Northern Star Resources Ltd in the Gold Mining Market | Company Overview & CEO Profile
Northern Star Resources Limited (NESRF, NST.AX, NS70.F, NS7.SG, NSTYY, NST.XA) is an Australian company engaged in exploration, mining, and processing of gold deposits. The company is Australia’s second-largest gold producer behind Newcrest Mining (NCM.AX). As of the fourth quarter of 2021, Northern Star Resources was also ranked as the 10th largest gold mining company in the world by the production volume. Moreover, the company increased production the most among the largest 20 gold miners, up by 57% to more than 388 thousand ounces from a previous year. While Northern Star Resources focuses primarily on gold deposits, it also explores silver, zinc, copper, and iron ore.
Headquartered in the suburb of Subiaco, the company operates projects located in Western Australia and Alaska. All of its assets are Tier 1 projects, meaning they are large, long-life and low-cost. Northern Star Resources owns and operates three gold production centers — Kalgoorlie, Yandal and Pogo — situated in Australia and North America. Additionally, the company continues to invest in expanding its asset base by means of acquisition and exploration activities. In the 2021 financial year, Northern Star Resources sold 1,595 koz of gold and plans to reach a target of 2 million ounces of annual gold production in a five-year time frame. In May of 2022, the company reported the growth of its mineral resources by 4.3 million ounces in the 12 months to 31 March as a result of exploration activities at Pogo and Kalgoorlie projects.
Northern Star Resources’ Acquisitions & Deals
The company was established in 2003 and started its activities with the development of ore deposits in Western Australia. The company became a gold miner 7 years later, after acquiring the Paulsens Gold Mine located near Pannawonica in Western Australia for $40 million. Since 2010, Northern Star Resources has transformed from a company with a single mine and 100,000 ounces of gold production into a world-class miner with a number of high-grade gold assets and over one million ounces of production.
The Paulsens underground mine stopped operations in 2017 and now its processing facility is on care and maintenance. In April of 2022, Northern Star Resources struck a deal to sell the Paulsens Gold Project to Australia’s mining company Black Cat Syndicate Limited (BC8.AX). The transaction worth AUS$44.5 million is part of the company’s five-year strategic plan of active portfolio management with the aim to “generate superior shareholder returns.”
In 2018, Northern Star Resources expanded its operations beyond Australia by acquiring the Pogo underground gold mine in Alaska, which is the 8th-largest gold mine in the USA. The 260-million-dollar deal added around 250,000 ounces of gold to Northern Star’s total production in the 2019 financial year. In addition to large gold deposits, the Pogo mine also contains silver, copper, tungsten, lead, and zinc.
In December of 2019, Northern Star Resources completed a takeover of Echo Resources, an Australian company engaged in the exploration and development of mineral resources, primarily gold, copper, and nickel. The key asset of Echo Resources is the Yandal gold project with an area of 1600 square km located in Kalgoorlie-Boulder region, Western Australia. The project, which has a unique combination of mineralisation, established processing infrastructure, and an exploration upside, produces around 1.8 million tonnes of ore a year.
In early 2020, Northern Star Resources acquired a 50% interest in Kalgoorlie Consolidated Gold Mines Pty Ltd (KCGM), which was a joint venture between the world’s largest gold producer Newmont Corporation (NEM) and the Australian mining company Saracen Mineral Holdings. The project contains a number of deposits including the Super Pit gold mine in Kalgoorlie, Western Australia. As a result of the deal, Northern Star Resources obtained a half-share of one of the world’s most significant gold systems and Australia’s third-largest gold mine.
“The transaction has created a partnership between two leading Australian gold miners, Northern Star and Saracen, and brought the Kalgoorlie Super Pit under 100 per cent Australian ownership for the first time,” noted the financial services company Macquarie Group which assisted Northern Star Resources with the acquisition deal.
However, the most important deal was that with Saracen Metal Holdings, as a result of which a new Australian gold giant was created. In February 2021, Northern Star Resources completed the merger with Saracen Metal Holdings, which was its partner in a joint venture operating the Super Pit gold mine. The mine boasts rich gold deposits which have yielded over 21 million ounces since the production began in 1989. In addition to a 50-percent stake in the joint venture, Saracen Mineral has operations on the Carosue Dam and Thunderbox mines located in Kalgoorlie, Western Australia. Four Saracen’s directors entered the board of Northern Star Resources.
It did not take long until the benefits of the Saracen merger began to materialize and in a couple of months, the company was seeing the early signs of productivity and cost savings gains. The contribution of assets from the merger with Saracen was one of the key factors behind last year’s jump in revenue. More importantly, the 4-billion-dollar deal will allow Northern Star Resources to produce 2 million ounces of gold a year starting from 2027.
In November of 2021, Northern Star Resources purchased the Kalgoorlie power business from Newmont Corporation. This profitable asset supplies electricity to the KCGM mine owned by Northern Star Resources. “The purchase means our Kalgoorlie power supply will now form part of our studies into ways to meet our commitment to becoming carbon-neutral,” said Northern Star managing director Stuart Tonkin. Last year, Northern Star Resources negotiated a potential purchase of a 50-percent interest in the Windfall project located 700 kilometers north-northwest of Montreal, Canada. However, the parties failed to agree on acceptable terms so the deal wasn’t concluded.
Assets Owned by Northern Star Resources
The company operates gold properties located in the Western Australian regions of Ashburton, Pilbara, Murchison, and Kimberley, and a project in Alaska. Northern Star Resources operates the Kalgoorlie Production Center, Yandal Production Center, and the Pogo Production Center. Australian mines (Kalgoorlie and Yandal) contribute 85% of the company’s total production. The Kalgoorlie Production Center is the largest contributor, the Yandal Production Center is second, while the Pogo Production Center accounts for the smallest portion of the gold sold.
The Kalgoorlie Production Center includes the KCGM project, Kanowna Belle mine, and the Carosue Dam Project. The Kanowna Belle mine site is located 18 km northeast of Kalgoorlie and has processing facilities handling 2 million tonnes a year. The KCGM project is a world-class asset situated 600 km to the east of Perth, a major industrial center in Western Australia. This project was initially owned by two gold mining giants, Canada’s Barrick Gold Corporation and the U.S.-based Newmont, which then sold their interests to Saracen Mineral Holdings and Northern Star, respectively.
Now, the KCGM project is fully owned by Northern Star Resources. The site hosts the Super Pit mine, which was Australia’s largest open cut mine six years ago when it was surpassed by the Boddington Gold Mine in Western Australia operated by Newmont. The KCGM project also hosts the Fimiston processing plant, which has become one of the largest milling complexes in Australia. The Kalgoorlie Production Center accounts for 690,000 ounces of gold sold a year and the company plans to increase the capacity to 1 million ounces per year by 2026.
The Yandal Production Center includes the Jundee mine in the Northern Goldfields region of Western Australia, the Thunderbox project in the North Eastern Goldfields, and the Bronzewing mine located north-east of Leinster in Western Australia. The Jundee underground mine produces around 1.8 million tonnes of ore per year, while the Bronzewing open pit is undergoing development. The Thunderbox Gold Mine was added to the Yandal operations last year. The Yandal Production Center accounts for 322,000 ounces of gold sold a year and will be expanded to the annual production of 600,000 ounces.
The Pogo Production Center is situated 145 kilometers southeast of Fairbanks in the state of Alaska. The operations were launched at the mine in 2006 and cover an area of more than 17,000ha. The processing plant at the site has a capacity of 1 million tonnes per year with the potential of increasing throughput rate. The Pogo Production Center has an output of 147,000 ounces of gold and is expected to operate at an annual run rate of 300,000 ounces per year by 2026.
Northern Star Resources and the Australian Gold Mining Market
Australia is the world’s second-largest producer of gold in the world, behind China. In 2021, Australia produced an estimated 330 metric tons of the precious metal. For comparison, China’s mines yielded around 370 metric tons of gold last year. However, if we look at the first half of the year, we can see that Australia produced the highest volume of gold in that period of time. Moreover, Australia’s federal government has forecast that the country will become the largest gold producer in the world. One of the reasons is the negative impact of work accidents and subsequent shutdowns on China’s gold production. Additionally, Australia invests heavily in exploration activities and a number of new projects are expected to be launched soon. The data shows that the government’s funding of exploration activities is the highest since 2012, with spendings on gold exploration being of particular interest. When it comes to gold, Western Australia remains the most popular exploration destination.
Australia possesses the largest gold reserves in the world, which are estimated at 9,500 tonnes or 17% of the total world reserves. Mining is the largest sector by share of national GDP, with gold being one of the country’s key export items for more than a century. As of the first half of 2021, Australia was the third-largest exporter of gold in the world and China is the biggest importer of Australian gold.
There are more than 60 operating mines in Australia, 14 of which are among the world’s largest ones. The two biggest mines in Australia include the Cadia project owned by Newcrest Mining and (over 764,800 ounces of gold output) and the Boddington project operated by Newmont. Northern Star Resources’ Super Pit entered the top 5 largest gold mines in Australia after reaching an output of 478,439 ounces of gold in the 2021 financial year. At present, there are around one hundred gold projects under development in the country, of which 11 are under construction and are expected to be put in operation within the next three years.
Three Australian companies — Newcrest Mining (NCM.AX), Northern Star Resources (NESRF), Evolution Mining Limited (CAHPF) — and the U.S.-based Newmont (NEM) are the four biggest gold mining companies operating in Australia. Newcrest Mining holds the largest market share in the country. Northern Star Resources is the second-largest Australian gold mining company and the third-largest one in the country if taking into account Newmont Corporation headquartered in Colorado.
The last couple of years have been the most successful for Australia’s gold mining companies and this upwards trend is expected to persist next year. Analysts forecast Australia’s gold production volume to increase to 379 tonnes by 2023. According to an analysis published by Research&Markets, Australia’s gold production will grow at a compound average growth rate of 3.5%. It is noteworthy that the country’s gold output was only 0.5% in 2020, against 4.2% growth in 2019. The primary reason for that was a drop in gold production from Newcrest Mining due to expansion work at its Cadia mine.
Remarkably, the coronavirus pandemic did not have a significant impact on Australia’s mining industry. This was because the federal government took a number of efficient measures, including quick border closure, and declared the country’s pits an essential industry. As a result, the mining sector in Australia stayed open and was stable compared to other countries. Now that the global economy is recovering from the pandemic and the demand for gold is skyrocketing in India and China, which are the main jewelry consumers, the Australian gold mining industry is likely to accelerate its growth rate.
The only fly in the ointment is that Australia’s gold deposits are becoming more expensive to mine because of the decreasing quality of ore. “A major portion of production costs for gold ore mining remain fixed and are significant, so the world price of gold and the value of the Australian dollar largely determine the industry's performance and profitability,” said Mike Rundus, the leader of EY Oceania Mining and Metals.
Northern Star Resources’ Financial Performance
The market capitalization of Northern Star Resource, which is listed on the Australian Securities Exchange since December 2003, has been steadily rising, except for the years 2005, 2008, 2013, and 2022. Following the purchase of Paulsens Gold Mine in 2010, the company’s market capitalization skyrocketed by 2,482%. This year, Northern Star Resources’ market capitalization dropped from $7.9 billion to $6.9 billion.
Over the last 12 months, the company’s share price fell by around 21%. It is indicative that the prices for gold and gold bullion have endured a similar path after reaching highs of around $2,000 per troy ounce in March. The same is applied to the entire gold sector in Australia. Since January, the Northern Star Resources share price is down 14%, shares in Evolution Mining fell by 15%, while Newcrest Mining is in a better position with only 3% of decline in share price. For comparison, the S&P/ASX 200 Index has fallen 13% this year.
The peculiarity of a gold company’s shares is that they heavily depend on gold prices. The reason is that the costs for gold mining operations are relatively fixed, so any change in the price for this precious metal has a significant impact on gold companies’ revenues. In this regard, it is worth mentioning that gold’s safe haven status rises at the times of geopolitical uncertainties. On the other hand, the tightening of monetary policy by the U.S. authorities and the dollar’s strengthening send gold prices downward. After hitting multi-year highs in March, the price for this precious metal retraced to around $1,830 per ounce, which is still considered high.
According to market analysts polled by Capital IQ, the stock of Northern Star Resources has an average rating of buy and price targets ranging from AU$9.45 to AU$15.15. Currently, the company’s shares trade at AU$8.6 or below the low estimate. In April, Switzerland-based UBS cut its outlook on Northern Star Resources’ shares from AU$12 to AU$11.8, maintaining a buy rating. Even so, the updated price target implies an upside of 27.2% for investors. Credit Suisse increased the price target for the company’s stock by 4.5% to $11.50.
The U.S.-based financial services company JP Morgan is positive about the company’s outlook, noting that Northern Star Resources is generating solid free cash flow at current gold prices. “The company has a track record of project delivery and strong production growth. We have an Overweight rating, based on valuation [$11 per share],” JP Morgan said in a report.
In the fiscal year ending 30 June 2021, Northern Star Resources reported record production and a 40-percent increase in revenue to AU$2.8 billion. The main growth drivers included the 3-percent increase in gold price and a 33-percent increase in gold sold. EBITDA was up by 216% to AU$2,268 million, while operating cash flow increased by 52% to AU$1,077 million. Net profit after tax for the year was up by 300% to AU$1.032 billion. Dividends per share were increased by 12% to 19 cents.
On the other hand, cost of sales rose by 51% to AU$2.2 billion because of higher spendings related to mining and processing activities. Also, in the 2021 financial year, Northern Star Resources invested AU$548 million into mine operations. And yet, the company has a very strong balance sheet, with AU$1.14 billion of liquidity and AU$662 million of corporate bank debt.
In February, the company reported financial results for the half year ended 31 December 2021. According to the document, revenue increased by 63% to AU$1,807 million, net profit after tax was up 43% to AU$261 million, while EBITDA increased 101% to AU$926 million. The increase in revenue was largely due to the contribution from assets acquired from the merger with Saracen. Northern Star Resources also reported a record interim dividend of 10 cents, which represents a return to shareholders of 27% of its earnings. Basic earnings per share were down by 10% to 22.4 cents.
In the first quarter of 2022, the company posted disappointing quarterly results, with the company’s shares falling 2% on the news. Total gold sold amounted to 380,075 ounces, but the Pogo project in Alaska contributed only 57,489 ounces to that amount. While Australian projects are on track to meet the 2022 full year production guidance, this is not the case for the Pogo project. The output at Pogo mines is expected to be lower and will temporarily incur an elevated cost structure to increase productivity. For the three months ended 31 March, the company reported sales revenue of AU$937 million, down 1.3% from the same period of last year.
Northern Star Resources’ Shareholders & Leadership
The biggest shareholders in the company are the investment companies BlackRock Investment Management, Van Eck Associates Corp., and State Street Global Advisors that hold 6%, 5.6%, and 2.9% of shares, respectively. Slightly over 2% of shares are owned by insiders. William James Beament (46 years old), a former Executive Chairman at Northern Star Resources Ltd., holds the largest stake of 5.8 million or 0.5% of shares. In February of 2021, the company announced that Beament would leave Northern Star after working with it for 14 years.
At Northern Star Resources, Beament built a strong team and transformed the company into a large gold miner with $6 billion of market capitalization. After leaving Northern Star, he joined Venturex, a small-sized company engaged in the development of copper and zinc deposits and will own a third of the enterprise. Beament, who is a mining engineer with two decades of experience in the resources sector, said he was going to create the business model he has “always wanted to create.” He described Venturex as a “cornerstone asset that goes on to create a multibillion dollar company”. Commenting on his departure from the company, Beament also noted that his father was an entrepreneur and advised him not to work for anyone else if he can help it, “which is hard when you work for a public company.”
Stuart Tonkin, who serves as CEO of Northern Star Resources, is the second-largest individual shareholder with 1.2 million or 0.11% of shares. Remarkably, his most recent transactions were purchasing shares of Northern Star Resources. Stuart Tonkin, who has 19 years of experience in the mining industry, was appointed CEO of the company in July of 2016, after three years of service as Chief Operating Officer. In July of 2021, he also became Managing Director following the merger of Northern Star and Saracen Mineral Holdings.
Tonkin is regarded as one of the leading resource project operators in Australia. Prior to joining the company, he worked as Chief Operating Officer at Barminco, one of the world’s largest hard rock underground mining services companies. Also, Tonkin held the position of a Non-Executive Director of African Mining Underground Services and worked with Newmont in Western Australia. Tonkin is a mining engineer with a Bachelor of Engineering from the Western Australian School of Mines.
Speaking about the company’s growth strategy, Stuart Tonkin highlighted the importance of exploration activities which will continue in the coming years.
“Our ongoing exploration success highlights the significant opportunity that exists within our Tier 1 asset portfolio to grow the gold resource base, particularly through the extension of known mineralisation at depth at KCGM in Kalgoorlie,” Tonkin said. “We continue to focus our exploration efforts on extending mine lives and developing our three production centers. Our substantial mineral resource base in world-class jurisdictions is what enables Northern Star to stand out in the marketplace. We will continue to explore aggressively and effectively to unlock the enormous potential within, around and below our existing operations”.
In Kalgoorlie, drilling activities have already led to a 20% increase in Super Pit underground mineral resource to 5 million ounces. At Carosue Dam, 310 koz of a maiden Inferred mineral resource was discovered as a result of drilling. Progress was achieved at the Yandal project, where the company reported a new discovery.
In addition to a focus on aggressive exploration activities, Northern Star CEO highlighted the company’s commitment to reducing its greenhouse gas emissions. Speaking at the Diggers and Dealers conference, Tonkin noted that around 70% of the greenhouse gas emissions produced as a result of the company’s activities were due to energy generation needed to power the projects. To reduce those greenhouse emissions, Northern Star Resources will be considering various renewable energy options. At the Pogo project, the company is more likely to use wind power, while at Kalgoorlie and Yandal sites, a combination of wind and solar energy systems will be used.
