Stocks In Focus: Northern Star, August 13 2025

0:10G'day, I'm Scott Phillips from The Motley Fool and welcome to Motley Fool Stocks in Focus. This is our weekly series on both. We're straddling two platforms here on the YouTube channel, which is youtube.com forward slash foolau. You might be watching that there right now, or you're listening to us on the Motley Fool Money podcast feed. That's right. You get to hear me on the feed. You hear the other bloke. Tell the Jews you made a second. And watch us both on the YouTube channel and preferably both, right? You don't have to watch the same content on both, but I hope you are enjoying both the Motley Fool Money podcast feed and our YouTube channel.

0:43We've got lots of subscribers on both who seem to be getting something out of it. So if you're not yet doing both of those things, can I suggest you jump over to the other one? If you're watching this on YouTube, thank you. Check us out on Motley Fool Money. If you're on Motley Fool Money right now, thanks for having us in your ears, but also check us out on the YouTube channel. There's a whole lot more content besides, but this is the one we do in both places. I say we, me and one of the Motley Fool analyst team. And today, it's Motley Fool Lead Advisor, Ed Vesely. Ed, g'day. G'day, Scott. How are you going?

1:10Good, mate. I'm very well. I hope you are too. Mate, this is Stocks in Focus. where we basically pull apart a company that's either big, widely reported on, widely held in the news, one we think our viewers and listeners might get some value out of, looking under the bonnet. And so we're going to do exactly that for a company called Northern Star. Now, NSR, I think, is the code. This is a gold miner. We're not particularly heavy on gold miners at The Motley Fool, but you've taken up the cudgels. You've decided to help our listeners and viewers understand a little bit more about the company. So let's start there, mate.

1:42Let's start with what exactly is Northern Star? Well, in a nutshell, it's a gold producer. I have to say, Scott, I wish we had more time to actually spend time watching and studying resources companies. I think they're absolutely fascinating. But being a gold producer, that's exactly what it says on the tin. Mining and extraction is its biggest activity. So it goes into these open cut and underground lines as well to get the gold out. It processes that ore so it can extract the gold from the ore and then it has it ready for sale. So it has it refined and it then sells that gold to either investors or it could be some governments or whoever the third parties are, sometimes they're financial institutions as well.

2:29So it's a fairly big company. It's not the biggest in the country. Newmont has got that title after Newmont came in and bought Newcrest, I think it was a couple of years ago. But it's a a very interesting company and it's had some very, very good returns for shareholders, for those shareholders at least that have held onto their shares because it's a company which can be rather volatile as you would expect. It's completely, you would say, focused on the gold price on one hand and production on the other. So, when those two are working together as they are now, it looks very good for the company.

3:03But basically, there's nothing too complicated about understanding the business, really. It digs gold out of the ground and then sells it. Sometimes the miners are the purest of the companies, right? Retail is probably the other one. You buy something, you want to sell it. Gold is you dig a big hole, you take some stuff out, you sell what you find. Pretty straightforward. Now, very complex, very detailed, lots of work and effort that goes into it. I don't mean to undersell it, but it is a pretty straightforward business model at least. You find some stuff, you dig it up, and you sell it to someone for a profit, hopefully.

3:32So that's a great summary of the company, Matt. Thank you for doing that. We're not going to make a formal recommendation about Northern Star, by the way, just if you're new to the Stocks in Focus series. We do have Motley Fool Stock of the Month on YouTube, where once a month, we give you what is a current Motley Fool Buy recommendation. We pull back that particular curtain. But here, we're just talking about the company, and we'll do a bit of a pros and cons. So let's do that, mate. Obviously, any investment is part company, part price, but let's talk about the pros. Why would our viewers and listeners think, you know what, Northern Star might be worth considering for addition to my portfolio?

4:03Well, it can be. I would say too that in the very short term, I think the results are going to be quite good. In the medium term, I think they could be a little bit iffy. It depends on the gold price. But in the very long run as well, I also think it's potentially a suitable candidate for a portfolio. Keeping in mind it is gold, it's a single product and it's rather risky in that regard. But the management is very good. So, I like the management. I like the profitability availability of the company. It's got a low cost in getting the gold out of the ground. And its cash flow is obviously very good as well.

4:37So, that all sort of compounds in a way to return, check the results here that over the last 20 years, can you believe this, Scott? It's actually achieved a compound annual growth rate of just a touch over 30%. Wow. And that is quite remarkable when you consider some of the falls in the share price over time, Because as we know, gold will move around. The gold price, I should say, well, gold itself won't move around too much, but the gold price will. And so I think if you can take the long-term view, it's what we say with all of the companies we recommend here at The Motley Fool. But I think it is a little bit harder with a single commodity company like this, which can only really control its costs and its production.

5:18But I do like it. It's very profitable. It's cashflow positive by a long way and has delivered well for shareholders over the very long run. So they're the positives about Northern Star Resources. Yeah, it's a good point, mate, because at the end of the day, as you say, if you're a gold miner, you're a price taker, right? You're selling into the market at the global price. What can you control? You can get some good people. You've mentioned the management. You can find some good resources. You can keep your costs low. It gives you the maximum opportunity to make as much profit as possible, particularly with a fluctuating commodity price.

5:47So you've given us a nice summary there of some of the pros. Let's flip the script. Let's look at the cons. people have heard you say, wow, maybe this is a business I might want to own. But what might they justify as a reason for not to own, or at least what do they think about before taking those pros and running with them? Yeah, well, I think the first thing you'd really want to think about is the relationship between the share price and the gold price. Now, generally, if prices of gold go up, you would actually automatically say, right, okay, so the company is actually benefiting from a higher price.

6:19That would be the case in the future. It does hedge. It's a lot of its pricing and gold production. So it won't necessarily get the price today. It'll be a higher price than maybe where it was a few years ago. But you would actually think that when the gold price falls, the opposite would happen. So the share price of a gold company like Northern Star will actually probably go up a lot more than the gold price, but also could potentially fall a lot more than the gold price as well when it goes in the other direction. So that's something to keep in mind. And being a miner, it's very capital intensive.

6:53And I was just dug this out of the readings from the company just a little while ago. The Kalgoorlie mine in Western Australia, it has a major investment of around$1.5 billion between 24 and 26. So that's still ongoing, obviously. But they have to actually get a return on that money. So they obviously think they can, otherwise they wouldn't be doing it. But it is capital intensive. And sometimes, as I say, the gold price is volatile when it does fall, it can crunch margins and just lead to a deteriorating share price in the short term. So there's that that you have to think about. That's obviously the case with just about any miner in the country.

7:31Look, the other thing that is not so obvious is that 81 % of its gold production is in Western Australia, which is fine. It's a safe place to be, Australia. but look, if anything went wrong in that one location, it could actually have an impact on production and margins and so on. The other 19 % is a gold mine that it has in Alaska and its potential there is that it could grow. They obviously would be continuing to look for more sites to their exploring at the moment. So I would say that if they can reduce the dependence on Western Australia, that could be a very good thing in the long run but it's a rather concentrated bet.

8:09So you've got the commodity, but you've also got the location, and of course, you've got the single price of the gold price itself. So they're some of the biggest risks I've found. And yeah, I would say just if you're going to buy shares in Northern Star, just keep a close eye on not just the gold price, but also how do you feel about something that can move around daily and quite quickly up or down. Yeah, good point. They're pretty volatile. You've also got the chance of residuals, rents, and royalties change too, of course, in those two destinations. So it's an interesting one to think about.

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8:51You've given a good summary of the company. You've almost, I think, tipped your hand. But I will ask you anyway. We are long-term investors, as you've already said. We say long-term is five years. Some people say long-term is 12 months. We're going to just gently rebuke you if that's your view. 12 months is a blink of the proverbial eye, even though it doesn't feel like it day to day. But we look over five years plus, mate, preferably over that sort of timeframe. And from today's price, by the way, I should have said at the very beginning, this is personal advice only, and it's at a point in time.

9:16Anything can change from tomorrow and effectively from any point after this thesis, the valuation, the company's prospects, its results, lots of stuff can change. This is a view at a point in time, and that is we're recording this kind of early to the middle of August 2025. So all that out of the way, mate, long preamble. What do you reckon the odds are? Is it likely a market beta of five plus years? Is it likely to lag the market? or is it there or thereabouts? I think it's roughly in the middle. This is a really good company. It's very high quality. And I love the fact that it's, as I say, it's got good margins and it has net margins as well.

9:50It has a very good cash flow, which it's obviously paying out in terms of dividends as well. It's also a dividend payer. So that's a good thing. But these are the short-term worries. And this is something that I look at over the next five years is that in the very short term, over say one year, the gold production is expected to increase by around 8 % to 9%. I don't know what that will be over five years. But also too, the Australian dollar gold price right now, Scott, is just a touch over$5 ,000 per ounce. Now that is excellent, but it's also a source of worry for me because you think, well, how much further can the gold price go?

10:25So I would say potentially over the next five years, it's probably around market it'll probably earn about the market. I'm only guessing, of course, but I don't think it's necessarily an underperformer. And I would say that if anyone was looking to buy Northern Star, that you'd do it over a period of greater than five years, because I think the long term is pretty good with this company. But I'd be very hesitant to be in this stock for any period shorter than five years, simply because there's just too much volatility for me to... I've got other things to worry about basically. So that's the way I'd see it.

11:03I'd say just avoid it if you're just trying to find a quick dollar and I'm saying this over three to five years, but anything beyond that, I think it's actually quite good. And I'd also only just keep it as a very small part of the portfolio as well. I don't think you'd want to concentrate your bets too much on just having gold producers in the portfolio because of course, when things fall, they really do fall badly. So I think as a part of a diversified portfolio, it's a good way to go over the long run. There you go. You heard it from the horse's mouth. Ed, thank you for sharing your expertise and your research with our viewers and our listeners.

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