Northern Star Resources Limited (ASX: NST) shares traded nearly 4% lower today despite releasing its third quarter FY19 results, performing within guidance and predicting a record fourth quarter.

Northern Star Resources is one of Australia’s largest gold miners, with operations in Western Australia, Northern Territory and Alaska.

The 3 Key Points

  • Monthly expenditure at Pogo fell 20% to US$18.5 million from an average of $22.5 million
  • Operating cash flow was $63 million, set to rise significantly in the June quarter
  • Gold sold in the quarter totalled 175,296 ounces

What Is Pogo?

Pogo is Northern Star’s newest mine. The Alaska-based mine was acquired around eight months ago and the benefits of the acquisition are now starting to flow through into the financials.

Northern Star stated that of the 175,296 ounces sold for the quarter, 82,000 ounces were sold just in March, reflecting the early benefits of changes made at Pogo.

Management Commentary

Northern Star Executive Chairman Bill Beament said the benefits from Pogo are now starting to show in results.

The introduction of the new mining method and the late delivery of some equipment reduced production at Pogo, which in turn temporarily drove up the costs per ounce”, he said.

But these changes are starting to pay dividends, as the results in the months of March and April show. As well as ramping up tonnages from the long-hole stoping towards the end of the quarter, we cut site expenditure to an average of $18.5 million a month in the March quarter from an average of $22.5 million a month in the previous two quarters.”

Going Forward

While Northern Star maintained FY19 gold production guidance at 850,000-900,000 ounces, a record fourth quarter result is now expected.

Northern Star estimates that fourth-quarter production will be between 235,000 and 260,000 ounces.

My Take

While it looks like Northern Star made a sensible acquisition that is starting to pay off, I tend to avoid this kind of business because it is a price taker. Any change to the price of gold could have a large impact on the profit that they make. It follows then that I would rather invest in one of the companies in the free report below.


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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

Disclaimer: At the time of writing, Max does not own shares in any of the companies mentioned.