Monsters of Rock: Northern Star defends hedges as gold prices spike; Metals Acquisition bats off M&A talk

Gold prices are in rarified air and for a sense of the profitability of gold miners right now look no further than Northern Star Resources’ (ASX:NST) quarterly report.

Australia’s biggest single listed gold miner sold 401,000oz at all in sustaining costs of $1844/oz, again weighed down by its higher cost Pogo mine in Alaska and the impacts of wet weather at its northern Goldfields Yandal operations, where mill issues at the recently expanded Thunderbox bit.

Its guidance has been maintained at 1.6-1.75Moz for FY2024, though there was a previously disclosed uptick in cost guidance to $1810-1860/oz.

Even including a monster spend to upgrade the KCGM processing plant at Kalgoorlie’s Super Pit, KCGM’s all in costs of $2620/oz suggest that at spot levels NST is pulling in almost $1000/oz.

The company ended the day down 4.2% in the wake of gold’s biggest one day fall in over a year overnight as fears of a retaliation by Iran against Israel for a recent strike subsided.

But at US$2334/oz on the LBMA (around $3600/oz AUD), prices remain strong for producers.

Northern Star engaged in what is a fairly controversial activity among gold analysts during the quarter — hedging 158,000oz at $3529/oz after deliver 100,000oz well out of the money at $2564/oz during the quarter.

It has 1.923Moz committed at an average price of $3094/oz until the second half of June 2028, with hedges for delivery in the December half (around 1/4 of its current production profile) locked in at just $2719/oz. NST sold 400,825oz at an average price of $3024/oz in the March quarter, generating $143m of underlying free cash flow and supporting a net cash position of $174m.

Poor, out of the money hedge books have been the bane of many a gold miners’ existence in recent times, notably Regis Resources (ASX:RRL). But Northern Star boss Stuart Tonkin urged investors to look at the bigger picture.

He said Northern Star was sitting at 20% of its production hedged, around the mid-point of an 8-35% policy range, noting that the current spot price would take the IRR of its Fimiston Mill expansion to 30%. Tonkin believes hedging remains a tool available to gold miners to lock in cash flows to support mine development which isn’t open to other commodity markets.

“This is a very, very unique circumstance with where the current spot gold is, and where it’s come from in the timeframe,” he said.

“We are so well positioned and leveraged to gold price lifts. Irrespective of that hedge profile, 80% of our gold is delivered into spot and generating significant cash flows. Our all in cost was $2600 and the spot is $3600 Australian dollars an ounce.

“And I think there’ll be a lot of gold miners dusting off plans or pits or (saying) how do they bring material in at these levels.

“We already made those decisions years ago and we’re already advancing and have spent the capital, developed the mines and have the tap a fair way on throughout this investment process when people are still evaluating it.”

Northern Star Resources (ASX:NST) share price today

Copper miners report, Metals Acquisition rebuffs Mt Isa speculation

Metals Acquisition (ASX:MAC) head honcho Mick McMullen has rebuffed speculation the Cobar mine owner will go back to the well and buy a second time from Glencore to take the Mt Isa Mines project of its hands.

Glencore last year announced the planned closure of the Mt Isa mine in 2025, though it will keep the smelter operating to support third party producers.

MAC today announced drilling up to August 31 last year had extended its mine life at the CSA mine in Cobar by 67% to 11 years on ore reserves alone, extending to only 95m below its current decline position.

That extension comes as MAC also aims to increase output, lifting from 38,000-43,000t in 2024 to 43,000-48,000t in 2025 and 48,000-53,000t in 2026.

McMullen told the market the $1.4b recent ASX listee still had 230,000t of copper metal at a grade of almost 5% Cu in measured and indicated resources outside its ore reserve, with 3.3Mt of ore at 5.5% copper for 180,000t in inferred resources.

“We have always believed that the CSA Copper Mine would have a long future and this Resource and Reserve Statement upgrade confirms this and also provides us with the underlying Mineral Resource base from which to put long term plans in place that simply hasn’t been possible for the last generation when the mine has always had a 5 to 6-year reserve mine life ahead of it,” McMullen said.

“There has perhaps been a view by some observers that the CSA Copper Mine has a relatively short mine life, with today’s Resource and Reserve Statement announcement we can dispel that view and now focus on mining more Copper faster and at lower costs.

“We are but ten months into our ownership of the mine and it has a lot of potential to be uncovered still.”

Asked on a conference call about whether after forking out for CSA, the company was in a process for Mt Isa, McMullen said he “can’t really say too much, other than I’m unaware of a process”.

Meanwhile, 29Metals (ASX:29M) shares fell after it reported copper and zinc production of 5800t and 4700t respectively in the March quarter.

While copper output was up, zinc production at Golden Grove was roughly a quarter of levels seen in December.

Zinc and gold output at Golden Grove’s Xantho Extended stopes is expected to ramp up significantly after the end of a paste fill cycle.

“At Golden Grove, record development rates and paste fill achieved at the Xantho Extended orebody in the Mar Qtr positions the asset well for the balance of the year. The decision to suspend operations at Capricorn Copper was difficult, especially after the commitment and hard work by the team to bring the mine back into production,” outgoing MD Peter Albert said.

“However, the suspension of operations best preserves group liquidity and allows time to establish the key enablers for a successful and sustainable future restart of operations.”

Albert said liquidity would improve with loan repayments cut from US$10m to US$2.5m a quarter, US$50m in offtake finance coming through from Glencore and a further insurance progress payment of $16m being delivered on the claim for the water damage at Capricorn.

All in sustaining costs were still sitting above copper prices at US$4.81/lb despite a recent surge in spot pricing for the red metal.

Jarden’s Ben Lyons, who has an underweight rating on 29M and cut his price target from 30c to 28c, said the added liquidity would prevent a situation where 29M ran through its cash pile in 2024.

But he said Jarden remains of the view its assets are not capable of supporting debt.

“We do not currently project 29M generating sufficient cash to undertake a fully capitalised restart of Capricorn Copper (CC), previously removed from our forecasts, nor generate sufficient cash to fully repay both the existing facility by DH26 and the new Glencore facility by DH28,” he said.

“However, most importantly, they have secured short-term funding and time to consider future refinancing opportunities.”