Northern Star’s Beament gives ‘em 10 years

11th August 2017
Resources Rising Stars

“Here’s to Northern Star in the next 10 years,’’ Beament said with the customary champagne flute in hand.

While the sense in having a tipple ahead the unrestricted bonhomie of the Diggers & Dealers bash which kicked off on Monday could be questioned, the gusto and obvious pleasure with which Beament delivered the toast could not.

That’s because the Flour Factory session was a seismic event for the good, both for Northern Star and the broader gold industry.

Here at last was the evidence to the doubting Thomases that the short mine life issue that had stopped Northern Star capturing the sort the sort of investment multiples that its more mine life-endowed competitors enjoy in their share prices was a thing of the past.

If the market wanted visibility on 10-year mine lives at its key WA gold mines that was what it was going to get, with Northern Star’s three year commitment to an “organic growth’’ strategy through exploration costing $150 million coming up trumps.

Total reserves increased by 2.3 million ounces to 3.5 million ounces for a finding cost of just $24 an ounce while total resources rose by 2.7 million ounces to 10.2 million ounces. The Jundee and Kalgoorlie operations underpinned the increase and both are now set to become 300,000 ounce-a-year producers over the next two years.

And just to juice up the good news was the revelation of the Zodiac discovery a 1000 metres to the south of the Jundee underground mine. It just might shape up to be something special to take Jundee to true world-class status of being more than a 10m ounce mining camp.

All that matters in the way the market values Northern Star. Macquarie analysts pick up the story.

“Incorporating the new reserves and resource estimate and production guidance results in a number of changes to our valuation.’’

“We have increased the NAV and CFPS multiples that we use to determine our target price. Based on the substantial increase in mine life we have lifted our cash-flow multiple to 6 times from 5 times to bring it into line with (Northern Star’s) peers.’’

“We also lift our NAV multiple to 1.2 tomes from 1 times in recognition of the significant optionality represented by the company’s large resource base.’’

The upshot of all that was Macquarie raising its target price for Northern Star from $4 to $5.40 a share, and its valuation from $4.34 a share to $5.24. The 21 per lift in net equity value means that the $150 million spent on exploration over three years was indeed money very well spent.

It can of course be suggested that the additional gold now on the books was always going to come along. Quality underground mines have a knack of only ever having a couple of years of reserves on the books but with production histories measured in decades.

But to capture the investment multiples enjoyed by others, the 10-year hang up of the investment analysts had to be deal with in Northern Star’s case. Will 10 years be the end of the story at the Jundee and Kalgoorlie? Not but a long shot, but the market had to be appeased.

The other seismic element to Northern Star’s exploration success at what the previous owners thought were tired old operations has been is that it goes to the long term future of gold mining in Australia.

Increasingly the easier open-cuts ore positions, where the 10 year reserve mantra of the market can easily be meet, are being replaced by underground mining operations. Expertise in mining underground then becomes a key differentiator.

That Northern Star is at the top of game with its internal contractor model is beyond doubt. The same cannot be said about many of its peers where the eventual push from open-cut positions to underground operations promises to be traumatic.

It is something Beament is keen for Northern Star to leverage off. It came together on Monday at D & D with the announcement the company would invest $50m in expanding its specialist underground geology and mining capability.



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