Gold miner Northern Star Resources Ltd posts record profit, is it a buy?

Credit: Mark Herpel

This morning Australian gold miner Northern Star Resources Ltd (ASX: NST) released its unaudited full year results to the market. As you might expect following the rise in the gold price this year, the results were impressive with many records being broken.

Key highlights include:

  • Revenue increased 5% year-on-year to $887.4 million.
  • Full year net profit after tax rises 65% from FY 2015 to a record $151.4 million.
  • Earnings per share rises 63% from 15.5 cents to 25.2 cents.
  • Underlying free cash flow up 21% to a record $224.3 million.
  • 561,153 ounces of gold sold at an average realised gold price of A$1,578/ounce (current spot price A$1,760/ounce).
  • All-in sustaining cost of A$1,041/ounce, down a touch from A$1,065/ounce in FY 2015.
  • Cash and equivalents increased 83% to $326 million at 30 June 2016, up from $178 million a year ago.

Undoubtedly a great set of results that clearly goes some way to justifying the 70% rise in its share price in 2016. But is it a buy today?

Based on yesterday’s close price and its unaudited full year earnings per share, the shares are changing hands at approximately 18x earnings. Which is actually quite reasonable compared to a good number of its peers.

But once again it all comes down to where the gold price goes from here.

If the gold price were to head higher then at the current price Northern Star would no doubt be a good addition to your portfolio. But if gold stayed at the same level or dropped lower then I would suggest staying away from it.

Unfortunately as nobody can accurately predict where the gold price will be in six months, I believe investors would be better off avoiding speculative investments like this and focusing on other areas of the market.

The market has responded reasonably well to Northern Star’s results, with the shares trading higher in early trade. The same can’t be said for fellow gold miners Newcrest Mining Limited (ASX: NCM), St Barbara Ltd (ASX: SBM), and Medusa Mining Limited (ASX: MML), which are all in the red in early trade as demand for the precious metal falls amid assurances global policymakers will do all they can to help the economy.

Finally, instead of investing $10K in Northern Star today, I would recommend having a quick read about how this man turned a $10K investment into over $8 million. It's definitely worth a couple of minutes of your time if you get chance today.

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. 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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