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Earnings call: Northern Star shines with robust H1 FY2024 results

EditorEmilio Ghigini
Published 02/22/2024, 05:18 PM
Updated 02/22/2024, 05:18 PM
© Reuters.

Northern Star (NST) has reported a significant improvement in its financial performance for the first half of the fiscal year 2024, with a notable rise in EBITDA and cash earnings. The mining company announced an interim dividend of AUD 0.15 per share, reflecting a 36% increase from the previous year. The company's balance sheet remains strong, showcasing a net cash position of AUD 229 million. Northern Star expressed confidence in achieving their full-year guidance, with expectations heavily leaning towards the second half of the year.

Key Takeaways

  • Northern Star's EBITDA and cash earnings have seen considerable growth in the first half of FY 2024.
  • An interim dividend of AUD 0.15 per share was declared, up 36% from the previous year.
  • The company maintains a robust balance sheet with a net cash position of AUD 229 million.
  • Record performances at production centers and successful mining operations were highlighted.
  • Northern Star is on track to meet their FY 2024 guidance, which is anticipated to be stronger in the second half.
  • The KCGM mill expansion project is progressing well, and the company is focused on profitable organic growth.
  • A significant mineral resource base and a strong 10-year reserve-backed production profile were reported.
  • There were no material issues raised during the earnings call.

Company Outlook

  • Northern Star is committed to delivering shareholder value through ownership of world-class assets and operational excellence.
  • The company's strategy is on course, with a goal to generate superior returns for shareholders.
  • Northern Star's FY 2024 guidance remains promising, with a heavy emphasis on the latter half of the year.

Bearish Highlights

  • Labor market challenges in Western Australia are present, but the company is managing them with a gradual reduction in turnover.

Bullish Highlights

  • The focus on low-cost, high-grade ounces from the Super Pit is expected to drive production upward.
  • The KCGM underground study is underway, indicating potential future growth opportunities.

Misses

  • The company has not yet planned large-scale underground mining at the Super Pit.

Q&A Highlights

  • Discussions about U.S. tax payments were positive, with no major concerns.
  • The company is not affected by pilot strikes, indicating a stable operational environment.
  • Northern Star is utilizing float circuits optimally for gold production.

Northern Star's commitment to regular and growing dividend payments is evident, with a policy of distributing 20% to 30% of cash earnings to shareholders. The company's interim dividend of AUD 0.15 per share is a testament to this commitment and the strong financial performance in the first half of FY 2024. While underground studies at KCGM continue, the company has made it clear that there are no immediate plans for large-scale underground mining at the Super Pit. The management's strategy appears to be paying off, as evidenced by the record interim dividend and robust financial health of the company.

InvestingPro Insights

Northern Star Resources Ltd. (NESRF) has been a standout in the mining sector, and recent data from InvestingPro further solidifies the company's financial strength and growth prospects. With a market capitalization of $9.92 billion, the company's valuation reflects its substantial presence in the industry.

InvestingPro Data highlights a Price/Earnings (P/E) ratio of 25.65 for the last twelve months as of Q4 2023, which is relatively low when factoring in the company's near-term earnings growth. This indicates that the stock could be undervalued, presenting a potential opportunity for investors. Furthermore, the PEG ratio, which measures the P/E against earnings growth rate, stands at an attractive 0.86, suggesting that the company's earnings growth is not yet fully reflected in its stock price.

An InvestingPro Tip worth noting is that Northern Star's cash flows can sufficiently cover interest payments, a sign of financial resilience and stability. Additionally, the company has maintained dividend payments for 12 consecutive years, reinforcing its commitment to returning value to shareholders, as demonstrated by the recent increase in its interim dividend.

For investors seeking further insights and analysis, InvestingPro offers additional tips on Northern Star Resources Ltd., which can be accessed at https://www.investing.com/pro/NESRF. There are 9 additional InvestingPro Tips available, providing a comprehensive view of the company's financial health and performance. Use coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, enhancing your investment research with valuable information.

Full transcript - Northern Star Resources Ltd (NESRF) Q1 2024:

Operator: Thank you for standing by, and welcome to the Northern Star FY 2024 Half Year Financial Results Call. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Mr. Stuart Tonkin, Managing Director and CEO. Please go ahead.

Stuart Tonkin: Good morning, and welcome to Northern Star First Half Financial Year 2024 Results Conference Call. Joining me on the call today is our CFO, Ryan Gurner. We have a presentation, we'll be referring to this morning as published on the ASX, and that's the presentation titled FY 2024 Half Year Results Presentation, and I'll start now on slide 3. So we are in an exceptional position on the conclusion of our half one, while advancing our five-year profitable growth strategy. Northern Star is a global gold leader as well as one of the largest and most liquid gold exposures across the Asia Pacific region. We're continuing to build from strength to strength. This is achieved through our deliberate and simplified portfolio of three large-scale production centers in Tier 1 jurisdictions, producing one commodity gold. As you will see in our update today, we continue to execute our clear low-risk strategy, which is generating superior returns for our shareholders today, tomorrow and into the future. Our focus remains on operational excellence and a disciplined and mature approach to investing shareholders' funds. I'm particularly proud of our people and their commitment to safely and sustainably execute our value creation strategy. Our strong safety culture and results-driven mindset positions Northern Star as an employer of choice and to combat the continued skill shortage in our industry. We offer a significant career development opportunities across our long-life portfolio of industry-leading gold assets. And I'd now like to pass to Ryan to review the highlights of the half year.

Ryan Gurner: Thanks, Stu. Good morning all. I'll now step you through the first half financials. I'll begin on slide 4. As illustrated, our key financial metrics for the group improved significantly on the previous period. Despite the challenges, the resource sector currently faces with cost pressures and labor constraints. The strength and resilience of our assets is illustrated with the company delivering a strong underlying EBITDA of AUD 889 million during the first half of FY 2024, up 41%. Maintaining capital prudency and the realization of tax synergies from the merger have resulted in a generation of significant cash earnings, which totaled AUD 702 million, up 50% from the previous period. A reminder that cash earnings represents the amount of underlying earnings, which is available to return to shareholders, invest in profitable growth-related activities and balance sheet management. A reconciliation of cash earnings to profit after tax is provided in the appendix to this presentation. This record first half cat earnings has enabled the Board to declare today an unfranked interim dividend of AUD 0.15 per share. This record dividend represents a 36% increase from the FY 2023 interim dividend and the midpoint of our dividend policy being 20% to 30% of cash earnings. The company does not expect to generate franking credits for at least a further 12 months due to the tax synergies arising on the merger, temporarily reducing the company's taxable income of its Australian operations. In respect to the company's AUD 300 million share buyback. The company has bought back AUD 169 million in shares to-date, and the program remained open, subject to blackout periods until September 2024. Reflecting on our strong balance sheet on Slide 5. Our balance sheet supports our strategy and gives us flexibility through the cycle to fund opportunities that may arise to enhance our portfolio of assets to deliver long-term superior returns to our shareholders. We remain well positioned to deliver our profitable organic growth strategy with our strong balance sheet, which includes a AUD 229 million net cash position at 31 December. We have significant liquidity of AUD 2.6 billion following the recent refinance of the company's corporate bank facilities in December, which remained undrawn at AUD 1.5 billion. On to our operational overview Slide on 6. As illustrated, we've continued to deliver in what is a challenging environment with 780,000 ounces in gold sold across our three production centers in the half year. We remain on track to meet our FY 2024 guidance, which is second half weighted. During the first half, and as outlined on this slide, at KCGM, we have successfully and safely commenced the mining of Golden Pike North ahead of schedule. At Thunderbox, miller optimization continues, and we commence activity at Wonder underground. And Pogo delivered a record mine and mill performance at 1.4 million tonnes per annum during the period. Our focus for the second half remains on delivering higher oil volumes in grade at KCGM, principally from Golden Pike North improved milling availability at Thunderbox and Jundee and continuous optimization at Pogo. Over to Page 7. This slide highlights the significant cash generated by the business during the first half with AUD 131 million of group underlying free cash flow. The waterfall chart on the left illustrates the positive contribution from each production center to the group's cash earnings for the period. Cash earnings for each production center is represented by the segment EBITDA generated minus the sustaining capital spend at that center. Pleasingly, all production centers contributed strongly with Kalgoorlie, our largest center comprising 62% of the group's cash earnings for the year. We will continue our cost focus in the second half, which alongside the planned lift in group production is expected to translate into free cash flow generation, maintaining the company's strong financial position. Now to Slide 8, which highlights EBITDA margins achieved for the group and each production center over the period. All three production centers performed strongly and achieved healthy EBITDA margins. When normalizing EBITDA for the non-cash charge resulting from the processing of KCGM acquired stockpiles, group EBITDA margin for the period rises to 43%. A strong gold price and our focus on cost has delivered an EBITDA per ounce increase from AUD 877 per ounce a year ago to nearly AUD 1,200 per ounce this half. As illustrated by the graph on the left, our Kalgoorlie production center continues as the key contributor at 54% of the group's EBITDA and is expected to grow with access to Golden Pike North. In relation to our profitable growth strategy on Slide 9. We are now 2.5 years into our five-year profitable organic growth strategy. Over this time, we have delivered major milestones, which have been key in achieving our objectives, and we are also well progressed at our KCGM mill expansion project, which capacity more than doubled to 27 million tonnes per annum. Over the past 2.5 years, along with the progress made on our strategy and the capital investment undertaken in our operations, the business has generated over AUD 1.2 billion in cumulative free cash flow from operations. And as you can see on this slide, there are great opportunities within each production center to continue to build on that free cash flow generation for years to come. Before I hand back to Stuart to finish the presentation, I'd like to step you through Page 10. where we've set out the key elements of how we deliver shareholder value, which is through owning world-class assets in Tier 1 locations and applying our DNA of operational excellence. Operating in a safe and responsible way with a demonstrated track record, our portfolio of long-life assets in well-endowed geological systems provides us with flexibility and optionality to extract value and employ capital prudently to where the best returns can be generated. And as an overarching foundation, we maintain a strong balance sheet, which enables the execution of our strategic framework through the cycle.

Stuart Tonkin: Thanks, Ryan. So on slide 11, talking about those fantastic organic growth returns that we're generating. I am exceptionally pleased with the progress we're making at KCGM mill expansion Project to date, and that remains on track. The team there will be kept busy for the remainder of the year and the key activities are listed at the bottom right side of that slide. The mill expansion contract has commenced site mobilization with activities expected to ramp up in the June quarter as planned. Our CapEx guidance for that project as AUD 1.5 billion remains unchanged and is inclusive of 10% inflation and contingency. Note that as planned, the $525 million this year of capital expenditure is included in our group's capital expenditure guidance. Our Fimiston mill expansion at KCGM Super Pit is in addition to our five-year profitable growth plan, which sees the business reach 2 million ounces per annum. The mill is planned to be commissioned in FY 2027 and ramp up through to FY 2029 enhancing organic growth and returns for our shareholders. Now, turning to slide 2. Our FY 2024 guidance remains unchanged, which is heavily second half weighted. Our teams have a clear strategy to deliver this guidance, noting that the cost pressures in the industry are Pogo. We do acknowledge these challenges to deliver our cost guidance. On tax, our Board anticipates any future potential dividends to be unfranked for at least the next 12 months. As Ryan has mentioned, as we expect to pay mill tax from our Australian operations over the next year. We will remain a taxpayer for our Pogo operation. And now slide 13, we maintained a significant mineral resource base of above 57 million ounces with reserves above 20 million ounces, and we have a very effective exploration program across our significantly endowed geological systems, to replace and grow our mine lives, and we continue to add resources at an industry low cost of $31 an ounce. Further, we have a 10-year reserve-backed production profile, which provides significant visibility to enhance the delivery of our superior returns to our shareholders. We have those JORC resources and reserve work underway presently to be reported in quarter four, which is a March end. And in summary, on slide 14. We continue to execute on our clearly defined strategy of generating superior returns. The half one results presented today are outstanding and are a result of our team's effort on safely delivering operational excellence in parallel to a disciplined approach to investor investing shareholders' funds. So I thank you, and I would now like to pass to the moderator for Q&A

Operator: Thank you. [Operator Instructions] The first question today comes from Daniel Morgan from Barrenjoey. Please go ahead.

Daniel Morgan: Hi, Stuart and team. Thanks for the result. My question just relates to the business performance since Balance Day, so 31st of December. There's been a few companies talking about how business is tracked. Can you just talk about how your maintenance activities already occurred? And did they track the plan? And how has the business performed since the end of the year?

Stuart Tonkin: Yes. Thanks, Dan. I guess we were silent on it, but in a group level, we've maintained our full year guidance. So it's certainly been the similar threat of power outages and rainstorms and all the sorts of things that happen generally in this time of year in mining in Western Australia as well as employment-related stuff in Alaska. But those things have been offset by other things that we have in contingencies in place. So, yes, nothing material, nothing to report. And I think silence and the omission of any comments around that probably reflect that here. The planned work has been performed well. And yes, our view is, it is second half weighted and heavily into quarter four. You see us do that each year. It's not necessarily by design, but it is how some of the planned work is scheduled. And also the exit rate as we're growing year-on-year, showing that, that flex and that capacity. It's not a straight line. There's events that equipment gets turned on and there's step changes in that. Heavily for us the second half, the low-cost, high-grade ounces from the pit -- Super Pit in Golden Peak North are the large lever that drives down unit costs and ounce production up.

Daniel Morgan: Thank you. And in your disclosures, you talk about paying no tax in Australia, which makes sense, but some tax in the United States with Pogo. Can I take that to read that Pogo is tracking well and your expectation is that you -- I mean, obviously, you're going to pay tax so you're going to be making positive cash flow out of that asset. Is that what you're flagging?

Stuart Tonkin: I'll be happy to pay as much tax as I can in the U.S., which will define the health and the profitability of the asset. But you are right. We're at those inflection points of past investment paybacks coming on, generating surplus past D&A and obviously generating those returns for attracting tax.

Daniel Morgan: Thank you, Stuart and team.

Stuart Tonkin: Thanks, Dam.

Operator: Thank you. The next question comes from Andrew Bowler from Macquarie. Please go ahead.

Andrew Bowler: Good day, Stuart and Ryan. Just to delve a bit deeper into your comments earlier on in the call about the continued tight labor market in Western Australia. I think from memory on the quarterly call, you said you reached out to some lithium and nickel names to potentially take on some stuff from those. I was just wondering how those discussions went and have you seen a sort of reduction in turnover just in the last month, given the news out of the nickel sector continues to look bearish? Cheers.

Stuart Tonkin: Yes. So we're seeing a gradual plateau and a decline on turnover anyway. That's reflective of what we have in our business opportunities, promotions, growth and expansion in some form, but also the lack of places to go or that drag that demand of other industries pulling those skilled labor. So that's slight. We absolutely have reached out sort of five businesses that have our flyer and have got a long with it. But I think that takes a bit of time because they actually go through months of redundancy programs and those sorts of things. So I think a lot of staff are reluctant to move until they've closed those elements out. But that will relieve for us. We don't want to take advantage of those circumstances. But as far as offering those jobs, filling our vacancies, we've made it very clear and known of what is available. And the costs, I mean, what the backdrop is heavy IR changes unfavorable generally for flexibility and mapping our cost out, so you've heard may just talk about this and potential flight capital out of Australia because of some of those changes. So I also don't want to play down and have anyone think, there's going to be a material shift and change in labor cost because of some of that fine work has been developed.

Andrew Bowler: No. So it sounds to me like hopefully, if you can fully staff up for the first time in a long time that it's more an incremental improvement in productivity than cost reduction versus

Stuart Tonkin: Absolutely. If you kind of recall the deficit meant lots of trainees entering the industry and have potentially derated until they got up to a level of competency and they had additional resources training them, which was additional cost. So that slowly subsides. And then obviously, any new state coming in typically hits the ground running faster and operates at a higher productivity. So we've still got nearly 7,000 employees across our business. So when you're dealing with hundreds coming in and doing this with store or we already have a huge engine room of labor and staff delivering a fantastic result we've just reported on. This is on the margins. It's not a step change in our business for juniors with one asset or something, it could make a major difference for us, it's largely business as usual.

Andrew Bowler: Makes sense. No worries. That's all for me. Thanks, guys.

Stuart Tonkin: Thanks, Andrew.

Operator: [Operator Instructions] The next question comes from Hayden Bairstow from Argonaut. Please go ahead.

Hayden Bairstow: Good morning, guys. Stuart just interested on the potential later risks around these pilot strikes. Do you guys have much exposure to that mainly Jundee? Or is it the risk across into Kal as well?

Stuart Tonkin: We are not directly exposed to the pilot strike action. I understand there's either a pause or a change to that in relation to the cyclone up north at the moment. So I think there's some relief in the media seat but we're not directly exposed to it. Now two phase of our workforce are residential, whether it's Alaska or Australia. And that's the strength. But yes, where we do our FIFO typically, we've got other charter arrangements and we can make those arrangements. And I think the industry generally through COVID demonstrated a lot of flexibility unrelated to a pilot strike, but certainly related to scarcity of flights and seats on flights, et cetera. So they will manage through, but everyone should understand, ultimately, this results in cost increases, not just operational disruptions threats to those major industries that rely on flights.

Hayden Bairstow: Okay. And just on the second half or first half versus second half light weighting. Can you just sort of flush out a little bit. Is that literally just on grade? Is it more seasonal sort of things that you're factoring in that second half? Is it something which you factor in every year? Or is it specifically this year?

Stuart Tonkin: Yes, so quarter one, quarter three are the planned major mill line shutdowns at varied length, but at all the sites, kind of, all at once, and that's typically two major shuts -- or a major shut and then sort of a lesser one. And we typically have those planned quarter one and quarter three. So. you'll see that cyclically through the business. You might say, well, why don't you spread them all out and mix them all up. Each of the assets run in their own right. So, depending on throughput wear rates, all those sorts of things. So, that is what it is at the moment. The real key element around the ounce left is that we access the Golden Pike, the East Wall remediation progressed ahead of plan. We accessed those -- that all last quarter and we're in that. So, there's a still bit of unstacking and sequencing and some waste removal, but we're going to be in that for a number of years, and they are very cheap ounces. And therefore, they're averaging down the group and that's key to the second half and the fourth quarter, particularly.

Hayden Bairstow: Okay. And just one final one. Just on the increased EV mean did EV buybacks, I mean, is the thought process around allocating capital between the two?

Stuart Tonkin: Yes. We see the different audiences and even dividend reinvestment plans. We get questioned by while you do that, whilst you have a buyback active, but they're different audience and they're different values. So, we pride ourselves in regularly paying that dividend, having a pretty clear policy, 20% to 30% of cash earnings. We're right in the middle of that for half one. And as we're growing production, gold price being where it is, dividends are growing, so AUD0.15 per share for half one on prior corresponding period is an uplift. And yes, we should be able to demonstrate the growth in that. We still evaluate that buyback against lots of factors, reinvesting that capital in the business, other capital returns such as divis and we keep that assessment there, but you appreciate we've been in blackout in regards to the buyback and we relate to these reporting periods as well.

Hayden Bairstow: Okay. Thanks guys.

Stuart Tonkin: Thanks Hayden.

Operator: Thank you. The next question comes from Alex Barkley from RBC. Please go ahead.

Alex Barkley: Thanks. Morning Stuart and team. I think you've covered the cost pressure stuff pretty well. So, just a quick question on the KCGM underground studies. Are you still expecting to be able to release something in early stage around the middle of this calendar year? Thanks.

Stuart Tonkin: Yes, not Alex, not a study that will to necessarily report at fees for the midyear. The work is absolutely underway and continuing. But largely, that's around a lot of information to come in. So drill drives drilling still will do the resource reserves that will be end of March and then published in April. And that again sets the foundation for part of the material that goes into that broader plan. So, any study would be premature and a bit of having of what's there until we get some of the density of the drilling up. I'm very confident it's there. We're just looking at the size of the price remembering that we -- other than the saddle between Mt Charlotte and the Super Pit and the activity that's happening there, Mt Ferrum, et cetera. We did not intend in the plan to bring a large underground on the Super Pit -- in concurrent with Pit mining at Super Pit. So there's no pace to accelerate and bring that in. It will sequence after the production of things like Golden Pike. So the development of a drilling studies of it will occur, but genuine mining in the bottom of the Super Pit won't happen until that pit activity reduces and that's just a geotechnical risk management.

Alex Barkley: Yeah. Okay. That's very helpful around the study timing stuff. Okay. Thanks very much guys.

Stuart Tonkin: Thanks, Alex.

Operator: Thank you. [Operator Instructions] The next question comes from Daniel Roden from Jefferies. Please go ahead.

Daniel Roden: Good morning guys. Just a question on mineral resources this morning. You're saying you're doing deals on float in the Goldfields region. Is this something that you consider bending into an unused asset into? Thanks.

Stuart Tonkin: Yeah. Thanks, Daniel. I'm using all my float circuits. So that's what Fimiston is based on and as is Kanowna, so at this stage they're fully utilized in their own right to producing our gold coin, so no.

Daniel Roden: Thank you.

Operator: Thank you. At this time, we’re showing no further questions. I’ll hand the conference back to Stuart for closing remarks.

Stuart Tonkin: Thank you. So it's clear that our strategy is delivering strong returns as demonstrated today by our record interim event. Our financials are in great shape, and we continue to maintain financial flexibility from a strong balance sheet. So thank you, and good morning.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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