Northern Star slashes FY25 guidance – a reminder why bullion beats miners
It's prime earnings time for gold miners as prices soar beyond US$3,300/oz. Yet, Northern Star reminds us why that's easier said than done.
Source: Shutterstock
Mentioned
KEY POINTS
- Northern Star’s Q3 production of 388.4 koz missed consensus estimates by 6.5%, driven by lower grades at Kalgoorlie and Yandal, with group AISC of A$2,246/oz exceeding forecasts by 7.5%
- FY25 guidance was downgraded, with gold sales reduced to 1,630–1,660 koz (down 6.4% midpoint) and AISC raised to A$2,100–2,200/oz (up 14.6%), signaling ongoing operational challenges
- Macquarie maintains an “Outperform” rating with a A$27.00 target, citing the accretive De Grey Mining acquisition, but near-term misses may lead to revised analyst forecasts
Gold prices have surged from US$2,000 to US$3,300 per ounce in just over a year, a once-in-a-generation rally that should be a boon for gold miners.
In theory, miners like Northern Star (ASX: NST) offer leveraged exposure to rising gold prices via production growth and dividends, amplifying returns compared to holding physical bullion. Yet, the company's latest quarterly report underscores the harsh reality of the resource sector: even in a golden era, operational challenges can erode the upside.
A Double Whammy
Northern Star’s March quarter delivered a mix of lower-than-expected production and higher-than-anticipated costs, falling short of consensus estimates across most key metrics. Here’s how the numbers stacked up:
Metric | Actual | Consensus | % Beat/(Miss) |
|---|---|---|---|
Group production | 388.4koz | 415.3koz | (6.5%) miss |
Kalgoorlie production | 202.3koz | 227.0koz | (10.9%) miss |
Yandal production | 118.6koz | 129.0koz | (8.1%) miss |
Pogo production | 67.5koz | 67.0koz | +0.7% beat |
Group AISC | A$2,246/oz | A$2,089/oz | (7.5%) miss |
Kalgoorlie AISC | A$2,139/oz | A$1,931/oz | (10.8%) miss |
Yandal AISC | A$2,398/oz | A$2,179/oz | (10.0%) miss |
Pogo AISC | A$2,292/oz | A$2,447/oz | +6.3% beat |
Source: Northern Star
The weaker-than-expected performance was attributed to:
Delayed Higher-Grade Ore at KCGM: Lower grades at the Kalgoorlie Consolidated Gold Mines (KCGM) operation hampered production.
Elevated Maintenance Costs at Yandal: Unplanned expenses weighed on profitability.
Higher Royalties: Soaring gold prices increased royalty payments, inflating costs.
Management remains optimistic, projecting a significant lift in mining efficiency for the June quarter. However, the company tempered expectations by downgrading its FY25 guidance:
Metric | New Guidance | Prior Guidance | % Change (midpoint) |
|---|---|---|---|
Gold sold | 1,630–1,660koz | 1,650–1,800koz | Down 6.4% |
AISC (FY25) | A$2,100–2,200/oz | A$1,850–2,100/oz | Up 14.6% |
Growth capex (FY25) | A$950m–A$1.10bn | A$950m–A$1.02bn | Up 3.9% |
Source: Northern Star
For context, Macquarie analysts (April 22) had forecast FY25 gold sales of 1,690 koz at an AISC of A$2,041/oz. Northern Star’s revised guidance misses their production target by 2.7% and exceeds their cost estimate by 5.3%, highlighting the gap between expectations and reality.
Near-Term Pain, Long-Term Optimism
Despite the disappointing update, Macquarie maintains an “Outperform” rating on Northern Star, with a $27.00 price target, citing its position as their “most preferred ASX 50 gold stock.” The analysts view the company’s recent acquisition of De Grey Mining as a game-changer, describing it as “accretive on production, reserves, and NAV.”
They note that De Grey shareholders receive 20% of the combined entity, contributing 22% of pro-forma ore reserves, 21% of FY29 production (with a 4% AISC reduction), and 28% of production from FY29 to FY38, alongside A$0.7 billion in acquired cash.
However, the near-term outlook is less rosy. The production and cost misses may prompt analysts to lower their target price and earnings forecasts, tempering short-term enthusiasm even as the De Grey deal bolsters long-term growth prospects.
Gold vs. Gold Miners
Northern Star’s lackluster quarter epitomises the core challenge of investing in gold miners: operational risks often outweigh the benefits of a rising gold price. While physical gold offers straightforward exposure to price movements, miners face a gauntlet of headwinds — cost inflation, labour shortages, adverse weather, and, as Northern Star’s report shows, project delays and royalty pressures.
Several large cap gold miners have struggled to capitalise on gold’s rally. Over the past 2–3 years, rising input costs and operational disruptions have eroded margins, making it difficult for miners to deliver the outsized returns investors expect from a higher-risk asset. Northern Star’s share price reflects this disconnect:
Year-to-Date: Up 29%, slightly outpacing gold’s 25% gain.
Past 12 Months: Up 32%, trailing gold’s 42% gain.
This underperformance highlights that investing in physical gold or gold ETFs may offer a simpler, less volatile way to capitalise on rising gold prices.
