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Northern Star Resources Ltd - Slightly Disappointing December Quarter 2019 Report

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$6.3 billion.

 

NST - SLIGHTY DISAPPOINTING

 

What are the key findings from Northern Star’s December quarterly activities report?

  • Total ounces sold for the December quarter is 214,635 ounces, up 31% from with the previous quarter.
  • All-in sustaining costs (ASIC) for the December quarter is A$1,421/oz, in line with the previous quarter.
  • Total gold sold at the Jundee gold operation for the December quarter is 82,434 ounces (up 1% from the previous quarter) at an ASIC of A$1,030/oz (up 4% from the previous quarter).
  • Total gold sold at the Kalgoorlie gold operation for the December quarter is 87,150 ounces (up 18% from the previous quarter) at an ASIC of A$1,483/oz (down 4% from the previous quarter).
  • Total gold sold at the Pogo gold operation for the December quarter is 45,051 ounces, (up 55% from the previous quarter) at an ASIC of A$2,019/oz (down 29% from the previous quarter).
  • Production from the will be included under Northern Star’s ownership from 1 January 2020.

 

What are the main drivers of this result?

The key out performer this year for Norther Star was their Pogo operation. Total gold sales are up 55% while ASIC is down 29%. Northern Star’s management notes that:

at Pogo, the introduction of long-hole open stopping and other strategic initiatives continued to deliver significant benefits, as demonstrated by a range of key performance indicators. The performance in the month of December marked the inflection point for the operation.

 

What is the outlook for Norther Star?

The 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.

Northern Stat is on track to meet their FY20 full year guidance. FY20 full year guidance is as follows:

  • 920,000 –1,040,000oz at an all-in sustaining cost (AISC) of A$1,240-A$1,340/oz.

The most exciting prospect for Northern Star 50% acquisition in the KCGM, which took financial effect from 1 January 2020. KCGM is one of the largest gold mines in Australia with 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.

Mr Beament, Executive Chairman said:

this will go down as a remarkable quarter in the history of Northern Star. We are delighted with the performance of our Australian operations, our strategy at Pogo delivered substantial improvements and we acquired a half-share in one of the most significant gold systems in the world through the KCGM deal.

 

What is the market reaction?

The market reaction to Northern Star’s December quarterly report is negative, Northern Star is down 3.5% and is currently trading at A$12.45. This could reflect that while the Pogo operations improved in the December quarter 2019, the market is disappointed with the extent of the improvement. Northern Star trades on a forward P/E ratio in the mid-twenties and an annual dividend yield of around 1.3%.

 


 

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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