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The latest ASX gold stock to get upgraded by JP Morgan

Value is as difficult to find as gold among ASX-listed precious metal producers. But the Northern Star Resources Ltd (ASX: NST) share price could be shining a little brighter than most of its peers after the stock was upgraded by JP Morgan.

The stock jumped 2.4% to $9.82 on Monday when the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index added 0.2%.

In contrast, the Newcrest Mining Limited (ASX: NCM) share price tumbled 2.8% to $29.90 and the Regis Resources Limited (ASX: RRL) share price sank 1.1% to $4.70, while the Evolution Mining Ltd (EVN) share price jumped 2.6% to $4.01.

Why Northern Star got upgraded

I think Evolution Mining is looking attractive after its recent big share price retreat, but Northern Star may also be worth putting on your radar as JP Morgan upped its recommendation on the stock to “overweight” from “neutral”.

“NST has one of the better production growth profiles in our gold coverage and we see even more optionality in its assets beyond what we model,” said the broker.

“We expect these to be pursued in 2020 with typical NST urgency. Meanwhile, the focus will remain on Pogo progress, along with ramping up required development rates and stope tonnes to get production up and costs down.”

Don’t get too pessimistic

The recent update on Pogo may have disappointed some as output came up a little short of expectations, but JP Morgan thinks investors should take a glass-half-full look at the news. Production is still up around 75% over the past six months.

There is also upside from Northern Star’s Jundee expansion. While the project was recently expanded produce 2.2 million tonnes a year, the broker thinks there’s a case to further develop the mine to produce an extra 300,000 to 400,000 tonnes by spending up to $30 million.

This could add an additional 40 cents a share to JP Morgan’s valuation with the broker pegging its price target at $11.50 a share.

Other growth options

But it isn’t only Jundee expansion part two that may lift the value of Northern Star. The broker thinks Brozewing has greater potential than what is currently priced in if management optimises the asset base, and flagged the possible restarting of the Paulsens mine, which was shuttered when gold was trading around US$600 an ounce lower than where it currently is.

“While there is only 90koz at 2.5g/t of surface stockpiles in reserves, it does have 300koz at 4.5g/t in resources,” added JP Morgan.

“There may be an opportunity to hedge some/all production and “harvest” some of the remaining inventory without putting at risk too much capex and management resources, or offload it like Plutonic.”

Foolish takeaway

Let’s not forget as well that the sector is ripe for mergers and acquisitions (M&A) given the strong gold price and the bright outlook for the yellow metal in 2020, if not beyond.

I reckon that any gold stock that represents value in some shape or form will be well supported in the new year.

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Motley Fool contributor Brendon Lau owns shares of Regis Resources Limited and Evolution Mining Ltd. Connect with him on Twitter @brenlau.

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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