Northern Star Resources
BUY
Date of inclusion: 11 November 2021
Share price on inclusion in Marc & Stuart’s Top Picks: $10.46
52-week range: A$7.96 – A$15.24
Risk Level: Medium
A global scale miner
Northern Star Resources (ASX:NST) is one of the largest gold miners in the world, having grown from a mere explorer a decade ago. Following the early 2021 merger with Saracen, Northern Star is progressing towards 2 million ounces of gold production per year within five years from now. The company sold 1.6 million ounces of gold in FY21 at a low All-In-Sustaining Cost (AISC) of only A$1,483 per ounce and it is guiding to 1.55 to 1.66 million ounces in FY22 at A$1,475-1,575 AISC per ounce (US$1,105-1,180). We see Northern Star benefiting from the rising gold price as well as expanding output from all mines.
Three great gold mining centres and a balance sheet to expand
Northern Star chooses to invest only in low sovereign risk regions of Australia and North America. The company owns large, long-life mines in Western Australia, including the iconic Super Pit at Kalgoorlie, a number of mines in the Yandal region of WA and the Pogo Gold Mine in Alaska. The mines in and near Kalgoorlie have decades of production left. Northern Star had A$799m in cash and bullion per the end of June 2021, but only A$662m of corporate bank debt.
A large resource base
As at March 2021 Northern Star’s total JORC 2012 resource was 56 million ounces and its reserve was 21 million ounces. We see Northern Star adding to this resource and reserve position in the years ahead thanks to the strong exploration potential of the regions in which it is active.
A low valuation given the growth potential
FY22 represents the first full year of the merged Northern Star/Saracen entity. On consensus numbers Northern Star will grow earnings markedly by 17% in FY23 thanks to production increases and better gold prices. However, the EV/EBITDA multiple on FY23 consensus is just 6.1x.
Now is a good time to be in gold equities
The surge in inflation around the world, driven by COVID-induced shortages and large expansions in central bank balance sheets, is driving the search for inflation hedges. And while crypto currencies have done well in this environment, we see gold as the ‘Original Crypto’ that will also increase in value in this inflationary environment.
Northern Star is an obvious beneficiary. Only around 800,000 ounces of Northern Star’s future production has been sold forward at an average price of A$2,200-2,300 an ounce, which at the current exchange rate translates into US$1,600-1,680 an ounce.
Read our original article on NST here