While most of Australia's gold producers have been scrambling to slash operating costs, reduce overheads and stabilise debt-laden balance sheets, one company has been quietly scouting out opportunities to profit from the mayhem.
The company has utilised the same winning strategy used by some of the world's best investors – keeping tight control of cash flows and being ready to pounce and take advantage of low prices when trouble strikes.
The gold miner in question is Northern Star Resources Ltd (ASX: NST) and it is this strategy that makes the company stand out as one of the ASX's best gold companies. This week Northern Star announced that it had stepped in to buy two additional gold mines in Western Australia from the world's largest gold miner Barrick Gold Corporation (NYSE: ABX).
The deal is worth $75 million and will be funded by a combination of cash reserves, an underwritten share placement and a share purchase plan. The two mines are in addition to a $28 million purchase of Barrick Gold's Plutonic mine in December last year.
Managing Director Bill Beament says the deal will cement Northern Star as one of Australia's top gold producers with annual production of up to 350,000 ounces, up from 2013's full-year production of just over 100,000 ounces. Northern Star may now attract international investor interest.
Mr Beament is quoted in Mining Australia as saying: "The transaction ensures that Northern Star meets the demands of domestic and international investors with respect to critical mass, multiple operations, low costs, consistent dividends and strong growth prospects."
The strategy could be set to pay off big-time for Northern Star over the long-term and combined with the company's history of low-cost production, investors should be interested. Unlike other gold miners including Newcrest Mining Limited (ASX: NCM) and Silver Lake Resources Limited. (ASX: SLR) which have suffered falls of up to three quarters of their market capitalisation in the last 12 months, shares in Northern Star are down just 25% in the last 12 months.
Foolish takeaway
With significant production growth now on the horizon, the price paid by Northern Star for Barrick's assets could turn out to be a real bargain if the price of gold recovers. This smart strategic move combined with low-cost production and a share price weighed down by uncertainty, means I think Northern Star could be the ASX's best gold producer.
