Zodiac Discovery The Focus For Northern Star

This story features NORTHERN STAR RESOURCES LIMITED. For more info SHARE ANALYSIS: NST

Brokers are focused on the Zodiac discovery as Northern Star Resources accelerates its growth plans and exploration.

-Zodiac promoted as a large scale, high-grade new discovery
-Stake in Echo Resources now 19.2%, regional consolidation possibility
-Any re-opening of Paulsens contingent on near-mine exploration
 

By Eva Brocklehurst

Western Australian/Northern Territory gold miner Northern Star Resources ((NST)) has accelerated its growth plans and exploration in the December quarter. Brokers find the environment supportive of gold producers generally, but consider the stock is fully valued at the current share price.

December quarter production totalled 129,000 ounces at an all-in sustainable cost of $1067/oz. Grades moved back towards a long-run average at Jundee following the stronger preceding two quarters.

Underground exploration continued as did decline development across various areas of all assets. Kalgoorlie produced 61,289 ounces with costs at $1195/oz. The result included 7072 ozs from Millennium.

Paulsens has also been shut down sooner than many expected, providing some variance to broker numbers. The company has reiterated FY18 guidance of 525-570,000 ounces at AISC of $1000-1050/oz.

Ord Minnett is comfortable that production rates from the main assets, Jundee and Kalgoorlie, will increase in the second half and guidance will be met. Mill throughput increased 8% in the quarter at Jundee and 12% at Kalgoorlie.

The recent investment in Echo Resources ((EAR)) and the acquisition of Western Tanami assets have also provided access to two more processing plants.

Jundee

The main difference with Citi's expectations in the quarter was the head grade at Jundee, at 5g/t compared with 6.1g/t in the September quarter amid a -13% drop in ounces produced.

Construction of the secondary crushing circuit at Jundee was completed during the quarter, lifting throughput to an annualised rate of 1.9 mt and well ahead of the targeted 1.7mt run rate.

Canaccord Genuity continues to watch the development of the Zodiac discovery at Jundee, as four surface rigs are now tracing the mineralised trend for over 2km. Citi agrees this could also generate a resource upgrade. An exploration update for all projects is expected in February.

Much has been promised from the rigs operating out of Zodiac, which is promoted as a large-scale high-grade new discovery. Noting this, Credit Suisse asserts that if the scale and potential are confirmed, Jundee will become constrained in terms of capacity.

Options will need to be sought to increase capacity while balancing against a strategic move to lock up more ground to support medium-term mill feed. The broker suggests this could lead to a regional consolidation play, as the company seeks to increase its exposure, as well as the latent capacity of the high-quality Bronzewing mill and mine camp.

Construction of the secondary crushing circuit at Jundee was completed during the quarter, lifting throughput to an annualised rate of 1.9 mt and well ahead of the targeted 1.7mt run rate.

During the quarter the company took a further stake in Echo Resources now owning 19.2%. Canaccord Genuity considers this move a logical one, as the landholding of the former is strategically located 100km south of Jundee.

The current open pit reserve base supports an eight-year life and first gold is expected late this year. The Bronzewing processing plant will provide a rapid transition to production.

Paulsens

Paulsens produced 10,808 ozs, marginally better than Macquarie had expected. Costs were also substantially better than forecast, although of minimal impact on the overall result.

No further production is forecast from the mine, at least for the remainder of FY18. Management had forecast a rebound in grade in order to achieve guidance for the half of the mine in operation. This did not occur.

The company will seek to build inventory to return operations to former throughput rates and appropriate levels of profitability. Citi suspects any re-opening is contingent on successful near-mine exploration, or a higher gold price. Technically, Paulsens is still in operation as drilling is in progress so there is no bright down expected in the first half.

The stock is currently trading near its all-time highs and considered fair value by several brokers. Canaccord Genuity, not one of the eight stockbrokers monitored daily on the FNArena database, maintains a Hold rating and $6.05 target.

Macquarie highlights the progress being made on growth projects, with positive results being delivered from exploration, yet agrees the stock appears fairly valued on current forecasts for both production and US dollar gold prices.

Credit Suisse downgrades to Underperform from Neutral, given share price strength has meant the stock exceeds its valuation. The broker notes ample capacity to fund internal growth projects as well the execution capability for developing the corporate opportunities surrounding Bronzewing.

FNArena's database has four Hold ratings (including UBS, yet to update on the report) and three Sell (including Deutsche Bank and Morgan Stanley yet to update on the report). The consensus target is $5.21, signalling -11.8% downside to the last share price. Targets range from $4.55 (Credit Suisse, Morgan Stanley) to $6.10 (Macquarie).
 

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