Monsters of Rock: Gold miner Northern Star posts record interim payout to shareholders, despite profit hit

• Northern Star profit sags as costs bite
• But the ~$13 billion gold producer will pay a record 11c interim dividend, 27% of cash earnings
• Iron ore miners salvage materials as lithium, gold stocks drop

Northern Star Resources (ASX:NST) is the latest major gold miner to overshoot analyst expectations on its interim dividend despite a massive fall in profits linked to higher costs across its Australian and American gold operations.

The miner will tip 11c per share into shareholders’ pockets alongside a $300 million buyback which is 42% complete at a return of $127m to date.

The 27% payout of cash earnings came at the upper end of NST’s 20-30% dividend policy and slightly above analyst predictions of 10c, with NST retaining $495m of cash and bullion at a net cash position of $145m at the end of the December half.

It comes less than a week after Newcrest Mining (ASX:NCM) startled investors with a US15c per share interim dividend and US20c special payout largely viewed as a defensive move against a takeover raid from 6Mozpa US gold giant Newmont.

Northern Star’s board is facing no such pressure, but announced a record half-year payout despite seeing profits curbed from the same forces that saw Australia’s number three gold miner Evolution Mining (ASX:EVN) trim its dividend from 3c to 2c on its half-year results.

NST’s underlying profit after tax fell 56% to $54.6m in the first half of FY23, with its NPAT tumbling 83% from $276.8m last year to $47.7m.

That came despite revenue lifting 5% to $1.9487 billion, with EBITDA down a milder 34% to $622.9m and underlying EBITDA off 12% to $632.7m.

Analyst consensus NPAT was around $106 million.

Gold majors share prices today:

Costs to blame for weaker profit

Northern Star has ratcheted up investment in both growth capital and exploration 33% to $360.8m and 23% to $69m, respectively, offset by a 22% fall in sustaining expenditure to $112.5m.

But speaking on an analyst and media call today, CFO Ryan Gurner said the miner, which plans to deliver 1.58-1.68Moz in FY23, had seen a $200/oz lift year on year in operating costs across its combined Kalgoorlie, Yandal and Pogo operations in the first half.

“It’s certainly still challenging, we’re not seeing significant cost reductions albeit we are seeing some reductions, so for instance we’re seeing it on our energy prices — particularly diesel — and some of our input costs that are indexed around steel prices,” Gurner said.

“Broadly though, the other input costs obviously labour is a key cost for our sector as it is the entire mining business. We are seeing those costs still remaining elevated.

“Some of our other commodity-linked inputs, our reagents and things like that, they are absolutely still there.

“This is where having scale and size helps because you can leverage your supply chains.

“From us we’re basically looking to do more with less. For instance in the processing we’re looking to use less reagents but still get the same outcome.”

Meanwhile, the gold producer, which says it can hit a 2Mozpa runrate by 2026 without major expansion projects or acquisitions, plans to make a decision this year on a potential billion dollar-plus expansion of the Super Pit’s Fimiston Mill.

But the focus is currently on firming up the execution side of a definitive feasibility study, with inflationary, labour and other headwinds to be weighed up and NST suggesting continuing at the plant’s current 13Mtpa run rate could also be considered.

A number of gold miners in the Kalgoorlie region are looking to expand their processing plants and mines but are finding cost challenges difficult to overcome.

While Evolution Mining was more positive on growing its Mungari Mill near Coolgardie from 2Mtpa to 4.2Mtpa and Northern Star has recently completed an expansion of its Thunderbox plant near Leinster, smaller Ramelius Resources (ASX:RMS) earlier this year put on ice a plan to develop a stage 3 open pit at its Edna May gold mine near Westonia.

And on the market

What happened to miners today? Iron ore prices rose Friday, climbing back above US$125/t, with Singapore 62% futures up 0.6% to US$127.30/t.

That provided the steam for a run in BHP (ASX:BHP), Rio Tinto (ASX:RIO) and Fortescue (ASX:FMG) shares which masked losses elsewhere in the commodity space.

The materials sector fell a timid 0.03%, barely worth showing up for, with the ASX up 0.06%.

Lithium stocks were hit hard by lower prices out of China, despite calls from one of the world’s biggest miners that the decline in demand through the start of 2023 was a temporary slide.

Albemarle, part owner of the Greenbushes and Wodgina mines in WA, says Chinese EV sales are expected to lift 40% or 3 million units in 2023.

Monstars share price today: