KCGM Expansion And De Grey Acquisition Expected To Boost Future Gold Production

Key Takeaways

• Strategic production increases and expansions at KCGM and De Grey are set to enhance future revenue and profitability.
  
• Low-cost exploration and resource additions bolster Northern Star's production potential and long-term growth prospects.
  
• Northern Star Resources faces risks from expansion, weather, acquisitions, gold price fluctuations, and geopolitical issues, impacting operations, earnings, and shareholder returns.

Catalysts

Engages in the exploration, development, mining, and processing of gold deposits.

• Northern Star Resources is on track to lift production to 2 million ounces by FY '26 through its profitable growth strategy, which will significantly increase future revenue.
  
• The completion of the East wall remediation at KCGM allows access to the high-grade Golden Pike North mining area, expected to enhance production and improve margins.
  
• The ongoing KCGM mill expansion project is on time and within budget, which, once completed, is expected to boost production capacity and drive higher earnings.
  
• The acquisition of De Grey and the integration of Hemi in FY '25 is likely to contribute substantially to future production and earnings growth.
  
• Continued exploration efforts and resource additions at a low cost per ounce support an attractive production profile, potentially increasing future revenue and resource-backed growth.

Northern Star Resources Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Northern Star Resources's revenue will grow by 11.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 17.1% today to 20.6% in 3 years time.
• Analysts expect earnings to reach A$1.6 billion (and earnings per share of A$1.31) by about March 2028, up from A$946.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$2.8 billion in earnings, and the most bearish expecting A$963.8 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 17.3x on those 2028 earnings, down from 20.5x today. This future PE is greater than the current PE for the AU Metals and Mining industry at 12.4x.
• Analysts expect the number of shares outstanding to decline by 0.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.49%, as per the Simply Wall St company report.

Northern Star Resources Future Earnings Per Share Growth

Risks

• The company's significant expansion project at KCGM, with a budget of A$1.5 billion, must remain on schedule and within budget to avoid negatively impacting future earnings and margins.
  
• Weather-related disruptions in Western Australia could impact operations, affecting revenue and production targets, particularly as the company relies on specific mining areas for high-grade output.
  
• The integration of the De Grey acquisition, including the distribution of Northern Star shares, may introduce risks and uncertainties that disrupt financial performance and shareholder returns.
  
• Fluctuations in gold prices, while providing leverage, also present a risk to revenue and profitability if prices decline or operational costs escalate beyond projections.
  
• The Pogo operation in Alaska faces geopolitical risks and potential increased tariffs, which could affect costs and revenue, impacting the overall profitability of Northern Star's international operations.

Valuation

• The analysts have a consensus price target of A$19.498 for Northern Star Resources based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$23.0, and the most bearish reporting a price target of just A$12.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$7.7 billion, earnings will come to A$1.6 billion, and it would be trading on a PE ratio of 17.3x, assuming you use a discount rate of 7.5%.
  
• Given the current share price of A$16.95, the analyst price target of A$19.5 is 13.1% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.