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Mining
Gold miners have seen costs soar in recent years and one of Australia’s biggest gold miners in Northern Star Resources (ASX:NST) is no exception.
The WA and Alaskan focused gold producer plans to deliver 1.6Moz in FY23 and went one step of the way to showing that was achievable, selling 404,000oz from its Kalgoorlie, Yandal and Pogo operations in the December quarter.
That came in at all in sustaining costs of $1746/oz, better than the highs of $1788/oz seen in the September quarter, and all in costs of $2243/oz against an average sale price of $2531/oz, pulling in over $1 billion in revenue.
Amid labour shortages and escalating material costs, and hot on the heels of the elevated costs reported by iron ore majors Rio Tinto (ASX:RIO) and BHP (ASX:BHP) this week, CEO Stuart Tonkin told analysts on a quarterly call this morning many of those inflationary pressures were going nowhere fast.
“Probably the only cost we’re seeing come off is in fuel and all the rest are fairly steady, fairly sticky,” Tonkin said.
“And it really depends on, I guess, what all the commodities are doing in the same space. So we’ve seen some relief in staff turnover and stability there post sort of COVID border opening.
“But we certainly haven’t – every quarter I think we ask ourselves this, have we peaked? Is it coming down? We don’t see material signals for those unit costs to come down.”
Instead Tonkin says it will take larger economies of scale to overcome those cost pressures, increasing processing and production capacity while keeping fixed costs the same.
The company plans to ramp up from ~1.6Moz in 2023 to 2Mozpa by 2026.
Northern Star delivered 210,361oz of gold at an AISC of $1738/oz from its Kalgoorlie operations in the December quarter, including 114,000oz at $1538/oz from its flagship KCGM operations where a major investment in a new open pit fleet has increased productivity.
Underground mining rates at the Mt Charlotte underground mine, delivering around 1.1-1.2Mtpa when NST acquired the operations ahead of its merger with Saracen Mineral Holdings, are now at an annualised rate of almost 2Mtpa.
NST plans to hit a run rate of 650,000-700,000ozpa at the Super Pit and broader KCGM operations by 2026, with a feasibility study also due this year on a potential $1 billion revamp of its Fimiston processing plant.
At the Yandal operations in the northern Goldfields NST delivered 128,470oz at $1591/oz, while its Pogo mine in Alaska is improving with production of 65,456oz at US$1362/oz.
Generating unaudited cash earnings of $460-475m in the first half of the year, NST has long said its performance would be weighted to the second half of FY23.
It plans to deliver 1.56-1.68Moz of gold at an all in sustaining cost of $1630-1690/oz and would need to sell gold at a rate of around 423,000oz over each of the next two quarters to hit the mid-point of guidance.
RBC’s Alex Barkley said the result was ‘solid’, coming 2% above RBC estimates and 1% above consensus, with Jundee and Thunderbox (11% and 23% beats respectively) the standouts.
“We maintain our view that NST is well positioned among gold producers to handle any industry cost and labour risks,” Barkley said.
“Given the risks we see across the gold sector in Q2, we expect NST’s in-line Q2 result may prove to be among the stronger this result period.”
In a separate note, Barkley said a recent run in gold equities as prices have risen could add downside risk on underperformance, with the investment bank expecting bullion to slide from spot levels of US$1910/oz to US$1700/oz by the fourth quarter of CY2023.
“We expect the operating risks from labour tightness, Covid absenteeism and high input costs experienced in Q1 should somewhat abate, but still remain present. Any operational issues could start putting FY23 guidance in doubt,” he told clients.
“Share price downside risk is heightened by the sharp 51% average share price increase since Oct 1st, especially considering AUD gold was up just 6%. We see larger, diversified miners as more likely to attract/retain staff and shift key labour across sites.”
BHP rose 1.4% after releasing its results, showing record production at its Pilbara iron ore operations through the second half of the year that was constrained slightly at port, with mine output of ~146.5Mt and shipments of around 143Mt so far this financial year.
Rio rose 2.61% after a run in iron ore futures. Dalian’s May contract rose 1.6% to 853RMB (US$126.19/t) this morning, with spot prices up 2.4% overnight to US$123.50/t.
The materials sector gained 0.61%, with lithium producer Allkem (ASX:AKE), copper miner Sandfire Resources (ASX:SFR) and iron ore mid-tier Grange Resources (ASX:GRR) all performing well.
Energy stocks fell as crude oil indices fell around 2%, while coal miners fell early before recovering late morning amid reports from The Australian more miners could be called in to join a domestic reservation policy to avoid a local supply shortfall.
Whitehaven Coal (ASX:WHC), not subject to an 18.6Mt order from the NSW Government on companies which have traditionally supplied domestic markets in December, intended to cover the period from April 1 2023 to June 30 next year, said it received a briefing on the policy’s expansion yesterday.
“Yesterday, officials from the NSW Government met with the Company to provide an initial briefing on the proposed expansion of the policy to include new participants, including Whitehaven, and undertook to provide further details in coming days,” the coal miner said in a statement.
“The Company is currently reviewing the potential implications of an expanded scheme and will continue to engage with the NSW Government and update the market as appropriate.”
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