Quick Note – Hartleys Research / NST.asx
Buy
What happened?
Ashburton Resources Increases 50% to 1Moz
NST has released a new resource estimate of 11.588mt @2.7g/t Au for 1.007Moz gold for the Ashburton Project, WA.
Key highlights from the updated resource include:
o51% increase in total contained ozsup from 668koz;
o246% increase in contained Oxide and Transitional ozs;
o20% increase in contained Sulphide ozs;
o40% increase in Measured and Indicated ozs;
oThe resource was calculated at a bottom cut-off grade of 0.7g/t for the Mt Olympus ore-body and 0.9g/t Au for the other deposits.
Maiden ore reserve of 53koz (@ 3.7g/t Au) for the free-milling ore (Oxide and Transitional).
The resource is an interim estimate, with many of the deposits open along strike and at depth; drilling is on-going.
OLD
Ashburton - Dec 2003 / Category / Tonnes / Grade (g/t) / Oz Au
Oxide and Transitional / Measured / 611,000 / 2.4 / 47,000
Indicated / 342,000 / 2.5 / 28,000
Inferred / 237,000 / 2.3 / 18,000
Total / 1,189,000 / 2.4 / 92,000
Sulphide / Measured / 901,000 / 2.8 / 82,000
Indicated / 1,070,000 / 2.7 / 92,000
Inferred / 3,984,000 / 3.1 / 402,000
Total / 5,956,000 / 3.0 / 576,000
Total / Measured / 1,512,000 / 2.7 / 129,000
Indicated / 1,412,000 / 2.6 / 119,000
Inferred / 4,221,000 / 3.1 / 420,000
Total / 7,145,000 / 2.9 / 668,000
NEW
Ashburton - Dec 2011 / Category / Tonnes / Grade (g/t) / Oz Au
Oxide and Transitional / Measured / 655,000 / 2.4 / 50,000 / 6%
Indicated / 1,425,000 / 2.6 / 120,000 / 329%
Inferred / 1,995,000 / 2.3 / 148,000 / 722%
Total / 4,075,000 / 2.4 / 318,000 / 246%
Sulphide / Measured / 1,057,000 / 2.6 / 86,000 / 5%
Indicated / 1,156,000 / 2.4 / 90,000 / -2%
Inferred / 5,300,000 / 3.0 / 513,000 / 28%
Total / 7,513,000 / 2.9 / 689,000 / 20%
Total / Measured / 1,712,000 / 2.5 / 136,000 / 5%
Indicated / 2,581,000 / 2.5 / 210,000 / 76%
Inferred / 7,295,000 / 2.8 / 661,000 / 57%
Total / 11,588,000 / 2.7 / 1,007,000 / 51%
What does it mean?
Resource growth lays foundation for production growth
NST plans to truck free-milling ore from the Ashburton project to the Paulsens mill, a distance of over 200km to provide additional ore for the expanded Paulsens operation, for production towards 100kozpa.
The new updated oxide and transitional Ashburton ore is now 318koz up from 92koz, with over 53% in the Measured and Indicated resource categories, which bodes well for increased reserves prior to mining.
The Ashburton project has considerable exploration upside with many deposits open along strike and at depth, with numerous walk-up drill targets.
The Sulphide ore at Ashburton is refractory and will require the development of a standalone onsite processing facility, which NST believes could provide another 100kozpa (lifting Group production to 200kozpa).
With overall gold recoveries of 80% expected from the sulphide ore, NST has accelerated resource drilling and further met-test-work; development can be internally funded.
Ongoing drilling is currently focused on infill and extensional resource activities at Waugh, Zeus and Mt Olympus; assays are pending.
NST will have to pay a 1.75% royalty on future production in excess of 250koz.
Hartleys Initial View
The growing resource inventory is good news for NST, especially as the update has provided a significant increase in free-milling (oxide and transitional) ores, which can be processed through the Paulsens milling infrastructure.
We expect future resource and reserve growth to come.
With solid production at Paulsens (+80Koz in CY2012) at attractive cash costs, accelerated on-going exploration, cash of A$80m, we continue to rate Northern Star Resources as a Buy, with a valuation of $1.01 and 12-month price target of $1.27. / 2 Apr 2012
Share Price / $0.910
Valuation / $1.01
Price Target / $1.27
Brief Business Description:
WA gold producer and explorer
Hartleys Brief Investment Conclusion
Strong margin gold producer. Unhedged with a quality portfolio of projects. Investigating production growth to 200Kozpa.
Chairman & MD
Chris Rowe (Chairman)
Bill Beament (MD)
Top Shareholders - Est
Investmet Limited / 10.2%
Paradice Investment Management Pty Ltd / 5.8%
Mr Michael George Fotios / 4.0%
Company Address
24 Mumford Place
Balcatta WA 6021
Issued Capital / 400.2m
- fully diluted / 427.1m
Market Cap / $364.2m
- fully diluted / $388.7m
Cash - est / $80.0m
Debt - est / $0.0m
EV / $284.2m
EV/Resource Oz / $214/oz
EV/Reserve Oz / $1712/oz
FY11a / FY12e / FY13e
Prod (koz Au) / 89 / 78 / 90
Cash Costs (A$/oz) / 588 / 663 / 601
Op Cash Flw / 78 / 73 / 94
NPAT / 16.3 / 35.8 / 51.4
CF/Share (cps) / 17.2 / 15.0 / 19.0
EPS (cps) / 6.3 / 9.5 / 12.5
P/E / 14.5 / 9.5 / 7.3
Resources (Moz Au) / 1.33
Reserves (Moz Au) / 0.17
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