Gold miner Northern Star Resources Ltd (ASX: NST) was the best performer in the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), rising 36%.
Following behind Northern Star were; Veda Group Ltd (ASX: VED) with a 30% gain, TPG Telecom Ltd (ASX: TPM) up 22% and Pet products retailer Greencross Limited (ASX: GXL) which saw its share price rise 21%.
Compare that to the index, which fell 4.3% over the month.
Northern Star rose thanks to gains in the gold price and has more than doubled its share price in the past 12 months. A spate of cheap acquisitions near the bottom of the gold price last year saw Northern Star grow into Australia’s second-largest listed gold miner.
Once the company had just one mine – which was expected to have a very short mine life – now Northern Star boasts 5 projects and is on track to produce between 535,000 and 570,000 ounces of gold at an all-in sustaining cost of between $1,050 to $1,100 an ounce in the 2016 financial year.
Given the current US dollar gold price of around US$1,114 an ounce and the lower Australian dollar exchange rate of around US70 cents (equating to A$1,591 an ounce), Northern Star should generate some handsome profits at least in the year ahead of nearly $500 per ounce.
That suggests revenues of $850 million and a cash profit of around $267 million. Last financial year, Northern Star saw sales of $845 million and a net profit of $108.8 million, along with underlying free cashflow of $186 million.
In the 2015 financial year, Northern Star even managed to pay a dividend of 5 cents per share. That’s fairly small – giving the company a yield of just 1.9%. What’s even better, is that Northern Star had zero debt and $178 million cash in the bank at the end of June 2015.
But investors should be aware that the gold miner plans to spend $74 million to expand its resources and reserves of gold this year. On the positive side, that could lead to the company producing 700,000 ounces of gold a year from the 2018 financial year if successful. If not, then Northern Star just spent $74 million for no return.
Northern Star is a shining (excuse the pun) example of how a gold miner should operate. Picking up cheap assets when prices are low, and making a return of at least something in the form of dividends to shareholders. Very few have managed to do that.
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Motley Fool contributor Mike King owns shares in TPG Telecom and Greencross. You can follow Mike on Twitter @TMFKinga
Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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