Results overview:
Cash earnings $1.2bn, free cash flow $359m
Underlying EBITDA $1.5bn, Net Profit $585m
Share buyback extended to $300m ($127m complete)
Full year Dividend 26.5cps
Produced 1,563koz gold in-line with guidance, FY24 guidance 1.6-1.75Moz
A record year of cash earnings has prompted the Board to extend the buyback and lift the final dividend for shareholders. With the result largely understood from the recent production result, the only surprise was a writeback of stockpiles at Kalgoorlie worth $437m. This was a consequence of the Kalgoorlie Mill expansion project making the stockpile viable again and will make a valuable contribution to the project in years to come.
FY24 guidance was pre-released. Production will be 1,600-1,750moz which seems conservative in our view, in light of the 5-year growth plan to achieve 2moz each year.
The balance sheet remains very strong with net cash of $362m and the growth plans fully funded.
Outlook. The Mill expansion is the centrepiece of the growth strategy. Capacity will almost double to 27mtpa (from 13mtpa) at a project cost of $1.5bn over three years, plus a two year ramp-up. The expansion will add about 250koz pa of production in the medium term.
The Mineral Resource supports a mine life in excess of 20 years at KCGM at the expanded processing rate. NST says the mill expansion will not interrupt operational cash during construction.
It is worth remembering that NSTR is not reliant on just the Kalgoorlie operations, large as they may be. The Yandal and Pogo (Alaska) operations are significant contributors to group earnings and growth. Yandal will expand to 600kozpa with its own mill expansion. Pogo will expand to 300kozpa by FY26 with a mill expansion and mine optimisation.
Investment View
NST has a high quality portfolio of assets capable of delivering production growth, margin improvement and high-returning brownfield investment. The company has various opportunities to expand existing assets and make acquisitions and/or capital management decisions.
With an average mine life over 10 years and a solid track record of resource development, NST is poised to generate very healthy cash margins and free cashflow.
NST is targeting gold production to reach 2.0Moz by FY26f from approximately 1.6Moz in FY23f. The KCGM mill expansion will add ~250kozpa when fully operational in FY29f.
Three key catalysts will drive the share price: (1) a mill expansion at KCGM to access the large stockpile of ore and improve efficiency (now underway) (2) the Pogo expansion in Alaska and (3) further opportunities for acquisitions and capital management.
At 6.3x EV/EBITDA, NST is trading close to the Australian and international average multiple of 7.0x but has a superior outlook for free cash flow yield, in our view.
Risks to Investment View
Development and execution risks of expansion projects are key factors. If the global economy avoids a protracted or severe downturn (recession), the gold price may underperform.
Recommendation
We have retained our BUY recommendation.
