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Northern Star Resources Ltd - Response To COVID-19

Stuart Lucy

Stuart Lucy is an Investment Specialist at the Australian Stock Report, and has gained exposure to funds management and investment banking throughout his career. He draws on this experience to provide macroeconomic commentary and actionable investment insights to clients. Stuart is responsible for writing reports, is involved in delivering Macrovue webinars and provides general advice to our members on portfolio construction. Stuart currently holds RG146 General and Securities 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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Update on Coronavirus

The coronavirus (COVID-19) was first reported from the Wuhan province in China on 31 December 2019. The World Health Organisation data shows a total of confirmed cases of 414,179 and 18,440 deaths globally. As of today (25 March 2020), there have been over 2,423 confirmed cases and 8 have died of COVID-19 in Australia.

 

What has happened to Norther Star share price?

Over the last month, Northern Star share price has fallen around 6% and is currently trading at A$11.78. Northern Star over the last month has outperformed the Australian market as the ASX/200 is down 25% in the last month.

 

What is Northern Star response to COVID-19?

Northern Star announced today (26 March 2020) that it will withdraw it production and cost guidance for FY20. Movement restrictions in Western Australia and Alaska on employees and suppliers are causing a disruption to Northern Star’s operations. Northern Star estimates that these disruptions will result in the March quarter production to be 10-15% lower than expected. Northern Star management also note that the company cannot give production guidance for the June quarter, as the outlook surrounding COVID-19 is uncertain.

Northern Star notes that the company has decided to defer the payment of its interim dividend due on 30 March 2020. Northern Star plans to pay the interim dividend of 7.5 cents a share, representing a total payout of A$55 million, on 27 October 2020, following the release of the Company’s full-year financial results in August 2020. This should provide the enough liquidity to allow Northern Star to respond to unforeseen circumstances in the short-term.

What is the outlook for Northern Star?

The long-term outlook for Northern Star is positive. Currently, Northern Star have four Teir-1 assets in Teir-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. Northern Star has A$534 million in cash and bullion awaiting settlement. Northern Star has a total debt of A$700 million, comprising a A$400 million four-year term loan and a three-year A$300 million revolving credit facility.


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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