Monsters of Rock: Big time gold miners are bullish on the safe haven metal as instability reigns

Northern Star reports record cash earnings and interim dividend as gold prices shine
Regis pledged stronger second half after hedge book retirement drove $92 million after tax loss

Australia’s largest sole-listed pure play gold producer Northern Star Resources (ASX:NST) has issued a record dividend and gold miners are growing their exposure to spot pricing in an indication of the rising tides for the old world store of value.

Gold has spent much of the past few months above US$2000/oz since Hamas’ invasion of Israel on October 7 and the subsequent bombardment of Gaza by Israeli Forces hammered home the tense geopolitical environment that has sent investors running for safe haven assets.

Briefly rising to all time highs of US$2078/oz at the end of 2023, unhedged Aussie gold producers are now pulling in over $3000/oz on the regular, enough to underpin all in sustaining cost margins in the order of a grand on each ounce of production if they are free of hedge arrangements.

The fertile environment for gold prices has also been fostered by bets the US Fed will begin easing interest rates later this year – though these have moderated somewhat in the face of sticky inflation and labour numbers – as well as record buying in the past two years from central banks in jurisdictions like Turkey and China.

A revival of the over-the-counter gold market – the main portal for institutional investors to trade gold – drove demand to record levels last year according to the World Gold Council.

Silver Lake Resources (ASX:SLR) swung from a $14.8m loss after tax to a $49.7m profit in results announced yesterday.

Northern Star today said it had posted record cash earnings and a record interim dividend of 15c per share for the December half after selling 781,000oz of bullion at all in sustaining costs of $1878/oz and all in costs of $2653/oz in the six months to December 31.

Its cash earnings rose 50% to $702m, with underlying EBITDA up 41% to $889m, driven largely by stronger gold prices.

Northern Star’s roughly $172m payout comes on top of a $300 million on-market share buyback, which has returned $169m to shareholders so far.

Gold emerging as source of stability

While it was crowded out as an investment class by the ridiculous profits churned out by lithium producers last year, those have now come crashing back to Earth.

In their stead gold miners have emerged as a source of stability for the local resources sector.

NST MD Stuart Tonkin said the mining giant, which is planning to ramp up production from 1.6Mozpa to 2Mozpa by 2026 and turn the Super Pit in Kalgoorlie back into Australia’s largest gold mine via a $1.5 billion mill expansion that kicked off this financial year, was seeing less labour churn as competitive industries like nickel and lithium mining fall prey to price drops.

“We were seeing a gradual plateau and a decline on turnover anyway, that’s reflective of what we have in our business opportunities, promotions, growth and expansion in some form, but also the lack of places to go or that drag of that demand of other industries pulling (that) skilled labour,” Tonkin said.

“That’s slight, we absolutely have reached out to sort of five businesses that have our flyer … but I think that takes a bit of time because they actually go through months of redundancy programs and those sorts of things.

“I think a lot of staff are reluctant to move until they’ve closed those elements out, but that’ll relief for us. We don’t take advantage of those circumstances but as far as offering those jobs and filling our vacancies we’ve made it very clear and known what is available.”

Meanwhile, Tonkin dulled expectations for a quick start to any underground mining in the Super Pit, noting it still had lots of open pit material ahead of it and no underground would be developed until after mining in areas like the Golden Pike zone was complete due to geotechnical risks.

He said work was not at advanced study levels yet, with work largely focusing on drilling to upgrade resources and reserves in the depths of the Golden Mile.

Regis hails strong gold environment after clearing dire hedge book

Regis Resources (ASX:RRL) meanwhile ate a $92 million loss after tax with underlying EBITDA from its Duketon operations and part-owned Tropicana mine feel from $197m to $167m in the December half.

But MD Jim Beyer is bullish strong cash generation is on the way in the second half after the company cleared a hedgebook that had left much of its sales hundreds of dollars out of the money as spot prices climbed.

Hedge delivery cost Regis $81m in the first half, driving the loss, with the miner paying $98m to close the literal book early.

Ignoring the awkward Queen reference Beyer tried to get across the desks of weary stock analysts (We Want to Break Free (of oppressive hedges) for those playing at home), it is now fully exposed to the upside in gold prices.

Beyer reckons we are in a global financial environment where the value of holding gold can only be seen to be improving.

Two new underground developments could start at the ageing Duketon operations in the coming months, though the company’s foundational mine is likely to decrease in scale over time to 200-250,000ozpa.

Regis, which produced 220,632oz at AISC of $2119/oz in the first half, wants to eventually get to 500,000ozpa by replacing and supplementing those ounces not only its 30% owned Tropicana (operated by AngloGold Ashanti), but also with 165,000-180,000ozpa from the McPhillamy’s project in New South Wales.

A DFS is in the works there along with a heritage protection act application and federal environmntal approvals.

Northern Star shares fell a little under 1% and Regis was down 1.8% on a mixed day for local gold producers with the materials sector led to a 0.24% gain by lithium miners and iron ore giant Fortescue’s (ASX:FMG) strong first half results.