Analogous to the previously discussed Regis Resources, Northern Star Resources released a quarterly update earlier today. The most significant development, reflective of its share price move, was the rise in the company’s all-in-sustaining cost (AISC) for the 2019 full financial year to range between $1,125 and $1,225 per ounce, as compared to previous guidance between $1,050-1,150 per ounce. Northern Star Executive Chairman Bill Beament highlighted that, “the higher costs stem from the lower grades mined at each of our three operations.” Generally, mining a lower-grade ore requires more effort to extract an ounce of gold from the ground, given that a higher quantity of ore has to be dug out; translating to higher costs being borne by the company (shrinking margins). However, the company was able to create buffer by leveraging on the rise in the gold prices across the quarter. Moreover, most of the lower-grade ore mined of Northern Star implies mine sequences encountered, while the lower-grade ore mined in Pogo operations is due to the switch to a more bulk-mining approach.
Northern Star Resources maintained its gold production guidance for the full financial year to range between 850,000 and 900,000 ounces. Across the December quarter, Northern Star Resources sold 210,561 ounces at an AISC of $1,365 per ounce. More specifically, 153,027 ounces were sold within the Australian region at $1,246 per ounce whilst 57,534 ounces were sold in America region at $1,681 per ounce. Note that a further 3,527 ounces remain in transit and hence not sold in this quarter.
The company’s ‘cash and equivalents’ experienced at 5.4% rise across the December quarter (as compared to the previous quarter); with no bank debt being held currently. Northern Star Resources recorded operating cash flow of $110 million, up 73% from the previous quarter. After investing $52 million in organic growth across exploration and expansionary capital to build future regions, Northern Star Resource generated $36 million of underlying free cash flow.
Though production can be categorised according to its region of sale, it is possible to breakdown according to the specific mine. With respect to the company’s Jundee Gold Operations, 67,211 ounces of gold was mined; with 69,403 ounces sold at an AISC of $1,052 per ounce. The decline was driven by unforeseen weather conditions, impacting production, and hence resulting in lower milled tonnes. Whilst at the company’s Kalgoorlie operations, 82,500 ounces were mined and sold 83,624 ounces at an AISC of $1,406 per ounce.
The recently acquired Pogo Gold Operations (in Alaska) generated 59,219 ounces of gold mined, and sold at an AISC of $1,681 per ounce. Although there are gains in gold productivity and reductions in per tonne costs, its average mined grade declined 26.8% to 8.2gpt from 11.2gpt in the previous quarter, whilst AISC cost guidance increased from US$880 per ounce to US$950-1,025 per ounce. Northern Star reiterated its full-financial year production guidance of 250,000- 260,000 ounces for the Pogo mine. The increased costs were the result of a transition to bulk-mining as well as higher-than-expected upfront investment in drilling, new mobile mining fleet and in-mine development.
Nonetheless, throughout the trading day, investors were fixated on the development for a higher all-in-sustaining cost for the 2019 full-financial year. A management team that has delivered historically, investors will be following closely, examining for a response that could aid the company’s continued growth moving forward.