Northern Star (NST) has reached a binding agreement to acquire Newmont Goldcorp’s 50% interest in the Kalgoorlie Consolidated Gold Mines Joint Venture (KCGM JV). The acquisition price is US$775m plus an additional US$25m for a total consideration of US$800m / A$1,168/oz (excl. stamp duty). In addition, NST has paid an option of US$25m to potentially acquire Newmont’s power business, which supplies power to KCGM. The transaction pushes NST’s group Reserves up 59%, Resources up 26% and FY20 pro-forma production up by 28-33%, making NST the second largest ASX gold producer after Newcrest (NCM). We take a positive view on the acquisition for several reasons including: i) value accretive acquisition price of ~7x forward looking EBITDA, ii) a potentially significant Resource increase at Fimiston South as a result of JORC reporting standards versus the current 43-101 standard, and iii) a supercharged operational strategy with aligned JV partners (Saracen Mineral Holdings [SAR]), which will see rapid turnaround on value enhancements. We upgrade to a BUY recommendation (from HOLD) and upgrade our target price to $11ps (prior $10.07ps).
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