Northern Star upgraded on Pogo bounce

Northern Star has been the most celebrated Australian domiciled gold producer of recent times. But it has to be said it has not exactly shone brightly since its shares topped out at A$14.06 back in late July (writes Barry FitzGerald on MiningNews).
13th December 2019
Resources Rising Stars

Northern Star has been the most celebrated Australian domiciled gold producer of recent times. But it has to be said it has not exactly shone brightly since its shares topped out at A$14.06 back in late July (writes Barry FitzGerald on MiningNews).

The shares are now back at a more sedate $9.94. That's a nice enough year-to-date gain of 7.5% but when the late July record price is taken as its starting point, NST is found to be wanting with a near 30% value hit.

In part, the value hit reflects the September retreat in the gold price from all-time record Australian dollar levels.

But NST has also been suffering indigestion from its August 2018 acquisition of the Pogo gold mine in Alaska for US$260 million. It was a turnaround story, not unlike NST's A$83 million acquisition of the Jundee mine in WA, now valued by the market at $2 billion.

From day one, NST said the Pogo turnaround would take time, given a key component of its action plan was the adoption of a new mining method. And while there is nothing in particular to suggest that NST won't restore Pogo to tier one status, the market has got twitchy on the subject.

That twitchiness stepped up a notch in October when NST's September quarter report, disclosing Pogo had produced 29,468oz at an uncomfortable AISC of $2798/oz, was released against a backdrop of gold's retreat from record Australian dollar levels.

The reason for the poor production figures was a temporary fall in grade on the way to completion of NST's restoration plan for the mine which, under the previous owner, produced 270,000oz at $882/oz in (calendar) 2017.

Add in the retreat in the gold price in recent months - it is still $260/oz higher in US dollars than when NST sealed the Pogo deal - and there is little wonder that the company's $14-a-share price sticker was not able to last.

But there is good news in the here and now from all that, and it is being reflected in NST emerging as the top gold pick as 2019 winds down, and 2020 looms.

In a note entitled "All aboard! Last chance before the re-rating," RBC's Paul Hissey has just lifted NST from a sector perform to an outperform, increasing its price target from $10.50 to $11 a share.

And Daniel Morgan at UBS has also upgraded NST to a buy, increasing its price target from $11.20 to $12 a share.

Read more at https://www.miningnews.net/barry-fitzgerald/opinion/1377527/northern-star-upgraded-on-pogo-bounce

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