Ground Breakers: Northern Star delivers record gold earnings; and is this the best it gets for Whitehaven?

Northern Star posts dividend lift as gold prices rise

Regis, Westgold, St Barbara and Alkane all report full year results

Nothing to fear from nuclear, says Whitehaven Coal boss

Australia’s second largest gold miner Northern Star Resources (ASX:NST) will pay out over $178 million for its final dividend and ~$305 million for the full year after generating the strongest earnings performance in its history.

The Super Pit owner, which sold 1.563Moz of bullion at an all in sustaining cost of $1759/oz, delivered $4.131b in revenue (+9%), $1.537b in underlying EBITDA (-1%) and $585m in statutory NPAT (+29%) along with record cash earnings of $1.223b, though its final dividend was unfranked.

Northern Star boasted an imposing war chest of $1.25b, up 99% year on year, ahead of a $1.5 billion project to double the size of the Fimiston Mill, something which should double production at its flagship KCGM asset by the late 2020s to 900,000ozpa.

It expects to be a 2Mozpa miner by 2026, and stands to be the largest standalone gold exposure on the ASX should Newcrest’s (ASX:NCM) takeover by Newmont be confirmed later this year.

That will make it a bellwether for ASX gold investors and generalists, presenting the premier non-ETF gold exposure on the Australian market.

Northern Star’s payout was 23% higher than 2022, coming after Newcrest increased its returns to shareholders by 16% in its results a fortnight ago. But other gold miners have not been as generous, with margin pressure seeing them dial back returns.

Evolution’s (ASX:EVN) distribution fell by a third after a big drop in profit.

Smaller gold miners today showed a preference to preserve cash.

Alkane Resources (ASX:ALK) posted a $42.45m profit, down 40% due to a one-off gain on its Genesis Minerals shares in 2022, but saw profits at its flagship Tomingley mine lift 14% to $71.157m.

Higher prices and stronger production (70,253oz) saw its revenue lift 15% to $190.5m.

Regis Resources (ASX:RRL) delivered $402m in underlying EBITDA on record gold sales of $1.134b from 458,893oz of gold production but posted a statutory net loss after tax of $24m influenced by a $115m impact from its seriously outdated hedge book, expected to be closed out by the end of 2024.

Its 2024 guidance doesn’t inspire, including 415,000-455,000oz at $1995-2315/oz.

Now unhedged is Westgold Resources (ASX:WGX), which produced 257,000oz at $1999/oz in FY23. That’s 5% down in production and 18% up in costs on FY22.

But the really bad stuff came in the first half, with the financial metrics all looking better with no impairments in FY23.

It swung 109% from a $111m loss in FY22 to a $10m profit, with free cash flow up 150% from -$21m to $10m and EBITDA 387% higher at $167m.

St Barbara (ASX:SBM) meanwhile reported a largely expected $429m after tax loss fuelled by major impairments on its Atlantic and Simberi operations. It is looking for a turnaround in FY24 after carving out its Gwalia operations in a $650m sale to Genesis Minerals (ASX:GMD).

Gold prices rose 0.7% overnight to US$1915.22/oz or $2956/oz Australian, powering a 2.11% gain for the ASX gold sub-index.

Gold reports share prices today

Northern Star assets unlikely to fall out the backend

The big feeding frenzy in gold to come will be the assets that fall out of an enlarged Newcrest and Newmont portfolio straddling the 8.5Mozpa mark after the merger.

Newmont boss Tom Palmer has already flagged the need to make upwards of US$2 billion in divestments, with the Telfer mine in WA likely one of those on the chopping block.

Whether companies like Northern Star and Evolution could see value there (largely provided by the higher grade and copper rich Havieron discovery) remains to be seen.

But with Northern Star spending big to enlarge the Super Pit, could it be a seller as well?

It’s set to hit the 2Mozpa target by FY26 even without the expansion of the Fimiston Mill at KCGM, which is also likely to expand through a future underground development beneath the base of the Super Pit.

That means it could stay beyond 2Moz even with some smaller assets, perhaps like the Carosue Dam mine picked up in its merger with Saracen, outside the portfolio.

Northern Star has shown it can move projects on when they’re no longer needed, selling the Kundana project to Evolution for $400 million and trading the Paulsens and Coyote mines to Black Cat Syndicate (ASX:BC8) last year for $44.5m, and selling the Plutonic gold mine to Superior Gold back in 2017.

Talking to analysts on a call today, Northern Star boss Stuart Tonkin said he was happy with the composition of the gold major’s portfolio.

“They’re all quality assets that are all contributing towards it and that sort of final box on that slide 13 shows what we believe is quite a sustainable business — that three to five production centres 1.8-2.2 million ounces, etc,” Tonkin said.

“And that is without the Fimiston expansion coming in three years’ time.

“Our attitude is always review everything, active portfolio management, generate the best returns. We don’t need those proceeds and any cash from a sale to reinvest.

“We’re net cash, we’re fully funded with all of our plans. So that’s not the motivation. But you’ve seen our journey as a business. These things get assessed from time to time, so but at the moment, we’re very pleased with the portfolio we have.”

As world pivots to nuclear what happens to coal?

Coal has a bad reputation but it’s still making good cash.

With Whitehaven Coal (ASX:WHC) posting its financials today that is self-evident.

Despite a disappointing year production wise, record thermal coal prices through the first half helped deliver a record in revenue of $6.1b at average coal prices of $445/t compared to $4.9b at $325/t in FY22.

That saw cash generation lift from $2.6b to $4.2b, with Whitehaven holding some $2.65b net cash on its balance sheet and offering a 42c per share final dividend for a 74c full year payout, around $350m and $620m respectively, alongside almost $950m in returns via a share buyback across FY23.

But thermal coal prices fell heavily towards the end of FY23 amid a mild northern winter which saw gas stores run high, and it seems unlikely for now that prices will return to the extraordinary levels of over US$450/t they briefly touched post Ukraine invasion.

With coal considered the dirtiest burner of the fossil fuels, could Whitehaven’s long term outlook be clouded as its big customers in Korea and Japan pivot to nuclear?

MD Paul Flynn thinks otherwise, saying the recovery of Japan’s nuclear fleet will be good for coal generators.

“Japan’s looking very good for us. In fact, as you’ve probably seen, year on year our penetration into Japan has grown substantially. That’s no surprise given obviously the reliance on Russian coal has fallen away,” he said.

“So the demand on Australia and Whitehaven in particular, has seen us put more coal into (Japan) than ever before.

“Not to say we don’t love that market, we do. But obviously with all your eggs increasingly in that basket, diversification is a pretty important thing. That’s why the developments such as Taiwan and particularly Malaysia are very, very welcome in that regard.”

Flynn said it was important to note many of the same operators of Japan’s nuclear fleet are also Whitehaven customers.

“The nuclear start I think is is a good thing for them. And we shouldn’t fear that generally,” he said.

“Because coal is cheaper than gas, and the more nukes that come on, it’s the gas that suffers as a result of that and then there is the notion of the carbon budget they manage there as well.

“So more nukes that come on gives them more headroom in their carbon budget, and they can burn a cheaper fuel being coal as a result.”