It could work out.Northern Star Resources Ltd (NST) - BUYM&A...

It could work out.


Northern Star Resources Ltd (NST) - BUY

M&A imminent

NST has increased its Voyager 1 resource from 226koz to 263koz, which includes 75koz mining depletion since the previous resource statement. NST also announced it has raised A$45m through a placement of 50m shares to large UK institutions. The resource upgrade, increased institutional support and its strong cash position put the company on good footing to achieve its growth objectives. We upgrade our recommendation to BUY (from HOLD) with a price target of $1.12/share.

Resource upgrade. The Voyager 1 resource at Paulsens increased 16% after mining depletion to 263koz. A key feature of the latest Voyager resource is the increase in grade from 8.1g/t to 10.5g/t. Drilling at the deeper levels has consistently yielded higher assay grades which also bodes well for the Voyager 2 maiden resource which is due for release in the June Q 2012.

Improved institutional presence. NST announced it has raised A$45m through the placement of 50m shares to large, high quality UK institutions at $0.90. The institutional presence on the register will also be improved after NST's largest holder (Investmet) agreed to sell approximately a third of its 16% stake in the company to the UK institutions. The placement leaves NST with a cash balance of approximately $80m. The company has been receiving multiple project offers and with the cash boost we believe a transaction is imminent.

Accelerating internal growth. $15m has now been budgeted for 2012 for NST's growth plans to move to a 100kozpa gold producer by the end of CY2012. The previous $10m budget has been bolstered with ~$4m in additional drilling to prove up greater forward resources to underpin the expansion. 15,000m has been drilled in the first 2 months of CY2012, compared to 45,000m for CY2011. Additionally, deep drilling to a depth of 750m will commence next month, targeting the ore zones 250m below current development