Northern Star Resources (ASX:NST) explores and develops mineral resources in the highly prospective Kimberley region.

NST is an emerging gold producer and explorer with a market capitalisation of around $180 million.

Its main project is the Paulsens gold mine which it purchased for $40 million.

The miner expects to release a resource upgrade later this month and a new mine plan for Paulsens this year.

NST recently acquired the 668,000 ounce (oz) Ashburton Gold Project which is close to the Paulsens mine.

Precious metal speed hump

We saw gold and silver futures slide recently as investors reacted to hikes in margin requirements for the contracts.

The CME Group raised margin requirements for both initial and existing positions in gold, copper and silver.

Margins are money investors must put up to be able to trade and hold futures contracts.

Gold lost more than US$100/oz on the announcement, printing a low of around US$1533/oz.

However, gold prices have since recovered from that low and are currently hanging at around US$1665/oz.

The fact of the matter is, the underlying fundamentals behind the gold price rally over the past year are still intact and we are likely to see gold continue to rise.

Ashburton acquisition

NST agreed to purchase the Ashburton Gold Project from Sipa Resources which will be paid for via a royalty on future production.

The deal includes 668,000oz resource and the Mt Olympus Gold Mine, which has previously produced 340,000oz.

This puts NST in a prime position to increase production rates, project life and create shareholder wealth through exploration.

Ashburton is a strategic asset for Northern Star Resources as it provides an immediate resource boost to the miner’s resource base.

High grade drilling results from Ashburton announced last week show NST is on track to grow production to 200,000ozpa.

Results

NST recently posted FY11 profit before tax of $20 million. This profit came after deducting $22 million for the acquisition of Paulsens gold mine and $24 million in depreciation and amortisation expenditure.

The result was aided by record production at Paulsens of 87,069oz at $588/oz cash cost.

NST has $30 million in cash on hand as at 27 September 2011 and is on track to exceed calendar 2011 forecast of $40 million surplus cash, 75,000oz production.

A resource upgrade is set for early 2012 with increases in mine life, production and cashflow expected.

The miner repaid the $40 million acquisition of Paulsens in just seven months.

Being unhedged, NST has maximum exposure to the strong gold prices and as a result it was one of the hot stocks over the course of 2011.

With strong cashflow and a robust balance sheet, NST is in a good position to grow.

Outlook

Gold is set to recover after recently suffering a setback from the CME’s decision to raise margin requirements.

NST’s strong financial position leaves it well placed for further acquisitions in line with its objective of building a major mining house.

With the potential for further acquisitions and strong gold prices backing the unhedged miner, we feel NST will be one of the stocks to watch in coming months.

Recent weakness presents an excellent opportunity for fresh entries.

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Northern Star Resources (NST) explores and develops mineral resources in the highly prospective Kimberley region.

NST is an emerging gold producer and explorer with a market capitalisation of around $120 million.  Its main project is the Paulsens gold mine which it purchased for $40 million.

NST has been one of the hot shares in recent months, more than doubling its share price since last August.

The miner expects to release a resource upgrade later this month and a new mine plan for Paulsens this year.

NST recently acquired the 668,000 ounce (oz) Ashburton Gold Project which is close to the Paulsens mine.

Ashburton acquisition

NST agreed to purchase the Ashburton Gold Project from Sipa Resources which will be paid for via a royalty on future production.

The deal includes 668,000oz resource and the Mt Olympus Gold Mine, which has previously produced 340,000oz.

This puts NST in a prime position to increase production rates, project life and create shareholder wealth through exploration.

Ashburton is a strategic asset for NST as it provides an immediate resource boost to the miner’s resource base.

Bright future

The miner is debt free after paying a final $2.5 million production royalty on the Paulsens gold mine acquisition.

Paulsens produced a record 48,559 oz in the December half, generating revenue of $65.4 million.

Cash costs for the half were $510 per oz which is low when compared to other Australian gold miners.

Northern Star Resources repaid the $40 million acquisition of Paulsens in just seven months.

Resources at Paulsens currently stand at 128,700 oz. Added to the Ashburton resource, the total resource from the two is 796,700oz.

Current production is 6,000oz per month which brings in revenue of approximately $8 million per month.

Being unhedged, NST has maximum exposure to the surging gold prices.

Its exploration program at Ashburton is well underway and could deliver a significant resource upgrade as early as this month.

With strong cashflow and a robust balance sheet, NST is in a good position to grow.

Outlook

Gold has gained over 30% this year, reaching fresh record highs this week as tension in North Africa and the Middle East pushes investors towards the safety of the shiny metal.

The metal printed highs of around US$1440 this week and continues to hold its ground well above US$1400.

NST’s strong financial position leaves it well placed for further acquisitions in line with its objective of building a major mining house.

The miner is likely to announce a resource upgrade this month which would give it further upside.

With the potential for further acquisitions and strong gold prices backing the unhedged miner, it will be one of the stocks to watch in coming months.

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