2020 guidance was largely achieved: NST released mine production data in early July, with 267koz produced in the June quarter, bringing full-year production to 905koz, which was 1.6% below the lower end of the withdrawn guidance. Quarterly and annual production was 4koz less than our forecast. The AISC for the year were A$1,496/oz. This was marginally above our forecast of A$1,422/oz, due to higher costs at Pogo.
Strong financial position to start FY21: NST ended FY20 with $700m in bank debt and $748.1m in cash and bullion. Since then, the $200m revolver has been repaid, leaving it with a net cash position of just under $50m. Hedge deliveries have been deferred for the Dec-20 half, which on our estimates should see cash flow spike and deliver free cash flow from operations, after capital expenditure of around A$500m. The cash could potentially be greater if NST chooses to divest projects such as Paulsens or Tanami – certainly enough to pursue any growth options the NST Board wishes to pursue.
Changes to estimates: The main changes to our forecasts following the quarterly and the conference call were to lower the average grade of the Kalgoorlie operations to 3g/t and constrain Pogo operations for another six months due to COVID-19, while Jundee & KCGM have been left unchanged until we see the new guidance. We have updated our gold price and FX forecasts and revised the forward sales delivery schedule as updated by NST. The impact was to lower FY20 earnings by 6% to $318m due to costs and grade, lower FY21 earnings by 3% due to higher forward sales and grades, and increase FY22 earnings by 20%, mostly due to the achieved gold price. Our valuation has increased 29cps to $11.94ps.
Investment view: We return to a holding pattern as we await guidance for 2021 and beyond. The new outlook is due in two weeks and will outline expectations for the existing operations (ex KCGM) and organic production, which we assume involves the integration of satellite resources and the recently acquired Bronzewing tenements. Our price target has increased to $15.90 (prev. $15.82). We downgrade our recommendation from Buy to HOLD. Click here to read full report