The Northern Star Resources Ltd (ASX: NST) share price hit a new all-time high of $11.87 during trading yesterday, but has since pulled back slightly and is now swapping hands for $11.50 at the time of writing. Northern Star is now up over 22% in a month and over 63% year-to-date, which is more than enough to make you wish you had some (in my experience anyway).
So what is behind these ‘shoot the lights out’ moves? And how much further upside is there for Northern Star shares?
A refresher on Northern Star
Northern Star Resources is one of my go-to ASX success stories. You could have picked up shares for a single cent back in 2009 and be looking at a 115,000% return on today’s price. If this actually happened to any investors out there, I congratulate you on winning the jackpot (and your likely retirement in the Bahamas).
Northern Star started life in 2000, but only really got going in 2010 with a single mine producing 100,000oz of gold per annum. Today, across three mines in Australia and North America, Northern Star produces over 850,000oz of gold per year with a fourth mining site in Alaska going online soon, which Northern Star hopes will add substantially to production numbers going forward.
Why have the shares been surging?
Northern Star currently has an average cost base of A$1,175 per ounce of mined gold across its portfolio. If we take a look at the current selling price of gold, it is trading at its highest levels since 2013 in its native US dollars (currently for around US $1,414 per ounce) and its highest levels ever in our Australian dollars (currently about $2,030 per ounce). Since Northern Star is domiciled in Australia, the company I will be raking in a profit of $855 for every ounce mined on its most recent cost base. On production numbers of 850,000 ounces per year, my rough maths indicates Northern Star would be set to book an annual profit (not revenue) of around $727 million if prices were to stay around these levels, which would be up from around the $464 million that it might have expected if gold had stayed at the level it was 6 months ago.
This explains the massive surge in Northern Star’s share price and why we have seen this massive run mirrored in other gold miners like Newcrest Mining Limited (ASX: NCM).
On current prices, the market is building in the new price of gold that we have seen over the last few weeks and months. If this trend were to reverse, I estimate the Northern Stare share price would soon follow, so any investment today would be highly speculative. My personal strategy with resource stocks (or any really) is to buy low and sell high, and on these levels, I feel it may be too late this time around.
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Motley Fool contributor Sebastian Bowen 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.