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Northern Star Resources

By Dan Stratful (AFA)

Wednesday 1st August 2012

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Northern Star Resources (ASX: NST) featured on Daily Share Chat in November 2011 as a SPECULATIVE BUY at 59c and the shares soon surged 93% to reach a yearly high of $1.14. However a $45 million equity capital raising and soft gold price has since seen the shares retreat.

NST today released its full year results for the year to 30 June 2012 (FY12) which showed profit before tax of $31.4 million, up from $20 million in FY11, and NST finished FY12 in good financial shape with $75 million in cash and bullion and zero debt. FY12 earnings per share (EPS) came in at 6.1c which leaves NST trading at a 14.1x PE.

NST saw production of 67,206 oz of gold in the year and it reports that it is on track to meet calendar year 2012 production guidance of 75-80,000oz of gold.

NST has announced exceptional drilling results at its Paulsens mine where a significant increase in margins and mine life is expected in addition to expanded production from 80,000ozpa to 100,000ozpa.

Meanwhile at its Ashburton Project, fresh drilling results suggest Ashburton is on track to become NST's second 100,000ozpa operation.

Combining the expansion at Paulsens and the encouraging results at Ashburton should see NST become a 200,000ozpa producer in future years.

NST has several positives in its favour - its financial position which sees it debt free with $75 million in cash and bullion, significant exploration upside from its portfolio of assets, and M&A activity in the gold sector which should see it attract takeover interest.

NST's key 3 year target is to become a $1-1.5 billion mid-cap gold producer through exploration, organic growth and acquisition, which is 3 - 4 times bigger than its current $350 million market cap.

Analysts' value NST shares at $1.10 per share based on discounted cashflow (DCF) methodology, however there is the potential for this valuation to be upgraded.

Looking to NST's growth prospects in future years and Analysts' expect EPS of 8.5c in FY13, 15c in FY14 and 18c in FY15 which is strong growth. If these numbers come in, NST is trading at forecast PE ratios of - FY13, 10.1x: FY14, 5.7x: and FY15, 4.7x.

About NST:

NST is a gold producer and explorer with projects in the highly prospective regions of Western Australia. Its key asset is the high grade, high margin Paulsens Gold Mine while its 2^nd major project is the Ashburton Gold Project. The Paulsens Gold Mine has proved to be highly successful after it was acquired by NST in July 2010 for $40 million and fully repaid from cashflow within 7 months. Other WA projects include Cheroona and Kimberley.

Status: GROWTH BUY

NST's shares today traded at 86c

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