Yellow brick road to 2mozpa

4Q23 PRODUCTION

Need To Know

• FY23 sales and cost guidance achieved at lower end of range. FY24 guidance unambitious.
• KCGM mill expansion is the big focus in FY24-FY26.
• NST on the cusp of a substantial growth pathway to an additional 250kozpa.

Investment Implications

Northern Star Resources came home with a wet sail to achieve its FY23 sales and cost guidance after a good final quarter. But the FY24 guidance looks undercooked, perhaps with one eye on the large KCGM mill expansion and some significant planned shutdowns.

4Q23 gold sales of 426,269oz was achieved at an AISC (all-in sustaining cost) of A$1,700/oz. NST achieved an average gold price of A$2,818/oz, +13% on the same quarter last year. This generated sales revenue of A$1.2bn.

For FY23, NST’s AISC was A$1,759/oz in a period that has featured high energy (diesel), labour and supply chain costs. The company is expecting FY24f AISC to be A$1,730-1,790/oz suggesting some pressure remains in this part of the earnings equation.

Full year gold production of 1,563koz was at the lower end of guidance (1,560-1,680koz). NST’s operational growth capex of A$465/oz was mainly due to the movement of KCGM waste material giving access to higher grade material. This will form part of the mill expansion strategy as NST stockpiles 8-10mtpa of ore to complement the open pit and underground supply that will feed the expanded mill as it grows towards 27mtpa capacity.

Over the five-year growth plan, KCGM will contribute ~650kozpa from the Kalgoorlie area total of ~1.1mozpa by FY26. Yandal and Pogo, the two other main regions are targeting 600kozpa and 300kozpa respectively in the same time frame.

In that context, NST’s FY24 guidance looks a bit limp at 1,600-1,750koz of gold sold. This is also skewed towards 2H24 partly due to the planned major shutdowns at three production centres.

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 6.4x 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.

Figure 1: NST gold production