Australia’s second biggest gold miner Northern Star Resources (ASX:NST) will pay out a 10c a share first half dividend, despite a big miss against consensus on its underlying profit.

The first major gold producer to report its first half earnings, it comes at a time when gold stocks are out of favour with investors, with the S&P All Ords Gold Index tumbling 6.15% year to date despite stable gold prices.

It has led to theories gold miners are undervalued, but producers are also struggling with rising costs and operational issues right now as well.

Super Pit owner Northern Star raked in cash earnings of $430 million in the first six months of the financial year, with underlying EBITDA up 47% from H1 2021 to $699 million.

Reported net profit after tax was up 43% to $261m on higher production and “portfolio optimisation” – it was the first full reporting period since 1.6Mozpa Northern Star’s mega merger with Saracen – but underlying NPAT of $108m was way below Vis Alpha consensus of $185m.

RBC’s Alex Barkley said underlying NPAT fell 37% below the bank’s estimate of $172m.

NST is expecting stronger performance through the second half of the year will keep it to its guidance of 1.55-1.65Moz at an AISC of $1475-1575/oz, with potential Covid-related border restrictions, inflation and labour cost impacts built into its estimates already.

“We delivered strong half year cash earnings of A$430 million and invested in our growth initiatives. The Board declared a fully franked interim dividend of 10 cents per share, a return to shareholders of 27% of cash earnings,” Northern Star MD Stuart Tonkin said.

“This return is consistent with our capital management framework while having regard to the need of maintaining a strong balance sheet and the ability to pursue value-adding investment opportunities.

“We remain on track to meet our FY22 production guidance, which incorporates current WA border restrictions and the associated labour and cost impacts. During this period of continued market volatility, we are focused on operational delivery and proactively protecting the health, safety and wellbeing of our people and those in the communities in which we operate.”

The increased scale of Northern Star’s operations post the Saracen merger was evident in the results release, with gold sales 289,786oz higher and revenue up 63% to $1.8 billion.

NST had $588 million in cash and bullion and net cash of $288m as of December 31 after paying $361m of bank debt.



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Covid can be dealt with: Tonkin

Despite the continued border restrictions around its main operations in WA and the potential for rising Covid cases from both a local outbreak and a future border opening, Tonkin told analysts the firm will be able to manage an outbreak.

On top of its experience at the Pogo mine in Alaska, Tonkin also said changes to close contact rules and a reduction in the Omicron isolation period in WA from 14 to seven days would help keep its mines running.

“I don’t know any more than anyone else in regard to the Premier’s thoughts on borders,” he said.

“But I expect that as those relaxations occur that they get reversed. And we’ve already seen compromise on the isolation period going from 14 to seven, which makes a major structural difference to us planning.

“And that was one of the key things at Pogo that allowed us to keep things moving, moving that to five days for positive cases and two days for close contact with a lot of controls that happened beyond with isolation, masks and testing to manage that.”