Gold Miner Northern Star Resources (ASX:NST) announced a record $183m free cashflow for FY15 in a statement to the ASX this morning.
NST experienced a strong quarter in the three months to June with record production. Free unaudited cashflow for FY15 reached a record of $183m, the highest the company has ever achieved. NST sold a total of 580,784oz of Gold in FY15 which was well in the guidance range of 550,000-600,000oz.
A strong contributor to NST’s success are the low all-in sustaining production costs of A$1,050-A$1,100 which are well below the current gold spot price of around US$1,165 or A$1,550. The weaker Australian dollar benefits Northern Star greatly as it offsets declines in the gold commodity and enables the company to remain profitable.
As a result NST gained already ~48% year-to-date and is up ~66% in the past 12 months. Gold on the other hand declined -12.35% in the past 12 months. Investors appear to be comfortable with NST’s current valuation as the stock wasn’t sold off heavily in the past few months as opposed to other companies on the ASX.
Gold still a safe asset?
Traditionally gold has been regarded as a safe asset which appreciated in value in times of uncertainty and turmoil. However the commodity struggles to find support at current levels despite the crisis in Greece and the recent struggles in the Chinese stock market. Analysts around the world have questioned gold’s purpose as a safe investment as it doesn’t pay any dividends and the USD is regarded as an even safer bet in the medium-term. The strong USD weighs on gold even more as the commodity is quoted in USD.
However the Chinese stock market rout has currently the biggers impact on gold as it adds on to the recent volatility. The market crash will most likely weigh on consumer sentiment and the general mood of Chinese consumers, which after all are next to Indians the largest buyers of physical gold. China has overtaken India in 2013 according to data from the Wold Gold Council. Gold’s heavy price declines since 2011 have contributed to the surge in Chinese buyers. However earlier this year Chinese investors started to favour equities over gold, which has pushed the Shanghai Composite to unsustainable levels and put further pressur on the gold commodity. The current crash may benefit gold in the long-term as the inexperienced, average Chinese investor could exit the stock market for good and return to ‘boring’ gold investing.
Nevertheless, Northern Star appears to be well positioned to benefit from any cyclical recovery in the gold market.
Author: Simon Herrmann
Jul 09, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.