Are Northern Star Resources Ltd (ASX: NST) shares a hidden treasure for investors?
What’s Northern Star? It’s one of the biggest gold miners on the ASX. It’s about to get a lot bigger with its merger with Saracen Mineral Holdings Limited (ASX: SAR).
What has the Northern Star share price done recently?
Since 9 November 2020, the Northern Star share price has actually fallen by 24%. Gold (and gold miners) are often seen as a hedge against falling markets. The fact that the share market has skyrocketed since the US election and several positive vaccine announcements has meant that the outlook for the gold price and gold miners isn’t as exciting.
But I think the merger is a really smart move. One key reason for this merger is that it will unlock $1.5 billion to $2 billion in pre-tax synergies with consolidation of KCGM ownership (a joint venture between the businesses – one of the most significant gold mines in the world), optimisation of processing throughout the broader Kalgoorlie and Yandal regions as well as other savings.
Management thinks it will create a business with the scale, liquidity and quality cashflows that will be attractive to both gold and generalist investors.
The combined business will have an expected market capitalisation of $16 billion with net cash of $118 million. It will have immediate production of 1.6 million ounces pre annum with a pathway to 2 million ounces per annum. The company will have 19 million ounces in reserves and 49 million ounces in resources. Production is set to grow by 30% over the next three years.
So whilst the Northern Star share price is almost as low as it’s been all year, I actually think that the gold miner’s merger could be a catalyst for sending it higher.
Remember, there has been a huge amount of money enter the system and it could lead to higher inflation, which would likely be a positive factor for the gold price. But these types of things are hard to predict.
Summary thoughts
I’m generally not a fan of commodity businesses, but I can see how there would be a place for a gold miner in a portfolio, though it does come with miner risks. Northern Star may be the best gold miner to buy, though Evolution Mining Ltd (ASX: EVN) could also be a solid bet as well with a higher dividend yield.
But there are other ASX dividend shares I’d buy first for income such as Brickworks Limited (ASX: BKW).
