Our rounded A$23/sh target price for Northern Star is based on a 50/50 blend of 1.4x NAV (A$17.21/sh) and forward EV/EBITDA of 7.5x. Multiples are in line with large cap peers. We assume a real WACC of 5% to discounted cash flows over the life of the group’s individual assets and a LT gold price of US$2,600/oz (A$3,466/oz). Our DCF valuation is net of cash and overheads.

The key risks to our investment thesis include macroeconomic developments affecting the gold price and exchange rates, operational risks that might affect volumes and input costs, and political risks that might affect costs and the company’s reputation. 

Mining operations - the style of mining method utilised at underground operations is typically smaller-scale and not without technical risk i.e. seismic issues and changes to the mine plan i.e. mining lower grade ore when gold prices are high. 

Downside risks to earnings include cost-creep as operations get deeper, especially if grades fall; and to NPV as reserves are depleted. Upside risks to our achieving our forecasts and target price include a better-than-expected operating performance from the company’s assets. 

Project development - production growth is dependent on delivery of the expansion at KCGM, development of the greenfields Hemi project and opening of additional mining areas across operations. Development and turnaround of projects is not without execution and technical risk.

If the impact on the company from any of these factors proves to be less/more negative than we anticipate, the stock could materially outperform/underperform our target price.