The predominate focus of Analysts in the Conference Call Q&A was on KCGM. A great resource still but AISCs come in at $1,791. The AICs (AISCs plus CapEx) make KCGM look a high cost production centre ... at face value.
The Saracen merger has allowed NST the freedom to pursue opportunities otherwise not available in the past. That is, to access high grade zones at depth.
Over $200m was spent removing waste at KCGM during FY22. Some $50m of that on upgrading KCGM mining fleet, which has replaced 39 new vehicles, which offers 5% improved fuel efficiency and 25% faster transporting. Six refurbished. Diesel prices up 140% over the year, resulting in an extra $70po of costs. The mining fleet upgrade counters some of this.
Another $280m earmarked this year in KCGM CapEx. The payoff is accessing the high grade resources at Fimiston South (the recent exploration update upgrading resource there by 1moz) and Golden Pike North.
The increased FY23 CapEx, will increase the rate of waste removal by over 50%. Once achieved, the KCGM output is expected to achieve the 1,100ozpa in the 5 year plan AND with 25% reduced AISCs targeted, due to the higher grades accessed.
Managements success with the increased investment at Pogo, gives credence to their increased investment at KCGM.
The notable reduced production guidance for FY23 at KCGM, is at least partly accounted for by the closure of the Jubilee Mill in Kalgoorlie South. This will reduce ore processing at KCGM from 20mtpa to 19mtpa. Jubilee was the highest cost Mill. Given labour shortages and increased costs, resources will be relocated to the more productive Mills at Kanowna and Fimiston.
The labour shortages must give question to the viability of the KCGM Optimisation Plan. Although, considerable time and money was spent on lost worker hours due to COVID in FY22.
Management seem so peeved by this, that they withdrew their FY24 guidance specifically for these reasons ... and were very conservative in their FY23 guidance.
YANDAL
No one ever mentions Yandal ... probably because its going gangbusters. Everybody is always only ever trying to poke holes in NST.
FY23 Production guidance forecasts Yandal production to increase by upwards of 20%, from 403k to 480-520kozpa. Actually, the 5 year plan sees the Yandal production rising to 600kozpa by FY2024.
POGO
Pogo was always a target for NST downrampers but it finally proved in Q4FY22 that the Mill can achieve forecast output and at 89% recovery. They expect to increase that into the 90s.
Management said that COVID greatly impacted Pogo in FY22. Six months ago, they said there were more COVID cases in Pogo than the whole of WA. Once COVID restrictions were removed, management spent money on increased labour and machinery to recover lost development timeline. The result justified the outlay.
FY23 Production guidance forecasts Pogo to increase by upwards of 40%, from 214koz to 260-290kozpa. Q4FY22 proved that the 300kozpa forecast in the 5 year plan is achievable in FY23.
NST strikes me as undervalued relative to most Gold miners in the world. Barrick Gold and Newmont have only recently reached their 52wk lows. AngloGold Ashanti is still 20% above their 52wk low. Yet NST reached almost 20% below their 52wk low of $7.98. They've now recovered to be about 10% below.
The A$ PoG stands at ~A$2,500 with the share price at $7.12. That is down 57% from its high on 6Nov20 of $16.56, when the A$PoG was ~A$2,600. I imagine the merger was necessary, to conduct a seamless transition to unlock the KCGM value through two years of extensive waste removal, to access the high grade resource at Fimiston South and Golden Pike North. The market has discounted KCGM accordingly. When will it pivot?
Impressive Cash earnings of ~1.03b for the year. A disgusting $155m in Stamp Duty (a Government tax by any other name) for the Saracen merger due in Jul22. Still, when pushed on it in the Q&A, Stu mentioned the cash earnings justifies higher dividends and/or a share buyback. He said they're considering both but no firm decision has been made as yet.
A special dividend for FY22 wouldn't go astray, I reckon.
Will managements CapEx outlay to bring KCGM's AISCs down 25% (and increase output) from the current $1,791 work? That's the bet. I'm on.
Macrowise, when will the US Fed pivot?
2000: Fed raises to 6.50% and breaks the dot com bubble; 2008: Fed raises to 5.50% and breaks the housing market; 2018: Fed raises to 2.75% and breaks the stock market first and the Repo market after; 2022: Fed raises to ? and breaks the ?
US$?
NST Price at posting:
$7.12 Sentiment: Buy Disclosure: Held
(20min delay)