Northern Star Resources : Quarterly Activities Report – December 2018

ASX: NST

ASX Announcement 23 January 2019

DECEMBER 2018 QUARTERLY ACTIVITIES REPORT

Solid quarter at Australian mines; Strong progress at Pogo

Group FY2019 production guidance maintained; AISC guidance increased by A$75/oz following increased upfront investment to capitalise on growing opportunities at Pogo and the higher Australian gold price

HIGHLIGHTS

• ▪ Gold sold in the December quarter of 210,561oz at an AISC of A$1,365/oz (US$981/oz)*

  • o Australian operations sold 153,027oz at an AISC of A$1,246/oz (US$895/oz)

  • o US operations sold 57,534oz at an AISC of A$1,681/oz (US$1,208/oz), with a further 3,527oz of gold dore in transit; not sold in the quarter

• ▪ Group FY2019 production guidance maintained at 850,000-900,000oz

• ▪ Cash and equivalents at 31 December of A$292M (A$277M at September 30); Northern Star has no bank debt

• ▪ Operating cash flow of A$110M, was up 73% from last quarter. A$36M of underlying free cash flow was generated, after investing A$52M into organic growth across exploration and expansionary capital to set-up future areas.

• ▪ December quarter production:

  • o Jundee Gold Operations:

    - 67,211oz mined and 69,403oz sold at an AISC A$1,052/oz (US$756/oz)

  • o Kalgoorlie Gold Operations:

    - 82,500oz mined and 83,624oz sold at an AISC A$1,406/oz (US$1,010/oz)

  • o Pogo Gold Operations:

    - 59,219oz mined and 57,534oz sold at an AISC A$1,681/oz (US$1,208/oz)

• ▪ At Jundee, production was impacted marginally by one-off operational disruptions (weather related) resulting in lower milled tonnes; This has been rectified

• ▪ At Kalgoorlie, the higher gold price allowed lower-grade ore to be mined, resulting in development ore tonnes rising 41% from previous quarter and lower production, which in turn led to higher costs; Production is forecast to increase and costs to fall in this half due to capitalising on the extra production areas

• ▪ Australian operations on track to meet FY2019 production guidance of 600,000-640,000oz. Kalgoorlie FY2019 cost guidance increased by A$50/oz to A$1,190-$1,300/oz, reflecting strategic decision to mine lower grade ore given ability to maintain margins due to significantly higher gold price; Jundee cost guidance unchanged

• ▪ At Pogo, the early benefits of Northern Star's productivity drive began to flow through, with mined ore tonnes up 22% and mill throughput up 33% to date. These combined efforts have lowered the total cost per ore tonne by 23%

• ▪ Pogo's lower grade compared to September Quarter reflected the change in mining method, increased ore development to access new areas and the mining sequence

• ▪ Pogo's increased costs stem in part from higher-than-budgeted upfront investment in-mine development, drilling and new mobile mining fleet to accelerate the outstanding opportunities in the mine

• ▪ Pogo costs expected to fall in this half as benefits flow from switch to long-hole stoping, owner mining, increased mechanisation and higher-grade mining sequence

• ▪ Pogo's FY2019 production guidance maintained at 250,000-260,000oz; Pogo FY2019 AISC cost guidance increased from US$880/oz to US$950-1,025/oz in light of this upfront investment

• ▪ Group FY2019 AISC guidance now A$1,125-1,225/oz, up 6.8% from A$1,050-1,150/oz

• ▪ At ~A$1,800/oz, the gold price is more than A$100/oz higher than budgeted; NST's Australian Reserves were calculated at A$1,500/oz and the Company mines to a margin. Gold price increase bodes well for a Reserve update in mid-2019

• ▪ Outstanding exploration success at Jundee and Kalgoorlie operations pave the way for significant growth in-mine lives

• ▪ During the quarter, Northern Star declared a Maiden JORC Resource at Pogo of 4.15Moz at 14.7gpt; taking Group Resources to 20.5Moz at 3.4gpt**

• ▪ The Pogo JORC estimate included a 24% increase in the in-mine Resource; It did not include an additional 765,000oz in non-JORC resources contained in satellite deposits

• ▪ Northern Star will host a quarterly conference call today at 10:30am AEDT (7:30am AWST) Wednesday, 23 January 2019. The call can be accessed athttps://webcasting.boardroom.media/broadcast/5c3e8e15257d2c2aa697eb32

Northern Star Resources Limited (ASX: NST) is pleased to report on a solid December quarter during which its Australian operations, despite being impacted by weather events, performed in line with expectations and strong productivity gains were made at its Pogo mine in Alaska.

Total gold sales in the December quarter were 210,561oz, taking sales for the six months to December 31 to 423,243oz. As a result, the Company remains on track to achieve its FY2019 production guidance of 850,000-900,000oz. The Company's second half is budgeted to be much stronger than the first half.

Operating cash flow of A$110 million, was up 73 per cent from the last quarter. A$36 million of underlying free cash flow was generated, after investing A$52 million into organic growth across exploration and expansionary capital to set-up future production areas.

During the December quarter, gold sold at the Australian operations totalled 153,027oz at an AISC of A$1,246/oz (US$897/oz).

The performance of the Australian operations reflects in part Northern Star's strategic decision to mine lower grade ore. This decision was taken because the significantly higher gold price allowed margins to be maintained despite the lower grades and higher costs. Kalgoorlie ore development tonnes increased 41% from the prior quarter and made available multiple new mining areas.

The performance also reflects the mine sequences at Jundee and Kalgoorlie.

Given the mine sequences expected to be encountered in this half, the FY2019 production guidance for the Australian operations is unchanged at 600,000-640,000oz.

AISC cost guidance for the Australian operations has been increased from A$1,025-1,125/oz to A$1,050-1,150/oz.

Gold in stockpiles, circuits and in transit were 108,598oz.

Gold sold at Pogo was 57,534oz at an AISC cost of A$1,681/oz (US$1,210/oz). Pogo's average mined grade in the quarter fell to 8.2gpt from 11.2gpt in the previous three months, reflecting Northern Star's gradual transition to a more bulk mining approach and the mine sequence during the quarter.

Strong productivity gains were recorded at Pogo in the quarter, with mined tonnages rising 22 per cent and mill throughput up 33 per cent to date. These combined efforts have lowered the cost per ore tonne by 23 per cent. This is an exceptional result considering this is the first quarter of Northern Star's ownership.

These productivity gains and lower costs per tonne bode well for the Reserve estimates which will be calculated in the middle of this calendar year.

However, Northern Star is still in the process of implementing its widespread operational changes at Pogo and while this new approach can be seen in the lower grade, further increases in tonnages and cost reductions are expected to flow through in the current half.

Northern Star is delighted with the drilling results and related mining opportunities which have emerged at Pogo since it took ownership last quarter.

In light of these results, the Company has increased its upfront investment in-mine development, diamond drilling (an additional four underground drill rigs have been mobilised to site), mobile fleet and other measures aimed at enabling it to take full advantage of the opportunities now available. A more comprehensive update will be given in February.

This accelerated expenditure is reflected in the project's AISC during the quarter.

Given these costs and the other timing considerations associated with the transition process, Northern Star has increased its cost guidance for Pogo to US$950-1,025/oz (A$1,325-1,425/oz) from US$880/oz.

As a result, the Group's ASIC guidance for FY2019 now stands at A$1,125-1,225/oz, up from A$1,050-1,150/oz.

Northern Star Executive Chairman Bill Beament said the operations had performed well in the December quarter given the combination of lower-grade mine sequences and the extensive reform program underway at Pogo.

"The higher costs stem from the lower grades mined at each of our three operations," Mr Beament said.

"These lower grades reflect two factors. The higher gold price in the December quarter allowed us to extract lower-grade ore, which reduces production and in turn increases our per-unit costs, without damaging our margins.

"This is entirely consistent with Northern Star's long-standing policy of mining to a margin.

"Second, the lower grades also stemmed in part from the mine sequences encountered during the quarter. Our mine plans show that grades will be higher at each of our three operating centres in the current half.

"In addition at Pogo, the lower grade stems from the switch to a more bulk-mining approach.

"The upshot is that our FY2019 production guidance is unchanged at both the Australian and US operations. Our FY2019 cost guidance at our Australian operations has been increased by A$25/oz cost to reflect the impact of these two factors and it has risen at Pogo by ~US$100/oz to reflect the increased upfront investment and mine sequence factor."

Mr Beament said the Australian operations would benefit from the resumption of mining in higher-grade areas in the current half.

"This will help strengthen production, which will in turn put downward pressure on unit costs," he said.

"This outlook is also supported by the outstanding drilling results which we have generated recently, particularly at Jundee and Kanowna Belle.

"These demonstrate the strength of the ore grades we will encounter over coming months as well as the scope to continue growing the inventories."

Mr Beament said the productivity gains and drilling results at Pogo in the latest quarter highlighted the huge strength of this acquisition and the potential to drive the operational results and grow the inventory.

"Pogo is still very much a work in progress," he said. "We didn't take management control until September 28 and already we have generated enormous productivity gains.

"Mined tonnes were up 22 per cent in the latest quarter, mill throughput jumped 33 per cent and mine development metres increased by over 10 percent, culminating in a 23 per cent reduction in the total cost per ore tonne.

"The quarter's results reflect the fact that the mine grades have come down in line with our increased bulk mining approach, but we are still ramping up tonnages.

"The timing of this cross-over, combined with the increased upfront investment in development, drilling and mobile fleet, has led to the spike in costs.

"While much of this is of a temporary nature, we believe it is prudent to revise Pogo's costs guidance for this financial year."

Northern Star	Units	Mar-18 Qtr	Jun-18 Qtr	Sep-18 Qtr^	Dec-18 Qtr	FYTD
Ore Hoisted	Tonnes	900,724	1,013,112	1,425,006	1,471,614	2,896,620
Mined Grade	gpt Au	4.6	5.6	5.3	4.4	4.9
Gold in Ore Hoisted	Oz	134,421	183,843	244,953	208,930	453,883
Milled Tonnes	Tonnes	929,342	1,243,682	1,410,585	1,511,547	2,922,132
Head Grade	gpt Au	4.6	5.0	5.1	4.4	4.7
Ounces Produced	Oz	136,547	200,322	229,136	213,829	442,965
Recovery	%	91	92	91	90	91
Gold Recovered	Oz	123,913	183,949	207,600	193,252	400,852
Ounces Sold	Oz	119,976	182,856	212,682	210,561	423,243
Cash Operating Cost	A$/oz	820	788	999	1,108	1,054
All-in Sustaining Cost	A$/oz	1,075	982	1,226	1,365	1,295
Total Stockpiles Contained Gold	Oz	70,579	78,787	88,512	81,783	81,783
Gold in Circuit (GIC)	Oz	24,577	27,523	33,572^^	23,173	23,173
Gold in transit (oz)	Oz	-	1,391	11,035^^	3,642	3,642

^Physical metrics, cash operating costs and all-in-sustaining costs are inclusive of Pogo operations for September quarter.

^^Includes Pogo inventory of 5,447ozs GIC; 9,860ozs Gold in transit at September 2018.

Northern Star	Units	Mar-18 Qtr	Jun-18 Qtr	Sep-18 Qtr^	Dec-18 Qtr	FYTD
Revenue	A$M	190.3	316.5	258.9	362.6	621.5
Average Gold Price	A$/oz	1,720	1,731	1,691	1,722	1,700

^Excludes Pogo operations revenue as it was acquired 28 September 2018.

Table 1: Key Group Performance Figures (Quarterly)

Northern Star	Units	Mar-18 Qtr	Jun-18 Qtr	Sep-18 Qtr	Dec-18 Qtr	FYTD
Mining	A$/oz	549	452	611	644	629
Processing	A$/oz	176	199	295	274	285
Site Services	A$/oz	55	38	76	91	84
Ore Stock & GIC Movements	A$/oz	1	58	(6)	64	29
Royalties	A$/oz	42	44	25	29	27
Ore Purchase	A$/oz	-	-	-	8	4
By Product Credits	A$/oz	(4)	(3)	(3)	(3)	(3)
Rehabilitation-Accretion & Amortisation	A$/oz	4	3	6	7	6
Corporate Overheads	A$/oz	58	51	37	44	40
Mine Development/Sustaining CAPEX	A$/oz	145	110	163	182	172
Mine Exploration	A$/oz	49	30	22	25	22
All-in Sustaining Costs	A$/oz	1,075	982	1,226	1,365	1,295
Depreciation & Amortisation	A$/oz	193	201	304	281	292

Table 2: Key Group Cost per Ounce Measures

Production KPIs December Quarter	Units	Kalgoorlie Operations	Jundee	Pogo	Total
Total Ore Hoisted	Tonnes	766,710	480,388	224,516	1,471,614
Mine Grade	gpt Au	3.4	4.4	8.2	4.4
Gold in Ore Hoisted	Oz	82,500	67,211	59,219	208,930
Milled Tonnes	Tonnes	789,351	493,593	228,603	1,511,547
Head Grade	gpt Au	3.4	4.4	7.8	4.4
Recovery	%	91	92	88	90
Gold Recovered	Oz	79,496	63,650	50,106	193,252
Gold Sold	Oz	83,624	69,403	57,534	210,561
Cash Operating Costs	A$/oz	1,070	890	1,426	1,108
All-In Sustaining Costs	A$/oz	1,406	1,052	1,681	1,365
Depreciation & Amortisation	A$/oz	389	124	305	281

Table 3: Key Quarterly Mine Production Performance

FINANCE

The following is a table of the cash, bullion and investments held at the end of each quarter:

Mar-18 Qtr	Jun-18 Qtr	Sep-18 Qtr	Dec-18 Qtr
Cash at bank	A$M	$367.6	$443.0	$216.4	$229.8
Bullion awaiting settlement (1)	A$M	$10.6	$11.4	$15.2	$16.6
Equity Investments	A$M	$60.9	$57.5	$43.7	$45.3
Total	A$M	$439.1	$511.9	$275.3	$291.7

(1)

Bullion awaiting settlement is dore which has been received by the refiner in the quarter and is awaiting settlement.

Table 4: Cash, Bullion and equity investments

The below table sets out the total of surface gold inventories:

Gold Inventories	Mar-18 Qtr	Jun-18 Qtr	Sep-18 Qtr	Dec-18 Qtr
Stockpiles contained gold (oz)	70,579	78,787	88,512	81,783
Gold in circuit (oz)	24,577	27,523	33,572	23,173
Gold in transit (oz)	-	1,391	11,035	3,642
Total Gold Inventories (oz)	95,156	107,701	133,119	108,598

Table 5: Gold Inventories

The below waterfall chart highlights the December quarter's operating cash flow together with movements in cash, bullion and investments (A$M):