The Northern Star Resources Ltd (ASX: NST) share price is down over 2% after the ASX gold share revealed a A$1.5 billion investment.
Northern Star Resources is one of the largest gold miners on the ASX. The KCGM operation is one of the world’s largest and most significant gold mines, with a ‘mineral resource’ of 28.3 million ounces and an ore reserve of 12.2 million ounces.
Northern Star Resources invests US$1.5 billion
The board of Northern Star Resources have approved A$1.5 billion for the KCGM expansion project to increase and modernise KCGM’s processing capacity from 13 million tonnes per year to 27 million tonnes per year.
The three-year construction phase has started, with items that have an extended delivery time are already ordered. The ramp-up from FY27 towards a ‘steady-state’ from 27 million tonnes per year by FY29.
After a feasibility study, the company thinks this is “financially compelling” and would deliver a post-tax internal rate of return (IRR) of 19%, with a 4.6-year payback at A$2,600 per ounce of gold.
Northern Star Resources said that the project will deliver a sustained lower cost base and a “significant increase in free cash flow”.
The ASX gold share said that the development is fully funded from its existing cash and forecast cash flow. There is no change to the dividend policy. It will maintain a “strong” balance sheet during the build.
Management commentary
The Northern Star Resources Managing Director Stuart Tonkin said:
Today is an exciting day for Northern Star and a historic new chapter for this world-class asset.
The board’s decision to approve the KCGM mill expansion and optimisation represents the next stage to revitalise our largest asset as well as the surrounding district for decades to come. This project is financially compelling, and a significant enabling step towards delivering our strategy to generate superior returns for our shareholders.
Our confidence in the economics of KCGM to remain a long-life, low-cost gold mine has been further reinforced through the feasibility study phase. Expanding the processing capacity of KCGM will strengthen Northern Star’s portfolio, materially increase our free cash flow generation and progress our long-term strategy to be within the 2nd quartile of the global cost curve.
Final thoughts on the Northern Star Resources share price
Other gold miners are also in the red today, so I wouldn’t necessarily say this news is why it’s down. The prospect of stronger free cash flow is good for future returns and hopefully dividends.
I’m not looking to buy an ASX gold share for my portfolio, but if I were, Northern Star Resources shares would be near the top of the list – it has scale, it’s delivering growth and paying growing dividends.
