On Tuesday, RBC (TSX:RY) Capital Markets adjusted its outlook on Northern Star Resources (ASX:NST:AU) (OTC: NESRF), a $12 billion market cap mining company with a "GREAT" InvestingPro financial health rating, changing the stock rating from Outperform to Sector Perform. The firm revised its price target for the company's shares to AUD17.50, a decrease from the previous target of AUD18.50.
The revision follows Northern Star's acquisition of DEG, which RBC Capital considers to be 7% accretive to Northern Star's net asset value (NAV). The company, which has demonstrated strong revenue growth of 19.13% over the last twelve months, sees the acquisition providing potential growth opportunities, including underground development and a capacity of approximately 15 million tonnes per annum.
Additionally, the deal is expected to offer Northern Star benefits such as increased scale, potentially exceeding 900,000 ounces per annum, reduced unit costs, and a diversification of its portfolio away from its KCGM operations.
Despite the positive aspects of the acquisition, RBC Capital notes that the value comes with certain risks. These include permitting and technical challenges that are anticipated in the near future. Furthermore, DEG does not contribute to near-term production, which could dilute earnings for Northern Star. The analyst cites these factors, along with a lower projected near-term cash flow, as the reasons for the reduction in the price target to AUD17.50 per share.
The updated price target represents a modest implied upside of 9%, leading RBC Capital to downgrade Northern Star Resources to Sector Perform. The new rating and price target reflect the firm's current assessment of the stock's potential in light of the recent acquisition and its associated risks.
In other recent news, Northern Star Resources has been in the spotlight for its strong financial health and strategic acquisitions. The gold producer's revenue growth of 19.13% and its plan to boost annual gold production capacity through the acquisition of De Grey Mining has been noted by BMO (TSX:BMO) Capital. They have maintained an Outperform rating for Northern Star, despite adjusting the stock price target from AUD21.00 to AUD20.00 due to a temporary halt in operations at the KCGM mine.
Northern Star has also been making headlines for its solid quarter earnings, reporting a net cash position of $148 million and a net mine cash flow of $122 million. CEO Stuart Tonkin aims to increase production to 2 million ounces by FY '26, further enhancing the company's financial position.
The company's strategic projects, such as the KCGM expansion and underground development at Jundee, are progressing well, contributing to its strong cash flow. Despite some underperformance in areas like Thunderbox, Northern Star remains optimistic about its operational efficiency and long-term strategy.
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