Shares of Australian gold miner Northern Star Resources (ASX:ASX:NST) experienced a significant decline on Friday, falling by as much as 3.7% to AU$13.75. The downturn in Northern Star Resources' share price follows a critical downgrade by Jefferies, which has had a notable impact on investor sentiment.
Jefferies has revised its rating for Northern Star Resources from "buy" to "hold," citing concerns over the company's capital expenditure and growth prospects. The investment bank has also adjusted its price target for the stock, reducing it to AU$15 from the previous AU$16. This decision reflects Jefferies' assessment of the capital intensity associated with Northern Star's plans to develop additional ore sources. These sources are crucial for feeding the Kalgoorlie Consolidated Gold Mines (KCGM) mill, which is undergoing a significant expansion.
The cost of expanding the KCGM mill is estimated to be between AU$500 million and AU$530 million. This substantial outlay is expected to contribute to the overall capital expenditure (capex) for Northern Star Resources. The company has forecasted FY25 capex growth to be in the range of AU$950 million (US$621.87 million) to AU$1.02 billion. This forecast is notably lower than the AU$1.16 billion to AU$1.25 billion capex recorded in FY24. The reduction in forecasted capex reflects a strategic shift to manage capital more conservatively in light of the expansion costs and other financial pressures.
Despite the recent decline, Northern Star Resources has shown positive performance year-to-date, with its stock up by 4.7% as of the last close. This indicates that while the current market reaction is negative, the company's stock has demonstrated resilience and potential for recovery over the longer term.
Investors and analysts will likely keep a close eye on Northern Star Resources' progress with the KCGM mill expansion and how the company manages its capital expenditures. The market's reaction to Jefferies' downgrade underscores the importance of these factors in shaping investor confidence and stock performance.
Overall, while Northern Star Resources is facing short-term challenges and a downgraded outlook from Jefferies, its long-term prospects will hinge on the successful execution of its expansion plans and its ability to navigate the capital intensity of its projects. As the company moves forward, stakeholders will be watching closely to see how these dynamics play out and what impact they will have on the stock's future performance.