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Northern Star Resources Ltd – Up 2% On Sound Result For HY20 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$10 billion.

 

NST - UP 2

 

What are the key features of Northern Star’s HY20 results?

  • Cash flow from operating activities for HY20 is A$297.5 million, up 76% compared with the corresponding period.
  • Net profit after tax (NPAT) for HY20 is A$126.8 million, up 54% compared with the previous period.
  • Interim dividend for HY20 is A7.5 cents (fully franked), up 25% compared with the previous period.
  • Earnings per share for HY20 is A19.6 cents, up 51% compared with the previous period.

Northern Star’s Australian operations performed strongly and are comfortably within the annual guidance range of 600k-660koz at A$1,200 – A$1,300/oz AISC. In the December half, Australian Operations sold 324,628oz at AISC of A$1,256/oz. The Pogo mine in North America reached inflection point in the month of December with production of 24,708oz mined at 9.8 grams per tonne for gold sold of 22,574oz sold at an AISC of A$1,410/oz (US$964/oz). This represents a significant improvement in the performance of this mine.

 

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 Star’s management provided guidance for FY20 is as follows:

  • 920,000koz –1,040,000koz at an all-in sustaining cost (AISC) of A$1,240-A$1,340/oz (including KCGM).
  • Jundee operations guidance for FY20 is 260koz – 280koz at an ASIC of A$1,115/oz – A$1,195/oz.
  • Pogo Mine guidance for FY20 is 200koz – 240koz at an ASIC of A$1,210/oz – A$1,320/oz.
  • Kalgoorlie operations guidance for FY20 is 340koz – 380koz at an ASIC of A$1,260/oz – 1,370/oz.
  • KCGM guidance for FY20 (Assumed ownership of 50% of KCGM from 1 January 2020) is 120koz – 140koz (50%) at an ASIC of A$1,450/oz – A$1,550/oz.

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 Executive Chairman Bill Beament said:

the acquisition would create substantial value and provide enormous short, medium and long-term opportunities

and

the purchase of a 50 percent stake in the Kalgoorlie Super Pit meets our key strategic objectives of generating strong financial returns and growing our gold inventory from Tier-1 mines in Tier-1 locations.

Northern Star also has a strong balance sheet. Northern Star has A$247 million in cash and bullion, A$200 million in an undrawn corporate revolver facility and A$27 million in investments. Post KCGM acquisition Norther Star has a 16% net debt to equity ratio.

 

What is the market reaction?

The market reaction to Northern Star’s HY20 results is positive. Northern Star is up 2% and is currently trading at A$13.93. Northern Star has a forward P/E ratio in the mid-twenties and an annual dividend yield of around 1.2% (fully franked).


 

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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