Northern Star Resources: best ASX gold stock to consider as mining sector consolidates?

In what would be Australia’s largest ever mining takeover, and the third largest overall in its corporate history, US-listed Newmont has tabled a $24 billion all-share offer for ASX 200 Newcrest at a 21% premium to the prior day’s closing price.

If Newmont meets Newcrest's demands to once again improve its offer, this new entity would become the world’s largest gold miner, boasting four of Australia’s largest mines, and producing almost twice as much as would-be nearest competitor Barrick.

The gold price remains at historical highs and is likely to remain elevated as the pace of US interests rate rises tempers off. For context, central banks purchased 1,136 tonnes of gold bullion in 2022, a 150% year-over-year increase. And World Gold Council senior analyst Louise Street argues that this highest level of gold demand in a decade, driven by this central bank demand is because the metal remains the safe have asset of choice.

Indeed, most critical, and precious metals remain at elevated levels. Combined with inflation increasing mining costs, the sector is undergoing a period of serious consolidation, both because the major players have excess cash to play with, and in order to achieve better economies of scale.

Most recently, Oz Minerals has agreed to be acquired by BHP for $6.4 billion, while Yamana Gold is being purchased by Pan American Silver Corp for $4.8 billion. While there may be disagreement about a fair price, most analysts agree that a Newmont and Newcrest tie-up would offer synchronistic opportunities — and there could be other ASX gold stocks likely to be under discussion as the titans consider their growth opportunities.

ASX gold stocks: Northern Star Resources (ASX: NST)

Northern Star Resources (ASX: NST) could be one of these stocks. Up 45% over the past year to $12.60 per share, the $14.5 billion miner recently released a strong quarterly update which could see the share price rise further over 2023.

The company produced 404koz of gold at an ASIC of AU$1,746/oz, with more than half of production from flagship Kalgoorlie in Western Australia. Northern Star also spent AU$179 million on growth capital and AU$32 million on exploration in the quarter. Overall, management expects to deliver cash earnings of between AU$460 million and AU$475 million in the half, an increase of between 7% and 10.4% over the same half last year.

Financially, it boasts net cash of AU$145 million, and cash and bullion of AU$495 million. And it has maintained FY23 guidance of 1,560-1,680koz gold, to be sold at an AISC of A$1,630-1,690/oz.

Addressing the ‘higher-cost operating environment,’ Northern Star claims to be ‘the best-performing senior global gold stock on a total shareholder return (TSR) basis, delivering a TSR of 20% compared with the S&P/TSX Global Gold Sector Index TSR of -1% and VanEck Gold Miners ETF TSR of -7% over the past 12 months.

Managing Director Stuart Tonkin believes that ‘the December quarter has demonstrated our capability to operate at 1.6Mozpa, in line with our five-year growth strategy...we are making exceptional progress at key growth projects that will drive costs lower and, in turn, build cash to maintain a strong financial position.’

Further he notes that Northern Star operates ‘world-class gold assets in Western Australia and Alaska that provide us with superior organic growth optionality. This is complemented by our ongoing exploration success.’

As the mining sector consolidates, Northern Star could find itself subject to interest from other parties where its assets complements their own. And if not, the future is looking bright as the ASX gold stock continues to experience strong and sustainable growth.

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