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Northern Star Resources Profit Soars 198%

Northern Star Resources Profit Soars 198%
Aug 27, 2015 By Simon Herrmann

Australian gold miner Northern Star Resources (ASX:NST) posted a net profit of $109m for FY15, a 198 increase on FY14.

Revenue increased 185% to $845.7m with free cash flow of $185.6m. The strong results enabled the company to increase its final dividend to 3 cents per share, a 43% increase in its total payout to 5 cents.

Earnings per share rose to 15.5 cents, which puts NST on a P/E of 12.3 as per yesterday’s closing price of $1.91. The relatively low P/E is a result of bearish expectations relating the gold market as spot gold prices have declined significantly in 2015. Many analysts believe that gold will continue its downtrend as rising interest rates in the U.S. will further strengthen the USD. However, many investor forget that the decline in the local currency offsets some of the losses in the gold sector as Australian companies benefit from a significantly lower AUD.

In AUD gold has moved sideways in the past six months and experienced a boost in August as the local currency fell below 72 US cents (see graph below)
 

Gold in AUD

Image: Spot gold prices in AUD

 

Northern Star has concluded a strong year where total resources increased by 44% to 8.9m ounces. Much of the increase in revenue is due to Norther Star’s recent acquisitions of the Jundee, Plutonic and Kundana mine. All mines were acquired in 2014 as the company managed to realise potential during FY15.

Despite the acquisitions and a $50m investment in exploration, NST has no bank debt and cash of $178m. Northern Star’s Managing Director Bill Beamant is pleased and said: “Our acquisition have delivered exceptional results at the profit, production and return on equity levels. They are now also generating strong exploration results with substantial growth in Resources and Reserves which will underpin increases in mine lives.”

The company maintains an ambitious goal for FY16 and intends to re-invest $74m in drilling and expansion which will see a further 1.5m ounces into future mine plans.

NST’s share price has gained 10.7% over the past 12 months but is up 28.2% year-to-date. Like most resource stocks NST experienced a sharp correction during September/October 2014 but it has recovered ever since to reach an all-time high of $2.56 in March 2015.

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Simon Herrmann Author: Simon Herrmann Aug 27, 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.

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