Ground Breakers: Look at that inflation fly as gold miners see costs climb

Inflationary pressures are supporting gold prices, but proving a challenge for gold miners
Northern Star has upped its cost guidance after seeing AISC rise for the second straight quarter this financial year
After asset sales NST boss Stuart Tonkin says it remains positive on mooted acquisition target Carosue Dam

Inflation may be good for gold prices, but costs are continuing to bite for gold producers.

Northern Star (ASX:NST) and upped its cost guidance for 2021-22 after a March quarter where input costs and labour pressures continued to be felt, while Ramelius Resources (ASX:RMS) warned its output would come in at the bottom end of guidance.

Gold Road Resources (ASX:GOR), which reports on a calendar year basis, has kept its cost guidance in check, but remains produced 71,135oz at its Gruyere mine in the March quarter at $1526/oz, above its guidance range of $1270-$1470/oz.

Northern Star’s all in sustaining costs have risen from $1593/oz in the September quarter to $1631/oz in December and $1656/oz in March on gold sales of 380,075oz and all in costs of $2171/oz.

Its average realised price of $2468/oz delivered sales revenue of $937m, with cash and bullion of $533m and net cash of $433m on hand at the end of the quarter.

Those results have seen Northern Star increase it’s all in sustaining cost guidance from $1475-1575/oz to $1600-1640/oz for FY22.

Much of that had been driven by issues at Northern Star’s Pogo mine, where NST is expecting an improved run rate of 240,000ozpa for the second half after completing a mill upgrade and improving underground development rates.

RBC mining analyst Alex Barkley said cost pressures are being felt by most Australian gold miners.

“The headline downgrade to group AISC plus a soft Q3 will be seen as a negative result today,” he said in a note.

“However, guidance for NST’s core Australian assets is maintained, and after a difficult H1 we had already expected Pogo to widely miss original FY22 guidance.

“Plus the cost increase is in part due to industry pressures being felt by most Australian gold peers.”

Ramelius meanwhile says it plans to hit the lower end of its guidance of 260,000-265,000oz at $1475-1525/oz after producing 58,602oz at $1596/oz in the March quarter as road train driver shortages hit their peak in January and February.

It is planning a big ramp up to 69,000-74,000oz at $1525/oz in the June quarter.

Gold miners share prices today:

Northern Star still keen on Carosue Dam

As it sets about righting the ship at Pogo, Northern Star has plenty of other things on its mind.

Coming up in the June quarter is its resource and reserve update next week and a major mill expansion study at KCGM.

That could map out a plan to take the enormous Fimiston Mill at the Super Pit from a 13.5Mtpa production capacity to between 15 and 23Mtpa, depending on the best option in the study.

The overall plan is to expand production on the historic Golden Mile to 650,000ozpa by 2026, helping boost NST’s Kalgoorlie operations to a 1.1Moz production level and its overall scale to 2Mozpa.

That would give Australia’s second largest gold miner the heft to compete for size with Newcrest Mining (ASX:NCM), which has for years held the mantle of the biggest gold miner down under.

With so much going on NST has been committed to trimming the fat a bit since its merger in 2020 with Super Pit JV partner Saracen.

It sold the Kundana mines to Evolution (ASX:EVN) for $400m last year and will bank around $44.5m after Black Cat Syndicate (ASX:BC8) agreed to purchase its Paulsens and Western Tanami assets.

The other asset on mine buyers’ lips is Carosue Dam, picked up in the Saracen deal, which some analysts see as a potential target for an up and coming gold miner. Former Saracen and Northern Star boss Raleigh Finlayson is already facing questions from the pulpit whether his new company Genesis Minerals (ASX:GMD) would like a bite.

As it were, his successor at NST, Stuart Tonkin says Carosue Dam remains a core part of the gold miner’s growth plans despite higher operating costs and lower production in the March quarter.

“It’s part of the plan to grow to 2Moz and it’s about 15% of our production at the moment,” Tonkin said responding to questions on an analyst call.

“If you look back at the year-to-date all-in sustaining costs, last quarter was an anomaly and based on some of those disruptions that were there, it should return to the average of $1,600.”

“In our view it’s filling with the same sources, there is a new underground being developed next quarter at Porphyry, so it’s got multiple sources in the pipeline and exploration success we’re seeing up and down the belt.”

“You’ll see that again in resource and reserve outlook next week.”

“So in that regard, it’s a significant contributor to the group production, it’s generating good cash flow, which is obviously funding the growth at KCGM and Pogo, so by all means it’s a contributing and significant asset at the moment.”