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Northern Star Resources Ltd – Acquires 50% Of KCGM Super Pit In WA

Jordan Baird

Jordan Baird is the head ASR Wealth Advisers client services desk and has been with the organisation since 2017. He first started investing in his early years. While he believes that investors should leave no stone unturned he has a particular interest in trading based on broad macroeconomic trends along with specific analysis of innovative up-and-coming companies.

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.

Northern Start Resources - Super pit in WA

 

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

and

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%.

 


 

Disclaimer:

This article has been prepared by the Australian Stock Report Pty Ltd (AFSL: 301 682. ABN: 94 106 863 978)

(“ASR”). ASR is part of Amalgamated Australian Investment Group Limited (AAIG) (ABN: 81 140 208 288 Level 13, 130 Pitt Street, Sydney NSW 2000).

This article is provided for informational purpose only and does not purport to contain all matters relevant to any particular investment or financial instrument. Any market commentary in this communication is not intended to constitute “research” as defined by applicable regulations. Whilst information published on or accessed via this website is believed to be reliable, as far as permitted by law, we make no representations as to its ongoing availability, accuracy or completeness. Any quotes or prices used herein are current at the time of preparation. This document and its contents are proprietary information and products of our firm and may not be reproduced or otherwise disseminated in whole or in part without our written consent unless required to by judicial or administrative proceeding. The ultimate decision to proceed with any transaction rests solely with you. We are not acting as your advisor in relation to any information contained herein. Any projections are estimates only and may not be realised in the future.

ASR has no position in any of the stocks mentioned.

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