Northern Star Resources (ASX: NST) is an Australian gold producer with projects located in the regions of Australia and North America. Northern Star operates three concentrated centres – Jundee, Kalgoorlie (including Kanowna Belle, Kundana (the East Kundana Joint Venture – Northern Star’s interest: 51 per cent), South Kalgoorlie and Pogo Operations. Northern Star has a market capitalisation of A$6.3 billion.
What has Northern Star announced today (17 December 2019)?
Northern Star Resources has entered into a binding sale agreement with Newmont Goldcorp Australia, a subsidiary of Newmont Goldcorp Corporation, to acquire all the shares in Kalgoorlie Lake View Pty Ltd, which holds a 50% interest in Kalgoorlie Consolidated Gold Mines Pty Ltd (KCGM) and in the operations and assets managed by KCGM (KCGM Operations), for US$775 million and associated assets for US$25 million, for a total consideration of US$800 million.
Northern Star Executive Chairman Bill Beament said:
the acquisition would create substantial value and provide enormous short, medium and long-term opportunities
the purchase of a 50 percent stake in the Kalgoorlie Super Pit meets our key strategic objectives of generating strong financial returns and growing our gold inventory from Tier-1 mines in Tier-1 locations.
KCGM is one of the largest gold mines in Australia with gold production of 490koz in FY19 and 730koz in FY18. The production was down significantly in FY19 due to a rock fall. It is estimated to take more than three years to recover from the rock fall.
The US$800 million (approximately A$1,168 million) cash consideration will be funded through a combination of:
- New secured debt facilities of A$480 million with Northern Star’s existing lending group.
- A fully underwritten institutional placement of approximately A$765 million.
- existing cash reserves of A$5 million.
What is the outlook for Northern Star?
Northern Star expects its share of KCGM to add 120,000-140,000oz to its FY20 gold production at an AISC of A$1,450/oz to A$1,550/oz, increasing Northern Star’s FY20 guidance to 920,000oz to 1,040,000oz at an AISC of A$1,240/oz to A$1,340/oz.
The spot price of gold has slightly dropped in the few months. This is in light of a potential new US China trade deal and increased certainty that the newly elected Prime Minister Boris Johnson will deliver Brexit. Boris Johnson’s plan is to leave the EU on 31 January 2020. After, this will begin the transition period that should consist of the UK negotiating new trade deals with other economies. If these deals are reached, global economic and political concerns may ease, causing gold to not be as favourable, as it has been between June 2019 – August 2019. Although, if these global concerns do not ease, gold is expected to continually perform well.
What is the market reaction?
Northern Star announced on the 16 December that they will be placed in trading halt until the 18 December 2019. Investors could observe the market reaction to Northern Star’s announcement once the share price is available to trade on the 18 December. Northern Star has a forward P/E in the low-twenties and an annual dividend yield of 1.7%.
This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)
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