Golden sugar hit won’t last long: Stuart Tonkin

Labour prices are softening and gold prices have rocketed, but it’s only a matter of time before costs jump back up, warns Stuart Tonkin.

Labour and other cost pressures are beginning to ease for Australia’s goldminers, according to the industry’s biggest player on the Australian sharemarket, bringing more joy to investors already benefiting from a surging gold price.

But, Northern Star Resources boss Stuart Tonkin has warned the sugar hit won’t last long, with near record prices for the precious metal likely to generate a new wave of exploration and development activity, and heightened demand for labour, equipment and other resources on Western Australian goldfields.

The pure play gold producer reported record cash earnings of $1.8bn in the year to June, up 48 per cent, on the back of a surging gold price which hit a new record high this week amid the prospect of interest rate cuts in the US.

Northern Star’s average gold price over the year was up 15 per cent to $3031 per ounce, providing a widened margin to its cost of production, which was just 5 per cent higher at $1853 per ounce.

Revenue was up 19 per cent to $4.9bn, while statutory profit came in at $639m, up 9 per cent on the previous year.

Mr Tonkin said cost pressures across the board were beginning to ease while the labour market continued to soften.

Kalgoorlie Consolidated Gold Mines operations. Picture: Northern Star Resources

“We’ve definitely seen labour pressure come off a bit. We’ve seen new hires with skills, coming from other sectors, and that stability also converts through to performance in safety, production, efficiencies,” he said.

“We’ve also seen more competitive nature on procurement, supply, service contracts, given maybe some excess of fleets and teams.”

The gold price hit a record high of more than $US2000 ($3700) per ounce this week.

The excess cash generated from the higher price has bolstered Northern Star’s balance sheet, with its $358m net cash balance supporting the company’s decision to extend its $300m buyback for a further 12 months.

But, Mr Tonkin warned costs would soon catch up to the rising price: “What does happen across the gold sector, generally, is those mines that were binary, that need this price to be open, they potentially turn on, which then competes with our labour or resources that we already have deployed. That puts cost pressure back across us,” he said.

“The feedback we get from investors is costs should go flat or down as price goes up, and margins should be expanded and returned to shareholders. It’s not always the case.”

Northern Star’s underlying earnings and profit were in line with market expectations, while its 25c-per-share dividend surprised on the upside.

The company’s shares closed 1.7 per cent higher at $15.16 per share on Thursday.

Originally published as Golden sugar hit won’t last long: Stuart Tonkin