3 reasons Northern Star Resources may be a strong gold stock to Newcrest Mining

New acquisition will make it the ASX's second largest gold miner

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Gold miner Northern Star Resources Ltd (ASX: NST) jumped 7.6% on Tuesday when it announced it will be buying a WA gold mine from Newmont Mining Corporation (NYSE: NEM). The Jundee mine, one of the biggest gold mines in Australia, has an annual production capacity of 200,000-300,000 ounces.

How will this change the company and help the stock rise?

1- Becoming the ASX's second largest gold miner

Following a recent series of acquisitions, this new purchase will push its production capacity up to around 550,000 ounces per year in FY2015. This acquisition will make Northern Star the second largest gold miner listed on the ASX.

 2- Share price has rallied   

Northern Star had one mine at the beginning of the financial year with about 100,000 ounces of capacity. That will become almost five times as much in FY2015, so revenue from the new mines may raise earnings.

Gold hit a low in mid-December, sending most gold miners down as well. Since then, Northern Star's stock is up about 90% to $1.20. Newcrest Mining Limited (ASX: NCM), the largest gold miner on the ASX, rose about 47% during the same time.

3- Competitive production costs  

The Jundee mine had an all-in sustaining cost of about $930/oz for the 12 months ending 31 December 2013. Currently, gold is about US$1,295/oz.

The company's group all-in sustaining cost, including the Jundee mine, is forecast to be about $1,050/oz. Newcrest Mining has improved its all-in sustaining cost down to $988/oz, so Northern Star's is relatively close.

Gold mining investors always have to keep one eye on the gold spot price and the other on production. The sudden expansion in production capacity has put Northern Star on more investors' radars.

However, I still think that Newcrest Mining has a better long-term outlook. It has the economies of scale to keep costs down and develop more reserves.

Motley Fool contributor Darryl Daté-Shappard does not own shares in any company mentioned. 

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