What does Northern Star do?
Northern Star Resources [ASX:NST] is one of Australia’s largest listed gold producers. It’s set to produce around 500,000 ounces of gold in FY17, from five mining operations located in Western Australia.
Unusually for a gold company, Northern Star is highly profitable. It generates a return on equity of around 40%. Considering it sits on excess cash of nearly $400 million, this tells you that the assets are high quality and well run.
What’s happening to NST’s share price?
Today, NST’s share price fell nearly 3.5%. That’s due to a near US$20 an ounce fall in the gold price overnight. While NST is a very well run company, the stock price is volatile, as you can see in the chart below:
NST peaked at around $5.90 in July last year. It then fell to $3 by December. That’s nearly a 50% decline in six months. The stock then rallied back to $4.90 (60% rise) before falling back to today’s price around $4.15 (15% decline).
What now for NST?
It really depends on the gold price. Gold rallied to near US$1,300 an ounce in April, but quickly retreated again thanks to the Federal Reserve indicating its desire to continue raising interest rates.
If the Fed continues raising rates throughout this year (albeit slowly and steadily) then it’s hard to see gold doing anything but meandering.
For this reason, it’s also hard to get too excited about NST. Although a fundamentally sound company, it won’t head significantly higher without a gold price surge. My best guest is that the stock will continue to be volatile, but won’t do much.
There needs to be a shift in economic momentum that would then change the outlook for interest rates and gold, before things change for NST.
Never assess a stock’s fundamentals without looking at the chart too. Combining fundamental analysis with charting can yield powerful results.
Editor, Money Morning