Northern Star has erased most of its year-to-date gain. Where does it go from here?
Northern Star's year-to-date gain has shriveled from 46% to just 6% after its FY26 guidance fell short of market expectations.
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KEY POINTS
- Northern Star's share price has collapsed from a 46% year-to-date gain to just 6% after disappointing FY26 guidance showed production falling short of the company's 2.0Moz target and costs rising 13-15% above analyst expectations.
- The company abandoned its long-held 2 million ounce sales target, with FY26 production now guided at 1.7-1.85Moz due to planned major shutdowns across all three production centres.
- Capital expenditure guidance has increased substantially over the past twelve months, with FY26 growth capex now projected at $1.985-2.12 billion, exceeding analyst expectations by 8-12.8%.
In less than a month, Northern Star (ASX: NST) has flipped its year-to-date gain from 46% to just 6% after its recent FY26 guidance flagged weaker-than-expected sales alongside substantially higher operating costs.
An operational update on Monday, 7 July, noted FY25 gold sales and all-in sustaining costs to be within the company's guidance of 1,630-1660koz and A$2,100-2,200/oz respectively. However, the company's FY26 guidance was disappointing across multiple fronts, including:
Production of 1.7-1.85Moz, which was in-line with Citi expectations but short of the company's prior 2.0Moz outlook
AISC of A$2,300-2,700 was 13% higher than Citi forecasts at the midpoint and 15% above consensus expectations
Growth capex of $1.985-2.12 billion topped Citi and consensus expectations by 8% and 12.8% respectively
Northern Star attributed the softer FY26 start to "planned major shutdowns across all three production centres." The company cited several factors driving higher costs, including broader sector inflationary pressure (~5%), increased sustaining capital requirements from expanded development work, and processing capital investments across all facilities.
Analyst Takeaways
Despite the disappointing guidance, analyst sentiment remains mixed but generally supportive of the company's long-term prospects:
RBC Capital retained Sector Perform, lowered target from $22.00 to $19.00. Says FY26 guidance miss is likely not priced in, with cost pressures posing risk to FY27 production, though long-term growth remains intact.
Macquarie retained Outperform, target unchanged at $27.00. Notes FY26 capex and costs exceeded expectations, with Q1 weakness flagged and KCGM execution key to restoring investor confidence.
CLSA retained High-Conviction Outperform, lowered target from $25.20 to $24.30. Acknowledges weak short-term result but sees strong long-term growth, with production outlook underappreciated and inflation trends continuing.
Citi retained Buy, lowered target from $22.00 to $21.00. Says the market will need time to digest the disappointing guidance and sees risks to further negative surprises.
A closer look at Citi's take
Citi expects further volatility as Northern Star attempts to reset cost and capex expectations. The FY26 guidance has resulted in FY26-27 EBITDA downgrades of 7-10%, with analysts now expecting flat year-on-year EBITDA growth in FY26 and 9.2% growth in FY27.
Notably, Citi expects "market digestion of FY26 guidance to continue into early August and sees risks to the downside for KCGM with site visit disclosures."
Where does this leave Northern Star?
Northern Star remains Australia's second-largest gold miner by production, operating three key mining centres: Kalgoorlie and Yandal in Western Australia, and the Pogo underground mine in the US. The merger with Saracen added two additional WA mines and consolidated ownership of the Super Pit (KCGM), while the recent May completion of the De Grey merger brought the ~530koz per annum Hemi project into the portfolio.
The company's assets, production capabilities, and long-term aspirations are undeniable. The challenge lies in execution.
Northern Star's current situation mirrors a similar challenge faced by Newmont (ASX: NEM) in October 2024. Newmont shares tumbled 19% over two days (October 24-25, 2024) after delivering third-quarter results that missed analyst expectations by 17%, despite producing 2.1 million ounces of gold and generating US$760 million in free cash flow. The culprit was soaring costs, up more than 30% year-to-date and well above analyst expectations.
While gold prices traded sideways between October 2024 and January 2025 before finding momentum in February, it took Newmont shares approximately seven months to return to late October levels, even as gold prices pushed to record highs.
Newmont price chart (Source: TradingView)
The Path Forward
Northern Star must now focus on restoring market confidence at a time when capital expenditure forecasts have increased substantially in the last twelve months.
Rising gold prices could provide some offset to recent weakness, though Citi analysts recently lowered their near-term gold price target to US$3,300/oz from US$3,500/oz, suggesting limited upside from current levels.
"We may have already seen the highs at US$3,500/oz in late April as gold market deficit is peaking soon if not already," Citi analysts noted in their research.
Several policy developments could further dampen gold demand, including the "One Big Beautiful Bill Act," trade agreements, and Fed rate cuts beginning in September.
