Release Date: August 21, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Northern Star Resources Ltd (NESRF, Financial) reported a record underlying EBITDA of $2.2 billion and record cash earnings of $1.8 billion for FY24.
- The company declared a final unfranked dividend of $0.25 per share, up 61% from the previous year, and extended its $300 million share buyback program for another 12 months.
- Northern Star Resources Ltd (NESRF) is in a strong net cash position of $358 million as of June 30, 2024, with access to flexible long-term funding options and three investment-grade credit ratings.
- The company achieved significant progress in its five-year profitable growth strategy, with notable milestones such as the Thunderbox mill delivering 6-million-tonne nameplate and Pogo's record performance in Q4.
- Northern Star Resources Ltd (NESRF) doubled its return on capital employed year-on-year to 8.6%, reflecting the success of its profitable growth strategy and efficient capital allocation.
Negative Points
- The company's all-in sustaining cost (AISC) for gold was $1,853 per ounce, which may be considered high compared to industry standards.
- The first quarter of FY25 is expected to be the softest quarter due to planned major shutdowns across all processing plants, potentially impacting short-term production and financial performance.
- The company anticipates unfranked dividends for at least the next six months due to not paying tax for Australian operations until the second half of FY25.
- There is a potential for increased costs due to competitive pressures in procurement, supply, and service contracts, as well as labor market dynamics.
- The company's guidance indicates that production will be second half-weighted, which may pose risks if there are delays or issues in ramping up production in the latter part of the year.
Q & A Highlights
Q: Congrats on the results. Extending the buyback -- as you say, the average price we purchased that had been $8.85 per share. Do we think about that extension as extending the optionality rather than something that we should count on just given where the share price is and everything else that's going on?
A: We're just highlighting that historic price is probably not relevant to where we're sitting right now. I think what is relevant to our capital management, what we're doing with CapEx into our projects, you can see we're dividend paying. We've got a pretty clear policy on 20% to 30% of cash earnings. We know where we're growing with production. I think the benefit really is where gold price sits. And there's opportunity there with surplus cash to utilize in this way. So I think that's just prudent while we extended the period. Because we still had some remaining allocation, I guess, for that $300 million. And that's probably the way to look at it. We've got other things we can see where cash proceeds may be returned to us early. So there's opportunities there to utilize that.
Q: Guidance to this year -- I know we got it at the quarter. But the Kalgoorlie -- that $600 million or $550 million, $600 million being spent outside the mill expansion, how do I think about that split for KCGM? Because I think I have to go back some time to find a spilt of how much is being spent on stripping versus the underground. Is there sort of any color you can give around this year?
A: Yeah. I think it should be in the site visit presentation in August. It's of the tune -- it's probably take 30% underground. I mean, you've got probably another 40% of the open pit. And then the infrastructure around that, obviously, builds up to the full 100%. So that's probably the way I think about it. But there's details in the quarterly on it.
Q: The D&A steps up this year from $700 million-ish to about $775 million to $785 million (sic - see slide 16, "$875 million"). What is the driver for that? Or if we were to look at last year's rates versus this year, what are the key sites to go back and have a look at, I guess?
A: It depends on -- they're all obviously advertising at different rates. Depends on -- it depends on the mix of production. Obviously, we're increasing ounces as well. And then obviously, we put capital to work into our balance sheet, if you like, too, so that's unwinding. So it's just a reflection of those three things: production mix, more ounces, and obviously, more balance sheet being unwound.
Q: Just in your comments there, you said that there's some potential capital coming back earlier. I assume you're referring to your convertible funding agreement with Osisko. Just understanding that you can elect it at normal-sized election. Once there's been a change of control, you can either go into common shares or a stake in the asset of Windfall. Are we read into that that you would prefer to elect to go into shares versus the project stake? Or how are you thinking about that convertible at this point in time?
A: Yes. So that is the value that I was considering on the normal course of the debenture. it would have been December '25. So we just expect with what's transpired that that would likely come back earlier and be made whole. So there's options there. But ultimately, I guess, we explained what our interest was in that in the early days and why we were there. At the moment, we just see an opportunity that that will be returned to us early.
Q: There was $65 million spent on tenements acquisitions during the year. Just can you provide some detail around where that spend is being corrected, i.e., is it a greenfield territory for Northern Star? Or is it for potential satellite deposits around existing infrastructure?
A: No, it was -- the tenements we brought around Jundee from Strickland, Mitch, which, I think, we settled early Q1 this year, that's the main purchase this year.
Q: Just another one on the buyback, I guess, just want to get a sense, I guess, given it's been used fairly sparingly the last 12 months outside the start of FY24 and a few days in late June, just trying to get a bit more color on how you're thinking about deploying it. Is there some kind of valuation function you looked at? And I suppose just to add to that, I mean, with your deals still being unfranked for at least the next six months, how does that change the way you're thinking about capital returns?
A: Yeah, good question, Al. Look, all those things are relevant, absolutely, on a valuation basis, but more on our returns of that applied capital basis. So you see the options we have, the organic options, the capital, leading up to that to the middle of the year when we were allocating capital for FY25 and valuing the returns on those. These are all just a suite of assets, suite of tools, that you can utilize for shareholder returns. So dividend is pretty clear and affected by growth capital. Because it's cash earnings, it doesn't -- isn't affected by that. And then we look at, obviously, modest gold prices on our forecast. We enjoy higher gold prices. We get some surplus cash. We can utilize that through instruments like the buyback. So all those things come into play. It's not a set and forget, but it will remind us that its' -- the ability to turn it on and off. There's blackouts as we're reporting and just normal course of business. So it's there as a tool. I think we've been -- got some great value in utilizing it today, and it was important that we extended it. So it exists, and we're able to utilize it.
Q: How do you think about growing capital returns over the medium term versus keeping capital for other opportunities? And second part of the question, do you still see room for additional assets in the portfolio?
A: I mean, the capital return piece, I mean, I guess, it's all the effort and work -- as I said in the talk, we're three years in. All the effort is around growing earnings, growing returns. And we think -- because of the option we have organically, we think that's the best thing to do. And that's what we're doing. So if you talk about how we're growing returns, those things I spoke about around access to GP North, getting Thunderbox consistently at that 6-million-tonne, optimizing Pogo, those are the things that we see as providing those capital returns. And then, of course, on top of all that is the mill expansion. So that's how
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
