Post Market Wrap | Northern Star March Quarter Gold Production Disappoints Market

This Post Market Wrap is presented by KOSEC – Kodari Securities

• Pogo mine in Alaska disappoints with lower production volume and substantially higher costs
• Australian operations tracking to plan to meet FY22 production and cost guidance 
• Group FY22 production guidance is unchanged at 1.55 -1.65 million oz
• Group FY22 cost guidance is now A$1600 – A$1640/oz, up from A$1475 – A$1575/oz. 
• Cash and bullion on hand A$533 million, net cash of A$433 million at 31 March 2022
• Comprehensive exploration and Resource & Reserve update to be released in the June quarter
• Target of 2 million oz of production by 2026 remains.

Northern Star Resources Limited (‘Northern Star‘ or the ‘Group’) owns and operates three world class gold production centres, two of which are located in Western Australia and a third site in Alaska. Northern Star merged with Saracen Mineral Holdings in February 2021, to form the world’s sixth-largest gold miner, adding $6.7 billion value to the newly merged entity. The merger delivered sole ownership of the iconic Super Pit, located just outside of Kalgoorlie, to Northern Star. 

March 2022 Quarterly Report  

Northern Star reported gold sold of 380,075 oz at an All-in Sustaining Cost (AISC) of A$1656/oz for the March quarter. The production volume is 11,915oz lower and the AISC is A$25/oz higher than the December quarter, when 392,665 oz of gold was sold at an All-In Sustaining Cost of A$1631/oz.

The slightly disappointing numbers at the Group level can be attributed to higher production costs and now lower production forecasts coming out the Pogo mine in Alaska, Canada. Pogo was acquired in 2018 and since that date Northern has spent US$55 million on expanding resources and reserves and upgrades that include upgrading the mill throughput capacity to 1.3 million metric tons per year.

Pogo gold production for FY22 has been revised down to the range of 205,000 to 220,000 oz from 220,000 to 250,000 oz. Pogo produced 209,647 oz of gold during FY21. Costs of production have also been revised substantially higher. Estimated AISC has been revised from A$1700 – A$1800/oz to A$$2150 – A$2230/oz. The Pogo mine accounts for about 15 percent of Group operations. 

The Australian operations are tracking to meet FY22 production and cost guidance. Taking into account the sub-optimal operating performance of the Pogo mine, Group FY22 production guidance remains unchanged at 1.55 -1.65 million oz. However, Group FY22 AISC guidance is now higher and is forecasted to rise to A$1600 – A$1640/oz, up from A$1475 – A$1575/oz. 

The March quarter average realised gold price was A$2,468/oz, delivering sales revenue of A$937 million. Cash and bullion on hand at 31 March 2022 was A$533 million. Corporate bank debt stood at $100 million, leaving net cash of A$433 million at the end of the March quarter.

Outlook

A$26 million was invested in exploration bringing the total year-to-date expenditure to A$85 million, compared to FY22 exploration expenditure guidance of A$140 million. The exploration focus currently is on extending the mine life at the Group’s three production centres – Kalgoorlie, Yandal and Pogo. 

The Kalgoorlie Super Pit and Yandal site look set to continue to perform in line with expectations, however the Pogo site performed below expectations with lower production volume at a higher cost. Northern Star must improve mine productivity at Pogo to optimise future cost performance and management have indicated that the current elevated cost structure is temporary.

The Group commenced a five-year profitable growth program one year ago.  Progress with this initiative and the comprehensive exploration and Resource & Reserve update scheduled for release in the June quarter, will be closely watched by the market. The Group continues to give every indication that it is tracking to 2 million oz of production by 2026.

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.