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Northern Star Resources Ltd - March 2020 Quarterly Activities Report

Timothy Anderson

Timothy Anderson is a contributor with the Australian Stock Report and is currently in his final year of studying a Bachelor of Applied Economics and a Bachelor of International Relations and Politics at the University of Canberra. Tim has a genuine passion for economics, specifically in macroeconomic analysis including how certain macroeconomic policies and indicators affect financial markets and the economy, as well as how these factors affect personal investment strategies. Tim currently holds RG146 Tier 1 Generic Knowledge qualifications.

Northern Star Resources (ASX: NST) is an Australian gold producer with projects located in the regions of Australia and North America. Northern Star has four Tier-1 assets that includes Jundee operations, Kalgoorlie operations (including Kanowna Belle, Kundana (the East Kundana Joint Venture – Northern Star’s interest: 51 per cent), Kalgoorlie Consolidated Gold Mines (KCGM) also known as the super pit) and Pogo operations. Northern Star has a market capitalisation of A$10 billion.

 

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What are the key features of Norther Star’s quarterly activities report (March quarter)?

In the March quarter 2020, total mined gold production was 250,399oz at an all-in sustaining cost (ASIC) of A$1,590/oz (December 241,007oz at A$1,421/oz). The Jundee gold operation produced 75,099oz at an ASIC of A$1,389/oz (December quarter 96,944oz at A$1,030/oz). The KCGM gold operation (50% interest) produced 41,662oz at an ASIC of A$1,453/oz (first quarter production since acquisition). The Kalgoorlie gold operation produced 77,425oz at an ASIC of A$1,619/oz (December quarter 90,724oz at A$1,483/oz). Pogo gold operation produced 56,571oz at an ASIC of A$1,904/oz (December quarter 53,339oz at A$2,019/oz).

Interestingly, Norther Star’s management notes that after the acquisition of 50% of KCGM, a further 160,000 ounces of gold were hedged at A$2,252/oz. The company also decided to extend its remaining CY20 hedge commitments (258,838 ounces) until CY21.


What is the outlook?

The long-term outlook for Northern Star is positive. Currently, Northern Star has an interest in four Tier-1 assets in Tier-1 locations delivering well over a million ounces a year (subject to change for FY20 due to impacts from COVID-19).

The main driver of the positive outlook for Northern Star is its 50% acquisition of the KCGM, which took financial effect from 1 January 2020. KCGM is one of the largest gold mines in Australia with total gold production of 490koz in FY19 and 730koz in FY18. The production was down significantly in FY19 due to a rock fall. It is estimated to take approximately three years for production to fully recover from the rock fall.

Northern Star also has a strong balance sheet. As at 31 March 2020, Northern Star has A$551 million in cash, bullion and investments. Further, Northern Star has a total debt of A$700 million. It is noted that this is after Northern Star drew a further A$200 million from revolving facilities to maintain maximum on hand liquidity during the current period of uncertainly arising from COVID-19. Payment of the A$55 million interim dividend has been deferred to 27 October 2020. However, Northern Star is expecting that the full-year dividend will be paid on the normal timeline and will be equal to 6% of Group revenue, in line with the Company’s standing policy.


What is the market reaction?

The market reaction to Northern Star’s quarterly activities report is negative. Northern Star share price is down 2% and is currently trading at A$13.29. Northern Star has a forward P/E ratio in the mid-thirties and an annual dividend yield of around 1%.


 

Disclaimer:


This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).
This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.
ASR has no position in any of the stocks mentioned.

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