Northern Star shares sold off yesterday after investors took a set against the contents of the company’s December quarter and half year production and operations report.
The shares dipped more than 7% at one stage before ending the day at $8.68, off 5.8%.
Some investors didn’t like the news that WA-based gold miner had raised its financial-year all-in sustaining cost (AISC) guidance to a range of $1,125 to $1,255 an ounce from a previous range of $1,050 to $1,150 an ounce.
Higher costs are a result of lower grades, the firm said. It expects ore grades will improve in the current fiscal half year.
It maintained June 30 year production guidance of 850,000 to 900,000 ounces of gold.
Northern Star said it sold 210,561 ounces of gold in the December quarter, slightly down from 212,682 in the third quarter.
Some of the lift in costs is due to stepped-up work at the Pogo mine in Alaska which was bought midway through 2018.
Judging from the enthusiastic comments about Pogo in yesterday’s report, Northern Star management see considerable reason to boost spending at the expense of higher costs..
“Gold sold at Pogo was 57,534oz at an AISC cost of A$1,681/oz (US$1,210/oz). Pogo’s average mined grade in the quarter fell to 8.2gpt from 11.2gpt in the previous three months, reflecting Northern Star’s gradual transition to a more bulk mining approach and the mine sequence during the quarter.
“Strong productivity gains were recorded at Pogo in the quarter, with mined tonnages rising 22 percent and mill throughput up 33 percent to date. These combined efforts have lowered the cost per ore tonne by 23 percent. This is an exceptional result considering this is the first quarter of Northern Star’s ownership.
These productivity gains and lower costs per tonne bode well for the Reserve estimates which will be calculated in the middle of this calendar year,” the company said.
Northern Star says it is still in the process of implementing its widespread operational changes at Pogo and “while this new approach can be seen in the lower grade, further increases in tonnages and cost reductions are expected to flow through in the current half.”
“Northern Star is delighted with the drilling results and related mining opportunities which have emerged at Pogo since it took ownership last quarter.
“In light of these results, the Company has increased its upfront investment in-mine development, diamond drilling (an additional four underground drill rigs have been mobilised to site), mobile fleet and other measures aimed at enabling it to take full advantage of the opportunities now available.
“A more comprehensive update will be given in February. This accelerated expenditure is reflected in the project’s AISC during the quarter,” the company added.
Northern Star Executive Chairman Bill Beament said the operations had performed well in the December quarter given the combination of lower-grade mine sequences and the extensive reform program underway at Pogo.
“The higher costs stem from the lower grades mined at each of our three operations,” Mr. Beament said.
“These lower grades reflect two factors. The higher gold price in the December quarter allowed us to extract lower-grade ore, which reduces production and in turn increases our per-unit costs, without damaging our margins.
“This is entirely consistent with Northern Star’s long-standing policy of mining to a margin.
“Second, the lower grades also stemmed in part from the mine sequences encountered during the quarter. Our mine plans show that grades will be higher at each of our three operating centres in the current half.
“In addition at Pogo, the lower grade stems from the switch to a more bulk-mining approach.
“The upshot is that our FY2019 production guidance is unchanged at both the Australian and US operations. Our FY2019 cost guidance at our Australian operations has been increased by A$25/oz cost to reflect the impact of these two factors and it has risen at Pogo by ~US$100/oz to reflect the increased upfront investment and mine sequence factor.”
Mr. Beament said the Australian operations would benefit from the resumption of mining in higher-grade areas in the current half.
“This will help strengthen production, which will, in turn, put downward pressure on unit costs,” he said.
“This outlook is also supported by the outstanding drilling results which we have generated recently, particularly at Jundee and Kanowna Belle,” he said.
