As far as gold miners go Newcrest Mining Limited (ASX: NCM) and Northern Star Resources Ltd (ASX: NST) are very different. Newcrest is the long-established giant which has been beaten down in share price, while Northern Star is the smart and nimble upstart with aggressive growth plans.
But which company could help you strike gold in the years to come? Here are some key points to consider.
For the most recent December quarter Northern Star had all-in sustaining costs of $1,156 per ounce. This was up from $996 per ounce in the September quarter, but included a non-cash accounting adjustment of $132 for ore stock piles write-downs.
At just $921 per ounce Newcrest is the clear winner, having cut costs by 16% over the September quarter through increased production and a companywide “cost-out” focus.
Volatile gold prices make low debt levels an essential criterion for buying a gold miner. Low debt means less risk of being unable to meet interest payments if the price of gold falls and cash flow suffers. This can in turn affect a company’s credit rating and thus the interest rate the company pays on its debt.
In 2013 Newcrest Mining’s net debt ballooned from $2.17 billion to $4.14 billion. Combined with a massive reduction in the company’s equity from write-downs, Newcrest’s ratio of debt to total capital rose to 29.5%.
This compares to Northern Star’s slim and preferable 9.24%, supported by strong operating results throughout 2013.
In an effort to preserve cash, Newcrest plans to slash capital expenditure from $1.9 billion to $0.8 billion in the 2014 financial year, shelving some short-term growth projects. However the company will still have options to expand many of its current operations should the price of gold rebound.
Meanwhile Northern Star has been systematically buying up mines at what could turn out to be bargain prices. The company has recently purchased three mines from desperate seller Barrick Gold Corporation (NYSE: ABX), expanding its reserves and facilitating long-term production.
Northern Star grew net profit after tax by 29% in 2013 and is on track to continue growing with its new additional mines.
Both companies are doing a solid job of toughing out the lower gold price conditions. However Northern Star’s low debt profile and smart strategic acquisitions will help it continue to add growth going forward and would be my pick of the two companies.