Northern Star Resources to limit gold hedge option over next three years

Northern Star Resources will limit its use of gold hedging to about 15 per cent of its total output over the next three years.

Bill Beament, executive chair of Northern Star Resources. Picture: Bloomberg

Northern Star Resources boss Bill Beament says the Australian gold major will limit its use of gold hedging to about 15 per cent of its total output over the next three years, after out-of-the-money hedges cost the company about $100m in lost revenue in the first half of the year.

Northern Star will complete its $16bn merger with Saracen Mineral Resources over the next week, with Mr Beament fronting his final earnings briefing to investors on Wednesday before handing the role to incoming managing director Raleigh Finlayson.

Northern Star booked a $184.5m net profit in the six months to the end of December, up 46 per cent on the back of the strong gold price, with the company declaring a 9.5¢ a share interim dividend.

Saracen, which also reported on Wednesday, declared a $121.2m net profit for the half year, up 46 per cent on the same period in 2019.

Mr Beament said Northern Star’s record $472m earnings before interest, tax, depreciation and amortisation showed the gold miner’s growth strategy was working.

The result came after Northern Star delivered 39 per cent of its output into hedging positions in the period, costing it about $100m in lost revenue against the spot price of gold.

Mr Beament told analysts the decision to aggressively exit its gold hedging meant the combined company was positioned well for the future, with only about 15 per cent of its combined output sold into forward positions over the next three years.

He said Northern Star’s policy meant it would only hedge gold sales in the future if it was building or buying mines, or taking on debt for other reasons.

But while the combined hedge book is now dramatically lower than a year ago, the merged company will still be required to deliver more than 732,000 ounces into hedged positions over the next few years. At current gold prices, that’s about $169m out of the money.

Northern Star booked $1.1bn in revenue for the half, up 34 per cent.

Northern Star shares closed Wednesday up 19¢ to $12.09. Saracen last traded at $4.69.