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Northern Star’s Performance Update: Challenges Ahead as Guidance Falls Short
In a matter of weeks, Northern Star (ASX: NST) has seen its year-to-date performance plummet from an impressive 46% to just 6%. This sharp decline follows the release of its fiscal year 2026 (FY26) guidance, which revealed weaker-than-anticipated sales and significantly higher operational costs.
On 7 July, Northern Star provided an operational update indicating that gold sales for fiscal year 2025 (FY25) and all-in sustaining costs (AISC) remained within company expectations, targeting 1,630-1,660 Koz at costs ranging from A$2,100 to A$2,200 per ounce. However, the FY26 projections were less promising, yielding disappointing results in several key areas:
- Production Outlook: Expected output for FY26 is between 1.7 and 1.85 million ounces, aligning with Citi’s expectations but falling short of Northern Star’s previous forecast of 2 million ounces.
- Cost Expectations: The AISC forecast ranges from A$2,300 to A$2,700, exceeding Citi’s midpoint forecasts by 13% and consensus estimates by 15%.
- Capital Expenditure: Eastern capital expenditure for the coming years is projected at A$1.985-2.12 billion, which is 8% and 12.8% above Citi’s and consensus estimates, respectively.
The company has attributed its softer FY26 outlook to "planned major shutdowns across all three production centres." Northern Star also cited multiple factors contributing to the rising costs, including sector inflation (approximately 5%), increased requirements for sustaining capital due to expanded development work, and enhancements in processing capital across all its facilities.
Analyst Reactions
Despite the underwhelming guidance, analysts maintain a mixed sentiment yet remain cautiously optimistic about Northern Star’s long-term potential:
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RBC Capital: Maintained a Sector Perform rating, reducing the price target from A$22.00 to A$19.00. They believe the FY26 guidance miss is not yet priced in and that cost pressures could affect FY27 production, though long-term growth remains on track.
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Macquarie: Retained an Outperform rating with an unchanged target of A$27.00. They observed that FY26 capex and costs were higher than expected, flagging weakness in the first quarter.
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CLSA: Kept a High-Conviction Outperform rating but lowered their target from A$25.20 to A$24.30, acknowledging the weaker short-term results while emphasising the strong long-term growth potential.
- Citi: Maintained a Buy rating but lowered the target from A$22.00 to A$21.00. They noted that investors would require time to process the recent guidance and indicated potential risks for further negative surprises.
Insights from Citi
Citi predicts continued volatility as Northern Star attempts to adjust its cost and capital expenditure forecasts. The disappointing FY26 guidance has prompted an EBITDA downgrade of 7-10% for FY26-27, with projections of flat year-on-year EBITDA growth in FY26 and a recovery of 9.2% in FY27. Citi anticipates that the market will take some time to acclimatise to the FY26 guidance, with risks to the downside for the company’s KCGM operations.
Current Status of Northern Star
Northern Star stands as Australia’s second-largest gold producer, with operations spanning three major mining centres in Kalgoorlie, Yandal (Western Australia), and the Pogo underground mine in the United States. The recent merger with Saracen has not only expanded their portfolio with two additional Western Australian mines but has also consolidated their ownership of the Super Pit (KCGM). The merger with De Grey in May brought the ~530 Koz per annum Hemi project into their assets.
Broader Industry Context
Northern Star currently faces execution challenges that echo a situation encountered by Newmont (ASX: NEM) in late 2024. After reporting disappointing third-quarter results that fell 17% short of analyst expectations, Newmont’s shares dropped significantly, despite healthy gold production and substantial free cash flow. The surging costs, which had risen over 30% year-to-date, heavily influenced market reactions.
In the months following Newmont’s setback, its share price took approximately seven months to recover, even as gold prices hit record highs.
Future Prospects
Going forward, Northern Star must concentrate on rebuilding market confidence as capital expenditure forecasts have significantly risen over the past year. While increasing gold prices could provide some relief from recent setbacks, Citi has revised its near-term gold price target down to US$3,300/ounce from US$3,500/ounce, suggesting limited upside potential.
Citi analysts also caution that the "One Big Beautiful Bill Act," upcoming trade agreements, and anticipated Fed rate cuts beginning in September could further suppress gold demand.
In summary, as Northern Star navigates these challenges, the focus will be on improving operational execution and managing costs while keeping an eye on the broader economic and market conditions that may impact gold prices moving forward.
