Northern Star Resources Ltd (ASX: NST) shares are a popular option for investors looking for exposure to the gold sector.
But are they a good option after falling heavily from their highs? Let's see what Bell Potter is saying.
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What is the broker saying?
Bell Potter highlights that Northern Star will be releasing its eagerly anticipated quarterly update this month.
While the miner's production numbers for the third quarter are now known, its costs will be the main focal point. The broker sees risks that management will be forced to downgrade its cost guidance for FY 2026. It said:
NST announced last week it had produced 381koz over the 3Q (+10% QoQ, VA 366koz BPe 353koz), despite the headwinds highlighted in the Mar-13 downgrade. NST are now 74% through the revised production guidance of 1,500koz, which requires a result of at least 391koz (+2.3% QoQ) to meet the twice revised guidance. On our numbers, that will still require a material lift across the portfolio, particularly in throughput and grade at KCGM. The pre-reported result was a beat on our estimates and consensus for 3Q, and, whilst we still anticipate production at the low end of guidance there may be signs that NST has hit the bottom of the downgrade cycle.
Fuel costs will present a headwind heading into the 4Q, accounting for ~5% of AISC prior to the Middle East conflict. We continue to see risks that the AISC guidance of A$2,600/oz – $2,800/oz is at risk given the recent production guidance downgrade (~100koz) and the increase in fuel costs expected to impact the 4Q result. We suspect NST, much like peers in the space, will pull as many levers as possible to prioritise high-value tonnes and delaying any non-essential waste movement, to manage the near-term impacts.
Outside this, the broker highlights that Northern Star's $500 million share buyback could be interpreted as a sign of confidence from management. It adds:
NST announced the commencement of an on market Buy-back scheme of up to A$500m, representing ~1.6% of issued capital. The buy-back is separate from the dividend payout policy of 20-30% of cash earnings and will commence on the 23rd of April. The buy-back has minimal impact on our EPS estimates going forward, however the signalling of value in the underlying business is of more importance. As noted above, we see NST as hitting the bottom of production and earnings downgrades, with some margin compression to come from the impact of fuel prices.
Should you buy Northern Star shares?
According to the note, the broker has retained its buy rating and $35.00 price target on Northern Star's shares.
Based on its current share price of $24.47, this implies potential upside of 43% for investors over the next 12 months.
In addition, the broker is expecting a 2.6% dividend yield over the period, boosting the total potential return beyond 45%.
