ASX gold miners are underperforming as worries about a new SARS-like pandemic eases. But there’s one gold stock that could be in for a harder time than most.
I am not referring to the Newcrest Mining Limited (ASX: NCM) share price, which crashed 4.2% during lunch time trade. It’s the fifth worst performer on the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) after posting its quarterly production update.
It’s fellow gold miner Northern Star Resources Ltd (ASX: NST) I am talking about instead. The stock got slapped with not one broker downgrade, but two!
The news hasn’t made a very big impact on the stock though. The Northern Star share price fell 1.5% to $12.30.
Cut to sell
But the stock is likely to fall further if Credit Suisse is on the money. The broker downgraded its recommendation on Northern Star to “underperform” from “neutral” following the miners quarterly update.
This is despite Northern Star’s Pogo and Kalgoorie mines recovering from what was a very weak September quarter. Pogo produced 46,146 ounces of gold in the three months to December at a cost of A$2,019 an ounce.
This compares to the September period when it produced 29,468 ounces as costs jumped to A$2,798 per ounce (down 35% on the Jun quarter when costs were A$1,724 an ounce).
It was a similar story for the Kalgoorie mine. Its September quarter performance was hit by cut-off grade reduction to grow reserves at the expense of margin, the introduction of higher cost ore and the trial of a new mining technique that didn’t quite yield the desired results.
Credit Suisse’s price target on Northern Star is $10.30 a share.
But the broker isn’t alone in downgrading the stock. Citigroup lowered its rating on Northern Star to “neutral” from “buy” although it lifted its price target by 30 cents to $12.70 per share. This was due to the expected increase in output from the miner’s Jundee mill.
“Existing holders should be pleased that signs of a turnaround at Pogo are emerging. Pogo and KCGM will be transformational taking NST towards +1Mozpa; the second biggest gold producer on the ASX,” said Citi.
“However, we downgrade to Neutral from Buy, after a 30% share-price gain since the KCGM deal. For now, we believe the value is priced in, pending results of a change in operating model at Pogo and cost-out at KCGM in the hands of mid-tiers.”
Northern Star acquired a 50% stake in the KCGM super pit last year for around US$800 million in December last year.
The post Why the Northern Star share price is hit by a double downgrade appeared first on Motley Fool Australia.
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