ore source close to the Thunderbox mill. Finally, turning our attention to lower gold sales was impacted by lower head grade of approximately 0.5 to 1 gram per tonne due to a combination of stock dilution and ore loss. Volume of ore was also approximately 30,000 tonnes less due to East Deeps span constraints on scheduled high-grade areas of the ore body. And we've also lost about 3 days in December due to extremely cold temperatures below 40 degrees Celsius. Early in January, we have seen an improvement in mine grades above 6 grams per tonne and an increase in stope ore volumes. Processing performance for Q2 was very good, with availability averaging 92% year-to-date. The recovery was 86% during the quarter, 5% higher than expected. Development continued to improve at Pogo with 5.2 kilometers achieved for the quarter, corresponding to a monthly average of 1,731 meters a month. The quarterly performance on Gold sold was impacted by a number of significant events across the portfolio, which has resulted in lowering our annual gold guidance between 1.6 million and 1.7 million ounces. We are in a much stronger position as we enter the second half of the year. KCGM and South Kalgoorlie operations have returned to normal. Jundee has some outstanding issues that are expected to be resolved during this quarter and Thunderbox is in improved shape and at Pogo, we are seeing the December improved head growth continue into January. I would now like to pass to Ryan, our Chief Financial Officer, to discuss the financials. Ryan Gurner: Thanks, Simon. Good morning all. As demonstrated in today's quarterly results, the company remains in a great financial position. Our balance sheet remains strong as set out in Table 4 on Page 10 with cash and bullion of $1.18 billion, and we remain in a net cash position of $293 million at 31 December. The company has recorded strong cash earnings for the first half of FY '26, which is estimated to be in the range of $1.06 billion to $1.11 billion. A reminder that our dividend policy is based on 20% to 30% of cash earnings. Although Q2 was a challenging quarter, all 3 production centers generated positive net mine cash flow with capital and exploration fully funded. Figure 8 on Page 11 sets out the company's cash and bullion movement for the quarter. The company recording $738 million of operating cash flow, which included the semiannual coupon payment on the notes of USD 18 million, approximately $30 million annual insurance premiums. Additionally, during the quarter, the company paid $370 million of income tax being the first half tax payments of $437 million, lower than the first half cash tax guidance. Major operational growth or capital investments include -- our KCGM open pit development at great Boulder and underground development at Fimiston and Mt Charlotte, which will enable us to lead production over the coming years and its Thunderbox operations open pit development at Aurelia and Bannockburn. In respect of the KCGM growth project, $180 million was invested during the quarter with major progress in structural and mechanical installation, including SAG and ball mill installation progress. Electrical and piping installation is advancing with final construction fit-outs to follow throughout the second half. The project remains on track for commissioning early FY '27. And our Hemi project, $20 million was spent advancing process plant design, securing long-lead-time items and progressing on non-processing infrastructure. On other financial matters, T-2 group all-in sustaining costs included approximately $20 million of additional costs associated with the disruption events across Jundee cooperations and KCGM during the quarter. Half 1 depreciation and amortization is at the top end of the guided range of $8.75 to $9.75 around and is expected to lower over the second half the forecast increase in production. Noncash inventory charges for the group in the December quarter are a credit of $93 million, driven by lower grade stockpile build and higher ore stocks at KCGM and stockpile build at Thunderbox. From a tax perspective, the update to second half production, we lowered our second half group cash tax forecast to $230 million to $270 million. No change to our estimate quantum or timing for landholder duty for the De Grey and Saracen transactions. And the company continues to unwind its hedging commitments with 158,000 ounces delivered during the quarter. At 31 December total commitments equaled 1.1 million ounces at an average price just over $3,300 per ounce. I'll now hand pass back to the moderator for the Q&A session. Thank you. Operator: [Operator Instructions] Your first question comes from Levi Spry from UBS. Levi Spry: Stu and team. A couple of questions, I guess, on the CapEx, KCGM and then Hemi. Just so I understand the increase in CapEx at the mill expansion. Is that about more people? Is it about better people? Or is it about paying more, just so we understand, I guess, where the industry is at? Stuart Tonkin: Yes. Thanks, Levi. Look, it's targeted and deliberate and it's to ensure we meet the commissioning timing of that FY '27. So it's more people. And it's recognizing, I guess, the productivity we've got out of the team that are there today and is not saying they're good or bad. It's just saying when everyone's working in that congested space. We haven't made the progress on some of those things. So we were targeting around 600 people throughout the build. Simon just spoke to, we retained about 350 over Christmas, which would normally be in a shutdown. And then we've also run some back shift, night shift throughout the last 6 months and also we've come up with 800 head count working on that project. So it's targeted deliberate. It's at a cost. Obviously, there's an uplift of about $110 million throughout this year, of which a large part of it is being spent in the first half. So there's a second half kind of tail out of all the electrical and cable runs. But really, it's important that we meet the schedule on time and get that commissioning and get the cash box working. Levi Spry: Yes. Got it. Thanks for the extra detail. And so could we have a little bit more, I guess, on that guard chart -- so what is actually involved between, I guess, now and what activity specifically? And then I guess, what is required to hit 23 million tonnes in 2027? Stuart Tonkin: Yes. So really, the commentary is above that. We talk about in the bullet points there, this is on Page 5 of the quarterly. Obviously, 90% of all the structural steel and 80% of all the mechanical installation is complete. So we're back to the timing in electrical cable runs and sort of testing and powering those things up. Obviously, there's an element of putting it all in place before you do any of that live testing and it's really, basically the final coupling of all the pipe work. So -- we're well through the bulk of it, and it's in the right order. Nothing, I guess, is behind, but we're recognizing the work ahead just needs that additional waiver, which we're working with the contractors to source, and we were doing just prior to Christmas. So December, we started to increase numbers. We continue with what we can call it a skeleton crew, we certainly 350 people throughout the Christmas period. But really, it gets down to that final tie-in all the pipe work, pressure testing the cables, dead testing cables until we're ready to energize things. So yes, it's -- it will be ready to power up in June. The question is whether we want the disruption. In the back half of June, typically, you won't get the extra gold sold, because it all has to come through the float circuit now through concentrates, et cetera. So we may be bringing up in parallel. But ideally, in July, the mill is running. The 23 million tonnes represents a 27 million tonne per annum plant turned on and then deliberately turned off to do retalking of balls and just visual inspections on wear rates, et cetera. That's deliberate planned downtime throughout the year, which derates from 27 million tonnes to 23 million tonnes. But when it's running, it will run at the 27 million tonnes per annum. I think that answered part of your question. Levi Spry: Yes, that's good. And just 1 more on Hemi. So what permitting is still a pretty complicated subject for us. Can you just give us a bit more detail around what stages up to now, what happens next? Stuart Tonkin: Yes. So essentially, you got approval is still going through their processes. This financial year, we're expecting there's no real way to fast track those processes with the regulators, and it's prudent that they take the time. In parallel to that, we're working on the water trials and dewatering testing and that's the engagement we're having the traditional owners and the like presently, but all those things are progressing as normal. It's very -- as you imagine, weather-wise, it's the hot season. So laying pipe and doing works is a bit of a derated activity as we used to do in the Northern Territory. Northern Pilbara gets pretty hot this time of the year. So there's some of that activity, we just sensibly laying pipe and getting the balls ready for that throughout these months. But fundamentally, we're working towards the end of this calendar year to be in a position to be putting numbers together for FID. The extra expenditure is about the optimization work, just continually testing the flow sheet and making sure we've got options and that when we put the data into the FID papers that we've thoroughly thought of all those combinations. And one of the things you just keep looking at, you keep finding options and can find better work. So they were using the time wisely in that regard. Operator: Our next question comes from Ben Lyons from Jarden Securities. Ben Lyons: Simon. I just wanted to revisit the underlying reasons behind the recent changes to production, all-in sustaining costs and I guess, also CapEx guidance for the 3 consecutive downgrades over the past couple of weeks. And maybe at the same time advocates some greater disclosure from the company as well. So one of the reasons, for example, that was given that the production downgrade was the underperformance of Thunderbox, which has now sort of pitched to the 250,000 ounce mining center rather than a 300,000 ounce mining center. And specifically, those lower grades you're seeing originate from the Aurelia open pit, so I was just waiting for the 600-page resource and reserve report. And I just can't find anywhere like a simple tonnage, grade and strip ratio outline for those key ore sources like Aurelia, like Bannockburn for, et cetera. And the same goes for like Carosue Dam, Jundee, like the actual ore sources that sit behind these mining centers. So the comments made by Simon in his introductory remarks are helpful, gives us some of the pieces, but just like to have a really basic outline of the ore sources that sit behind the actual mining centers or at the very least a detailed Investor Day, where we can do some deep dives on these assets as well. I just think that would be helpful to better assess the predictability of this business and the reliability of the forecasting that we received just a bunch of numbers from you guys at the head office level, just to go deep on these assets. So am I missing anything in that 600-page resource report that sort of helped with these sort of basic metrics? Stuart Tonkin: No, but I'll take that as a comment, not a question, Ben. Ben Lyons: Yes. Okay, cool. Okay. The question then you've got a fair bit of scrutiny on your continuous disclosure obligations. Why wasn't the crusher failure at KCGM immediately disclosed to the market. I would have thought that was a significant event in itself. To paraphrase your response to the ASX, it was basically -- we didn't get the data until the first of January. How regular are your updates from site to the head office in Subi. I would have thought that you're getting daily updates on simple metrics like production and sales, but -- is it weekly? Is it monthly? I'm sure it's not quarterly, sure, you didn't have to wait until the first of January to now you're going to downgrade? Stuart Tonkin: Ben, there's a very comprehensive response to an aware letter from AISC. A very simple one-page disclosure around production on the second of January and a very thorough response to the AISC's in regards to the query. I think that addresses it. Ben Lyons: Yes. Okay. I mean I've read it several times, but from my perspective, I don't think it's satisfactory like would have thought you get real-time data on sales at least weekly or monthly, not quarterly, but happy to go and have [indiscernible]. Thanks. Operator: Your next question comes from Hugo Nicolaci from Goldman Sachs. Hugo Nicolaci: Ryan, just one on the updated cost guidance. Look, obviously, good to see the revised cost guidance coming in line with the prior top end considering the gold price increases and royalties associated with that. But if I break that down nominally, you've effectively tightened the range and the midpoint of cost is pretty much unchanged despite highlighting earlier this month that the operational impact. So we're going to have a number of cost impacts. So I guess the question is, what operational and sustaining costs, if you'd be able to defer into next year to be able to keep that cost guidance flat? Stuart Tonkin: Yes. Thanks, Hugo. I think the key thing is that the one-offs and the events are behind us, and we know the impacts and effects of those events, they'll finite, they're complete. Obviously, we've disclosed on some of the continuing things are in the week 1 of January that are behind us now. So really, this is the reset and the view of the forecasting of where the sites are operating at and the cost base has allowed us to narrow the guidance range because we've got 6 months ahead, not 12. So that's really where that is at. It's a much stronger second half. If you really look at the what the second half will deliver a significant step up from quarter 3 in production. You're seeing our realized gold price, it's improving, but it's still a long way off spot because of the hedges, which are -- which are unwinding rapidly and then obviously delivering into a higher spot. So coupled with increasing production, the gold sales being the denominator or all-in sustaining cost the exposure to that spot by the cash generation over the next 2 quarters and the run rate exiting this financial year for another structural change of Fimiston being turned on, positions the company into a very strong position. So it is -- yes, it is future telling, it's forecasting, it's looking at what's in front of us. We would ask people to isolate quarter 3. We have provided a very detailed information around the events that were unforeseen or some are out of our control, some are, were risk balanced around maintenance events. And ultimately, they have been addressed. The team have done an absolutely fantastic job managing through that period and working on those items. And that gives us the confidence to place the forecast. On the full year, yes, there's a step-up in cost, there's a step down in production. But when you look at the second half run rate, it's a very, very strong healthy business in that regard. And then it can't undo what's happened in the first half, but ultimately, we've got a very confident outlook. Hugo Nicolaci: Obviously, taking sort of first half and the unforeseen impacts as they were, but sort of just to dig into that further, I mean, your AISC range is sort of now $4.4 billion to $4.5 billion for the year. It was $4.25 billion to $4.6 billion. You've highlighted $40 an ounce of that or roughly $64 million at the low end is from royalties. So where some of those other cost savings come from though, are sort of looking forward? And should we expect those costs to end up into FY '27? Ryan Gurner: I think it's Ryan, Hugo. I think the costs are there, obviously, in the immediate term, all costs are fixed. So you're right to do the math on the overall, I guess, checks written in the business. What we're saying is as Simon was talking to when he spoke, a lot of these disruption issues that cause production issues are behind us. We're confident in the grade outlook at Pogo, Jundee, Simon spoke about the high-grade material sitting on the ROM pad at KCGM, you've seen the grade list there. So -- and then also the throughput confidence in the second half. So they all contribute to keeping it aligned and narrowing that cost range even with those, as you say, expected royalties. We're confident that in that range, '26 to '28 land us with our lower production profile. Stuart Tonkin: Any discretionary spend will be shaft and pushed because it's not only is it dollar millions, but as far as activity and distraction, ensuring that the team have a very clear simplified sort of activity list. That's what we'll do. So does that go push away into FY '27, we'll assess it at the time. We'll assess the balance of risk around planned versus unplanned maintenance, et cetera. But there were items that were budgeted that we will just strike off the list that likely will not get spent in the second half. Hugo Nicolaci: Yes. Got it. I guess the question was what are those items and how much of that spend. But maybe I'll pick that up later. Next one, just around the upward revision of Hemi CapEx. You've called out a more detailed review of engineering design work. So why CapEx this year is $25 million higher, but studies were originally to support an FID by the end of FY '26. So is that just a bring forward of detailed engineering works that you would have otherwise had to do? Or were those not initially detailed enough for an FID timing as originally planned? And I guess, how should we consider that in the context of, I think, market expectations for Hemi CapEx now sort of $2.5 billion. And should we continue to expect maybe there's a bit of creep there? Stuart Tonkin: Look, I would say reset on the capital -- the overall CapEx number, saying if we're spending extra this year, it comes off the overall CapEx number. It's certainly work that's progressing. It would be required, and we would be doing, but I'd also consider work that may have been spent where we consider, okay, that's redundant, and we replaced a bit new study work that's got an improved operating outcome or an improved flow sheet outcome. So I think we've got to be a bit careful of saying extra money spent this year comes off the total. There are certainly items that were long lead items invested in spend forward that we'd also say perhaps we'll resell and repurpose and replace with larger simpler kits. So that's -- that's been something we've done with the time. That will all come in a final kit paper on explanations in that regard. There's not material structural changes to the overall flow sheet. What we've looked at is synergies with the rest of our operations to have common parts, common spares, which wasn't considered, when that's a stand-alone asset in a single asset company. We have looked at it through the lens of Fimiston mill expansion. Some items that could replicate, save, on the engineering because you've already done it, but we've actually got to spend for the parts to get common commonality, which will derisk us in the future running to sort of sister plants. Operator: Your next question comes from Matthew Frydman from MST Financial. Matthew Frydman: Stu and team. Happy New Year. A couple of questions from me, please. Maybe firstly, can I take the thrust of Ben Lyons' comments and maybe turn it into a question that hopefully we can actually answer on this call. In the release, you say you've reduced CapEx spend at Pogo and Kalgoorlie and increased spend at Yandal to support the regional hub strategy. Can I just ask what is the regional hub strategy at Yandal? Can you summarize it in terms of production ounces, life unit cost and how much capital needs to be spent to deliver it because I'm not really clear on any of those things, and it sounds like maybe there's other analysts that aren't clear either. So that would be appreciated. Stuart Tonkin: Okay, Matt. So there's a 3 million tonne per annum plant in the north called Jundee and there's a 6 million tonne per annum plant in the South called Thunderbox. Higher grade ore will go to Jundee, lower grade ore will go to Thunderbox. Jundee will sit at around 300,000 ounces per annum. Thunderbox will sit at around 250,000 ounces per annum. So the hub, which is called Yandal will produce at about 550,000 ounces per annum. That's different to the 600,000 ounces we have set we've articulated that 550,000 ounces is probably the happy place that, that will be at. It might oscillate, where Jundee does 250,000 ounces and Thunderbox does 300,000 ounces. But overall, that Yandal belt we're saying can operate at around 550,000 ounces. We've got the reserve statements. It's got all the trades and ore sources, [indiscernible], Aurelias, Wonder, you've got all the data that sits behind that. That's fundamentally what more than what any company is providing and giving to the materiality of what that asset provides for the group. As the key aspect of those assets, but we're not liking at the moment is the costs. So the aspect of the economies of scale from expanding Thunderbox was to materially improve the all-in sustaining costs as you see growth at Jundee was to keep the costs down. And you can see the cost we handle in the quarter and the lower ounce profile are very high. So that's in our head to say, what's the overall outlook life. We've got to improve this to ensure that its contributions as it has been for a decade in our business, foundation asset. We can provide more view and color on what those can be. But we're still building new high-grade mines, and the development rates are still contributing towards that. So pulling out a really up and talking about decimal points of grade of something that's not even providing 1/3 of the feed to Thunderbox for a number of years is immaterial. And I want to focus on that. It's immaterial in the... Matthew Frydman: I mean I didn't specify Aurelia and you've answered the question on -- in terms of ounces and life. But as you point out, I think probably the gap in understanding is really more around unit cost expectations and also I guess, the capital required to get there. So I suppose the question that probably the market has is what's the quantum of capital are you going to spend in order to get the cost to a certain point? And I guess what does that look like? And I suppose we want that out load how do you make those investment decisions, when it seems like we don't have a good visibility on what the target is around cost and total quantum of CapEx? Stuart Tonkin: So we provided production and cost guidance on an annualized basis in July. That's what we've done for a long time, and that's what we keep doing at Yandal. We put in a base plan that's getting into the higher grade at Jundee, but you'll see some of the grade restore. All the commentary that sits around this asset shows the growth of Wonder down South, giving better grade into Thunderbox as well as new Bannockburn operation you're going through the stripping at the moment, getting to primary ore. Like the question you're not going to answer on a quarterly call, let's put it that way. Matthew Frydman: No, that's fine. I guess the theme there is that I appreciate that you guys give 1 year guidance, but clearly, the impact to the market's perception of the company from arguably some of these short-term disappointments from quarter-to-quarter. Potentially that impact is exacerbated because we don't have a multiyear sort of longer-term picture for some of these elements of the business. So obviously, anything you can do over time to just shown a light on that is appreciated. But I'll move on to that line of questioning. Stuart Tonkin: Before you do that, the point is in KCGM in the half 1, it's really, really changed and it's the mill throughput has really impacted the overall ability to deliver. All the other sum of the small parts on a materiality threshold are negligible. But the actual... Matthew Frydman: I agree to you that's why I'm making the point that maybe you only give 1 year guidance is exacerbated. Stuart Tonkin: Please let me finish this answer. Everyone needs to focus on that asset KCGM and there's 82,000 ounces sitting on the ROM of high-grade ore ready to put through that plant. And the plant -- the new expanded plant will be commissioned in less than 6 months' time. So if everyone wants to weave into smaller items across all the assets, we recognize that it was a poor quarter. We understand the elements that contributed to that. There were meaning and we understand what we've done to rectify it and what the outlook is going forward. I pick up the frustration from the questions, and I'll pick up the frustration from investors or from analysts, who can't model this. Quarter 2 is behind us, and the second half outlook is strong, and we will work very hard to deliver that and where we position ourselves into FY '27 in an excellent position. So I just want to reinforce we're getting into minutia, which is behind us and doesn't matter on a materiality threshold. So think about the things that make KCGM is a key asset -- that's where the focus and effort is today. It's not on the satellite small life short things that are also generating significant cash flow that are actually contributed towards spending the capital at our long life by margin assets. Matthew Frydman: Thanks for the answer. Apologize for cutting you off to you. I mean I would say that the Yandal hub is still going to be 1/3 of your business. So I'm not sure that it's characterized as minutia, but anyway, thank you for your response. The second question is just on the KCGM new expansion, I guess, increases to the capital guidance there. You talked through in some detail around where that's going and why it's important to, I guess, the schedule -- is there a risk there that, I guess, throwing more money and people doesn't really solve the productivity issue you're having? I mean you talked about how it is a fairly condensed space there that your teams are working in, I guess, what the question is why are you confident that spending more is the right approach versus just taking longer to complete the project? Stuart Tonkin: So it doesn't solve the productivity issue. That's why you add heads. Add head count because you can't achieve with the 600 people, so you tried 800 at it. That's the answer of productivity and you're paying more to get the same thing done. That's why there's $110 million extra spend in this year to deliver that. The most important part is that to plant on getting all through it and step changing the asset's cost base and its revenue. That time is of the essence with KCGM, not capital sadly, at this point. It's not sensitive to capital. We don't likely spend $110 million, unnecessarily. We want to see this plant operating and starting to contribute. Simon Jessop: Just to add a little bit to that. So during the next -- really, the next 4 months is where we've got the peak banning. So we've ramped up, as you've said, above what was originally the plan and that sort of progression started during Q2 in terms of accelerating the work. We've got still many work fronts at the moment. So we still have that opportunity to put those people in there 3, 4 months from now, those work fronts start to wind down. And we're very, very focused on the critical path, which is Stage 1, which is first ore into the new mill. So while we still got the opportunity, we've taken that and the project team has to put the extra people in there get the work actually completed. And that's the picture right now, which gives us the ability to remain on schedule for FY '27, or like, ready to go in sort of June. So if we didn't put those extra then, the work front start to dry up, and then it genuinely will be delayed. So the project is in really good shape. It's focused on Stage 1 and that is first ore into the mill. The Stage 2 is moving Gigi back down to KCGM. That can happen in the months after we're milling ore. Operator: Your next question comes from Daniel Morgan from Barrenjoey. Daniel Morgan: So obviously, a key theme of the call has been throwing a lot more bodies at the project to keep it on schedule. I understand that makes sense given the gold price and the project you're trying to keep on schedule. But -- do you still expect that July turn on? I mean is the Gantt chart, I imagine the critical path, the turn on date, is it not shifting back? Is it not wise given recent guidance and market disclosures is not wise to maybe start to push market expectations of the schedule of the turn on back? Or is this the expectation that this extra budget will keep the schedule to July? Stuart Tonkin: It's quarter 1. My expectation is early quarter 1, sales there will be parallel running up at the plant. This isn't about market expectations. This is about our disclosures had a 3-year build on time to the budget we're saying and overrun on that expenditure because we're growing more labor at it. We're not here trying to gain this, Dan. We're here explaining, where we're at 2.5 years into a 3-year build. And as Simon has got the confidence in discussing as well, we're very, very pleased with the progress they've made. And we're working very closely the contract that it's constructing it and looking for any opportunity to get this done, not only on time, but earlier. And part of that combined solution is around adding head count. And we don't just add it, so they're standing around holding stop signs. There are people there doing productive work. That's contributing towards that deadline. So yes, that's what we're working towards. It's pretty exciting. I think the team that got around the plant at Diggers and Dealers saw a massive step change year-on-year, if you went there again today, you'd say, well, why can't you turn it on now? That's what you visually see and it's no different than you're building a house, wait for your carpets and your fly screens. All the cabling, all the tiling, all the final elements of that. It looks like it's been finished, and it looks like it's sitting there doing nothing, but it's that fine or final finishing, we're sure that when we get it turned on, the quality is met and the work is done so that we don't have to bring it down or we don't have to have those lessons that we learned out of the Thunderbox expansion. We endured 12 months of ups and downs and rectifying some of those things. We'd like to see all that addressed prior to turning and commissioning this on. So that's the way it's underway for the second half. Daniel Morgan: And I guess, obviously, there's a lot of focus on the call and obviously, concern about various aspects. But maybe pivoting and changing tack a little bit like just over the last 6 months or so, what is changing in the business that you can see that from a very positive sense, like what is something you'd rather like to invest is where there's been a change a foot or something that's getting better or be it exploration, be it a site? What is changing in the business in a positive sense that you could highlight to the market? Stuart Tonkin: Yes. I mean, I'd recognize the underperformance in share price against the peers, global majors, we acknowledge that. We acknowledge that there's reflection on short-term production misses -- cost misses, and we've been very clear on the events that have contributed to that and what we've done to rectify that. Just look at the run rate of second half in its own right, very, very strong uplift in production. Look at the reducing hedge book and realized gold price that we're growing the exposure to spot. And the step change of the business as a KCGM mill expansion turns on in FY '27 and the uplift, again, step change in production profile for the group. They are the things that are psychoses to us that the opportunity for investors now to get in and get positioned, that's the confidence in the outlook. And I see, to your point, people are focused on hearing our concerns, they're looking at relativities. That creates the opportunity to understand the long-term value creation that all the stars doing. Operator: Your next question comes from Milan Tomic from JPMorgan. Milan Tomic: Just a question on the Hemi permitting side of things. Can you provide maybe a little bit more detail as to how that process is progressing? Has there been any issues specific issues that are being flagged by the indigenous and Asian groups in that area? Or yes, just wondering, if you can give a bit more color as to any concerns that might have been raised so far? Stuart Tonkin: No, no major concerns there. Milan. It's really the dewatering trial is something we've got to commence, which will likely be at the start of quarter 4. Ideally, we would have done -- started that in quarter 2. but there was a delay in getting all that infrastructure in place through the hot season. So once that's in place, and we've got a plan that's acceptable, we'll commence that trial. It takes about 3 months, and that feedback loop goes into our [indiscernible] license for dewatering of the pits preproduction. So that's probably something that has slipped. It doesn't affect the overall state and federal EPA approval licenses, which are continuing. But ultimately, that's probably the operational part that we would have liked to have seen commenced pre-summer. And that's going to start March, April, likely we start for the modified scheme that we've negotiated. We're negotiating with traditional owners there. Milan Tomic: Yes. And just in terms of the work that you're doing on optimization, any major changes regarding mine plan sequencing, et cetera, that you could share that's kind of been different from how that project was initially envisaged to be? Stuart Tonkin: Yes, it's the scheduling. So what we're going to look at is First Gold pour and that deadline, even though if there's a delayed timing of starting to understand, okay, what impacts through to that. But the actual flow sheet generally, we've looked at lots of different scenarios and options and defaulted back to what that primary flow sheet is with the high-pressure grinding rolls at the start and to the SAG mills is still sound. Resizing some of the gear mills, et cetera, is probably something we've done, the ability to expand later on a more simplified plant. But all the auto class and late already in trying to be built and long-lead items like that are constructed. So that's all sound. Mining sequence, again, just around water management, our borrower kits and getting that prepared. That's -- we've just got options and scenarios there as opposed to the 1 plan that previous owners had -- we just got a number of scenarios there that could go different paths to get to the same results. So that's just what the team is doing, while the approvals are underway, iterating what they do best as the engineers. Milan Tomic: And maybe if I can just squeeze 1 more in on Jundee. To get it to 300,000 ounces, you have to get quite a sizable uptick in the grades compared to the last couple of quarters at least. Can you maybe just shed a bit of light at how do you -- how are you getting that increase in grades? Are you moving into a high grade part of the ore body? Or is there something else that we should be considering there? Stuart Tonkin: A mix of primarily the throughput is not Jundee. So yes, the average grade delivered to the plant needs to be there. It's been there before. We've certainly got isolated pockets that are there different grades and different mining sequences. We've just added a base plant, which allows us to go back up to the upper levels, regional high-grade areas and take those high-grade zones that were sterilized because they just open voids. There was no paste in the mine in its history, 30 years. It's never had any paste backfill, but we've got that base plant installed and starting to fill those voids. We can go back and take those high-grade pillars out of those upper levels. So there's areas like that, new Cook-Griffin mining zones contributing better grade. So all of those things contribute, but overall, it is a grade focus rather than a throughput of focus. Operator: Your next question comes from Adam Baker from Macquarie. Adam Baker: Just 1 follow-up for me. Just on Hemi. I noticed you -- you noted that in May '26, you're going to have the optimized resource and reserves. I'm just wondering is there anything that we could be saying to see a quantum change in the resources or the reserves noting changes like gold cost assumptions, et cetera. And likewise, for reserves around cutoff grade, et cetera. With your work integrating this into the Northern Star reserve and resources? Stuart Tonkin: Yes. Thanks, Adam. Look, I won't preempt things with R&R, there's still a fair bit of work to occur in the coming months leading into that, but we're basically release Hemi in a Northern Star view of [ R&R ] with the group's [ R&R ]. I would say Hemi had a high gold price assumption in what was previously released. So we'll try and align with the group overall, where we set those gold prices for resources and reserves. They're almost irrelevant in regard to where the current spot price is and watching what peers are doing in gold price assumptions around resource and reserves. But it does in turn reflect back to cutoff grades and how these overall picture valued and can you actually merge, mold our pits together, take our saddles and make a bigger or larger overall lower-grade resource economic. That's what we've got to consider. But I would just say that we've probably got a stricter more scrutinized view around what's in and what's out. So if anything, a more robust scrutinize on that resource is more likely than material growth. If you think about the drilling and the data that's occurring there, all we've really done recently is redirect some drills to do some treating. We haven't done any real growth drilling, since we're taking control of that heavy region. Operator: [Operator Instructions] Our next question comes from Mitch Ryan from Jefferies. Mitch Ryan: Stu, and team. Stu you made a couple of comments with regards to Hemi. You called it a sister plant to KCGM, and you talked about taking the opportunity to resize mills. Can you -- does that potentially mean a change in the scope of mill size relative to previously disclosed [indiscernible] numbers? Can you -- can you help us understand that? Stuart Tonkin: Correct. Ideally, things like the crusher, things like the mills ideally are identical to what we have at Fimiston and that's been currently our thinking -- there's already some mills purchased they're already sitting in a shared package stuff in or Port Hedland, literally seen them unloaded off the truck. I look at those and say they'll do the job of a 10 million tonne per annum plant to get to a 15 million tonne per annum plant, I need a third one. What I consider instead of doing that, having 2 large mills today that match Fimiston, answer is usually, yes. So be the sort of considerations we're doing to say, irrespective of earnings and hardware that's sitting there in a shared, would we start again in, say, 2 large mills that match Fimiston, plus the logic of that. In the scheme of reselling these things. There's options that are there in a scheme of redundant expenditure, you can repeat the costs because you haven't installed them and they're ready to freight. That's the type of thinking that if you're in a hurry to build the mill, they would have got built and then when you want to expand, you add a new mill. When we look at that now with the time, so well, let's just not go build something because we have to parts. Let's consider what we can do, if we had a clean sheet that's the example. One is the crushing circuit, absolutely take the replicate design from Fimiston and say, is that something you could install here that's oversized and matches parts, et cetera, as opposed to going through the -- something that's been designed specific for the throughput rate of Hemi. And we go to something that is -- this is a plant to Fimiston -- that means, if we have issues like Simon had in December at KCGM, we could be fast tracking the knowledge and the skills and the parts across the business every 3 or 4 years would happen at 1 of those large crushing units. Operator: Thank you. There are no further questions at this time. I'll now hand back to Mr. Tonkin for closing remarks. Stuart Tonkin: All right. Thank you for joining us on the call today. And I appreciate the interest and it's been a busy day for everyone, but looking forward to a strong second half and growing from here. Appreciate it. Thank you. Operator: That does conclude our conference for today. Thank you for participating. You may now disconnect.