Prolonged weakness in gold pricing should mean a recovery is close – and if one gold stock could leverage best off favourable industry conditions it’s Northern Star Resources Ltd (ASX: NST).
It’s been a good 12-months for Northern Star, with its share price at the time of writing of $8.31 up 66% from its price point at this time last year.
But perhaps the most interesting move Northern Star has made in the last year is its decision to acquire the Pogo gold mine in Alaska.
The company raised $175 million via a fully underwritten placement to institutional investors – a heavily oversubscribed placement with overwhelming support from stakeholders.
Northern Star executive chairman Bill Beament said the capital raising oversubscription proved fund managers and analysts from around the world shared the company’s view that Pogo is an “exceptional acquisition” – meeting the company’s criteria of “owning Tier One assets with strong growth potential in Tier One locations”.
I think the Pogo take up was an astute move by Northern Star at a time of low underlying gold price.
The high grade 4.1Moz Pogo underground gold mine is located in Alaska and Northern Star will acquire it from Sumitomo Metal Mining for cash proceeds of US$260 million, which equates to US$63 per ounce – funded by the capital raising and existing cash on balance sheet.
The acquisition saw Northern Star upgrade its 2019 production guidance to between 850,000 and 900,000 ounces – that’s adding 250,000 to 260,000 ounces to previous forecasts.
Beament compares Pogo to the opportunity Northern Star encountered at Jundee four years ago and because of that experience the company is confident it can grow the resource, production and mine life on Pogo to benefit shareholders, mine employees, and the local community.
While that remains to be seen, globally, there are only 17 gold mines producing more than 300kozpa in Tier 1 locations and Pogo is one of them.
Northern Star is confident its Jundee and Kalgoorlie assets will soon join that list and if that comes off, depending on what happens to the gold price, Northern Star could fly.
Northern Star reported record net profit of $194 million for FY18, up 3% on FY17, with group EBITDA up 4% to $443 million and EPS up 2% on FY17 to 32.1c per share.
Underlying free cash flow grew by 8% to $186 million and production climbed 12% with a full-year dividend of 5c per share – up 11%.
On its balance sheet, Northern Star looks strong, with more room for growth opportunities possible and shareholders enjoying consistent earnings growth, profit margin and dividend payouts since 2014.
If you haven’t got Northern Star shares already, I’d give it some thought, or at least keep it high on your watchlist.
Elsewhere in the sector a fall in the gold price to kick off this week’s trading saw the share price of gold peers such as Regis Resources Limited (ASX: RRL) drop down during yesterday’s trade and Regis is back in the red today, down 3.1% to $3.74 at the time of writing.
St Barbara Ltd (ASX: SBM) also dropped back yesterday and has failed to recover today, down 3.7% at the time of writing to $3.35 with Evolution Mining Ltd (ASX: EVN) shares down slightly to $2.70 also.
I think Northern Star is only just coming into its own, and the Pogo acquisition will be an important transformational time for the company, particularly if gold prices start to climb higher again, as expected. Gold is often considered a “safe haven” stock and while I am not sure I subscribe to that belief, I think if you’re seeking a gold miner to add to your portfolio, Northern Star could be an option.
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Motley Fool contributor Carin Pickworth has no position in any of the 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 Scott Phillips.