The rallying gold price has been all rage recently as investors flock to the perceived safety of the precious yellow metal.
If gold wasn’t already on your radar, your ears may have perked up when news broke Warren Buffett (or more accurately, his company Berkshire Hathaway) had finally moved into gold – an investment Buffett has long been against.
Back home on the ASX, two gold mining companies delivered their full-year reports today: Northern Star Resources Ltd (ASX: NST) and Saracen Mineral Holdings Limited (ASX: SAR). Here are the key details.
Northern Star Resources
- 900,388 ounces of gold sold at an average price of $2,208 per ounce
- All-in sustaining costs for FY20 was $1,496 per ounce, up from $1,296 in FY19
- Underlying free cash flow more than doubled to $423.1 million
- Revenue was up 41% to reach $1.97 billion
- Statutory net profit after tax (NPAT) jumped 67% to a record $258.3 million
The company’s strong financial result reflected an increase in gold sold and higher realised gold prices. Through a combination of gold discovery and acquisitions, the company now has a gold resource of 31.8 million ounces and gold reserves of 10.8 million ounces. This represents increases of 67% and 102%, respectively, compared to FY19.
Northern Star chief executive Bill Beament said the company was strategically placed to capitalise on the strong gold price:
“We are on track to generate further significant increases in cashflow thanks to our substantial leverage to the gold price, our growing production profile and having one of the lowest capital intensity in the industry”.
During the year, the company continued to invest heavily in its growth strategy through the $1.14 billion acquisition of a 50% interest in KCGM, owner of the Kalgoorlie Super Pit. The other half of KCGM belongs to the other company featured in this article, Saracen.
It’s raining dividends
Northern Star increased its final dividend by 27% to 9.5 cents per share, taking the full-year dividend to 17 cents per share, fully franked. With the Northern Star share price sitting at $14.3 in late afternoon trade, shares are trading on a dividend yield of 1.2%.
Additionally, the company declared a special dividend of 10 cents per share. Explaining the rationale behind the special dividend, Northern Star said the board was faced with the option of accelerating debt reduction, retaining a large cash holding or increasing returns to shareholders.
“The Board believes that given the historically-low interest rate environment and the Company’s relatively low gearing levels, accelerated debt repayment is an inefficient use of capital. In light of all these factors, and in recognition of the growing calls among both institutional and retail Shareholders for companies to return excess cash to Shareholders, the Board opted to declare a special dividend.”
Saracen Mineral Holdings
Turning our attention to the smaller Saracen, here are the key points from the company’s FY20 report:
- Gold production rose 47% to a record 520,414 ounces
- All in sustaining costs were steady at $1,101 per ounce
- Revenue grew by 93% to $1.07 billion
- Statutory NPAT jumped 105% to a record $189.7 million
Saracen attributed this growth to record production volumes, steady costs and a strong Australian-dollar gold price.
Managing director Raleigh Finlayson said FY20 was a landmark year for Saracen, commenting, “these results show Saracen has successfully made the transition to the big league of ASX gold producers”.
“Our production rate is now running at +600,000oz a year and our cost base is still tight. This means we are perfectly positioned to capitalise on the strong gold price and continue generating strong growth in our cashflow,” he added.
Will Saracen pay a final dividend?
Previously, Saracen’s dividend policy stated that the company would declare a dividend in the event that it has a cash balance of at least $150 million.
However, in light of the company’s recent purchase of the 50% stake in KCGM, which involved $400 million of debt, Saracen has amended this policy to be a net cash balance of at least $150 million.
The company ended FY20 with a net cash balance of $48 million, therefore, there will be no final dividend in FY20.
To keep up to date with the flurry of ASX reports this month, make sure to bookmark Rask Media’s ASX reporting season calendar.
