Shares in gold miner Northern Star Resources Ltd (ASX: NST) are down 8% today following two announcements from the company.
Northern Star Resources is one of Australia’s largest gold miners, with operations in Western Australia, Northern Territory and Alaska.
This morning, the company released an update on its Pogo mine, as well as its September 2019 Quarterly Activities Report, and investors don’t seem pleased.
What Is Pogo?
Pogo is Northern Star’s newest mine. The Alaska-based mine was acquired 12 months ago and today, Northern Star provided a quarterly operational update on the mine.
The Pogo operation sold 28.962 ounces of gold at an all-in-sustaining-cost (AISC) of US$1,919 an ounce. It is this AISC that may have disappointed investors. The current gold spot price is US$1490, so Pogo is currently costing Northern Star.
However, this AISC is expected to be short-term and was due to very low gold grades, which management insists are not reflective of the longer term potential of the deposit. Northern Star believes the Pogo growth strategy is advancing well and is on track to meet an increased processing rate of 1.3 million tonnes per annum in early 2021.
Quarterly Activities Report
Highlights from the Group’s quarterly report include :
- Total gold sold by the group (including Pogo) for the quarter was 184,005 ounces at an all-in sustaining cost of US$1,024 an ounce.
- Underlying free cash flow of A$28 million for the September quarter, despite investing A$43 million in growth capital and exploration
- Cash, bullion and investments at 30 September increased by A$11 million to A$372 million
Upon releasing its FY19 results, Northern Star provided FY20 guidance of group production of 800,000 to 900,000 ounces, and believes it is still achievable. The company expects the second half of FY20 to be stronger than the first half, driven by Pogo.
While Northern Star has been one of the best performing gold stocks over the last 5 years, alongside Evolution Mining Ltd (ASX: EVN) and Newcrest Mining Limited (ASX: NCM), the company is very much dependent on the price of gold. This means Northern Star is a price taker and as a result, can have fairly volatile earnings and returns.
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At the time of writing, David does not have a financial interest in any of the companies mentioned.