Northern Star March Quarter Gold Production Disappoints Market
- Pogo mine in Alaska disappoints with lower production volume and significantly higher costs
- Monitoring Australian operations to plan for compliance with FY22 production and cost guidelines
- Group FY22 production guidance unchanged at 1.55-1.65 million ounces
- The group’s FY22 cost guidance is now A$1,600-1,640/oz, down from A$1,475-1,575/oz.
- Cash and bullion on hand A$533 million, net cash A$433 million as of March 31, 2022
- A full update on exploration and resources and reserves will be released in the June quarter.
- Target of two million ounces of production by 2026 remains.
Northern Star Resources Limited (“Northern Star” or the “Group”) owns and operates three world-class gold production centers, two of which are located in Western Australia and a third 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 in value to the newly merged entity. The merger gave sole ownership of the iconic Super Pit, located just outside Kalgoorlie, to Northern Star.
March 2022 quarterly report
Northern Star announced the sale of 380,075 ounces of gold at an all-in sustaining cost (AISC) of $1,656 A/oz for the March quarter. Production volume is 11,915 ounces lower and AISC $25 A/oz higher than the December quarter, when 392,665 ounces of gold were sold at an all-in sustaining cost of $1,631 A/oz.
The slightly disappointing figures at Group level can be attributed to higher production costs and now lower production forecasts at the Pogo mine in Alaska, Canada. Pogo was acquired in 2018 and since then Northern has spent US$55 million expanding resources and reserves and upgrades including increasing plant throughput capacity to 1.3 million metric tons per year.
Pogo’s FY22 gold production has been revised to the 205,000-220,000 oz range of 220,000-250,000 oz. Pogo produced 209,647 ounces of gold in FY21. Production costs were also revised significantly higher. The estimated AISC has been revised from A$1,700 – A$1,800/oz to A$2,150 – A$2,230/oz. The Pogo mine represents around 15% of the Group’s operations.
Australian operations are striving to meet FY22 production and cost guidance. Given the sub-optimal operational performance of the Pogo mine, the Group’s FY22 production guidance remains unchanged at 1, 55 -1.65 million ounces. However, the group’s AISC guidance for FY22 is now higher and is expected to rise to AU$1,600 – AU$1,640/oz from AU$1,475 – AU$1,575/oz.
The average realized gold price for the March quarter was AU$2,468/oz, generating revenue of AU$937 million. Cash and bullion on hand at March 31, 2022 was A$533 million. Corporate bank debt stood at $100m, leaving net cash of A$433m at the end of the March quarter.
A$26 million was invested in exploration, bringing total year-to-date spending to A$85 million, compared to FY22 exploration spending guidance of A$140 million. Australian dollars. Exploration is currently focused on extending the life of mine at the Group’s three production centers – Kalgoorlie, Yandal and Pogo.
The Kalgoorlie Super Pit and Yandal sites look set to continue to perform as expected, however the Pogo site performed below expectations with lower production volume at higher cost. Northern Star needs to improve mine productivity at Pogo to optimize future cost performance and management has indicated that the current high cost structure is temporary.
The Group launched a five-year profitable growth program a year ago. The progress of this initiative and the full Exploration and Resources & Reserves update, which is expected to be released in the June quarter, will be closely watched by the market.. The Group continues to give all indications that it is heading towards two million ounces of production by 2026.
This Post Market Wrap is presented by Kodari Securities, authored by Michael Kodari, CEO of KOSEC.