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Northern Star share price to rise on exploration update

Shares in Northern Star Resources Ltd (ASX: NST) are set to rise this morning as the company gave an update on its Pogo Operations this morning.

The Aussie gold miner said its investment strategy in the Alaskan Pogo gold mine has generated “exceptional exploration results” which have outperformed expectations from its own due diligence at the time of acquisition.

A $35 million exploration and concentrated infill drilling campaign, using four underground and four surface rigs, has delivered a strong result for the company, increasing the existing JORC Resource of 4.15 million ounces (4.15Moz).

The company announced a $15 million budget for exploration drilling in the second half of the year, in line with previously stated FY19 spend of $75-$80 million.

In a good sign for future growth, the company’s approvals are in place for exploration and production activities on its Central Lodes with 2,500 significant unmined intersections outside of the current resource also identified.

With the S&P/ASX200 Index (ASX: XJO) poised to rise this morning on strong overnight moves in the US market, I would expect to see Northern Star surge in early trade.

The stock is definitely in the growth basket, with a measly 1.12% fully-franked dividend on offer for investors. The technical environment for gold remains positive given ongoing market turbulence and the threat of rising inflation, but its lofty ~28x P/E ratio would make me wary of its current valuation.

Foolish Takeaway

While Northern Star should surge on today’s exploration announcement, I’d be wary of its current $8.81 billion valuation, particularly after yesterday’s 4.26% jump. In the meantime, those looking for exposure in the mining sector could look to high-yielding blue-chips such as BHP Group Ltd (ASX: BHP) or Rio Tinto Ltd (ASX: RIO), yielding an attractive fully-franked 4.50% and 4.41%, respectively.

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Motley Fool contributor Lachlan Hall does not own shares in any of the companies 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.

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