Australian miner Northern Star Resources has conceded that its goal of producing two-million ounces of gold a year will remain out of reach in the near term, with the miner now forecasting a maximum of 1.85-million ounces for the 2026 financial year amid rising cost pressures and capital intensity.

The admission follows a challenging year for the ASX-listed gold producer, which posted record group free cash flow of A$536-million and gold sales of 1.634-million ounces in the 2025 financial year. However, its flagship Kalgoorlie Consolidated Gold Mines (KCGM) operation continued to underdeliver, prompting Northern Star to revise down its production outlook.

“It’s been a challenging 12-month period as we have faced productivity and cost headwinds, particularly at KCGM, our largest asset,” CEO Stuart Tonkin told analysts on a post-results conference call. “This led us to confirm that we will not reach our ambitious two-million-ounce per annum group target in FY26, primarily because KCGM is not yet able to deliver the 650 000-oz/y run rate.”

While gold sales reached a record in the 2025 financial year, the company’s updated 2026 guidance calls for 1.7-million to 1.85-million ounces at an all-in sustaining cost of A$2 300 to A$2 700/oz, up from A$2 163/oz in the previous year. 

COO Simon Jessop acknowledged production issues at Kalgoorlie, blaming lower-than-expected mining efficiency and delayed access to high-grade ore at Golden Pike North. “KCGM mining efficiency was below expectations,” he said.

Northern Star also flagged an increase in capital expenditure (capex), with growth capex expected to reach between A$2.13-billion and A$2.27-billion in 2026.

The company attributed the increase to a ramp-up in development at KCGM and a pull-forward of tailings and infrastructure spend, including a new thermal power station and transmission line to support future renewable-energy supply.

“The tailings facility is a big chunky piece at KCGM,” Tonkin said. “I appreciate that if the mill expands, we need to bring that capital forward. So it was in the life-of-asset plan, but it is bringing that capital forward.”

Capital spend at KCGM includes A$530-million to A$550-million for the mill expansion, A$500-million to A$550-million for operational development, and up to A$370-million in mill-readiness projects, including new tailings facilities and a permanent on-site accommodation camp.

At the same time, development continues at the Hemi gold project in the Pilbara, inherited via the recent acquisition of De Grey Mining. Northern Star has earmarked A$140-million to A$150-million for Hemi in 2026, including commitments for long-lead items.

Despite the higher capex guidance, the miner insists the investments are justified by future returns.

“These are very strong return capital investments to ensure that we have power security, lowest cost of power availability, and we are not held to the grid,” Tonkin said. “With a multi-decade project, you get something for the money - it is not just price escalation.”

Despite the operational challenges, the company remains in a strong financial position with liquidity of A$3.4-billion at June 30 and no net debt. It also completed an on-market buyback at an average price of just over A$11 a share.

“KCGM remains a cornerstone of our medium- and long-term value proposition,” Tonkin said. “We continue to invest in the potential of this asset which, in turn, will drive a positive step change in free cash flow generation for the company for many years to come.”

Northern Star also dropped its policy of selling some of its gold on forward hedging contracts, to give it greater exposure to booming prices.