Northern Star: take profits

There are two reasons the share price of Northern Star Resources has breached our sell price; US interest rates will likely remain lower for longer and Northern Star's stunning acquisition binge looks set to continue, with two new purchases announced.

The largest of these, the Central Tanami gold project, is in dispute but could potentially be interesting. The project was canned by the previous owner after lower gold prices ruined project economics and the operator ran out of cash. With a higher Australian dollar gold price and Northern Star's balance sheet strength, profits might be restored. Another party is fighting Northern Star for control of the project so the outcome isn't yet clear.

The second purchase is smaller; the Hermes gold project sits next to the Plutonic mine and can share processing facilities to improve its dismal performance. Northern Star is also rumoured to be interested in Barrick's sale of the Cowal gold mine in NSW, a large mine with strong economics.

The buying spree that begun in the teeth of the gold price plunge is continuing with one key difference: having witnessed Northern Star's success, peers are keen to make acquisitions of their own and there is now more competition for purchases. Several parties, for example, are looking into Cowal and the mine is unlikely to go cheap.

Northern Star's share price has more than doubled this year and has now three-bagged since being included in our gold mini-portfolio (see AU, check out this gold portfolio). Those who bought a 2% stake will now find themselves holding 6% in this gold miner, a gain that is enough to take the gold portfolio into profitability. 

Lock in profits

Higher gold prices, exploration success or another blockbuster acquisition could all see the share price go higher but, just as we would seek to buy in gloom, the time to consider selling is when everything is going right. Northern Star has been transformed by cheap acquisitions, and has been aided by a lower Australian dollar. Success from here will depend on gold prices, production and exploration success to extend mine life.

If any of those variables works out, the share price is likely to march higher. We must remember, however, that this is a gold miner, not a green grocer. Good news, when it comes, can be fleeting. We recommend selling now and realising healthy profits rather than reaching for additional gains.

What then, of the gold portfolio? As we explained in Reflections of a gold investor, this isn't the place for new money. We will wait for one more set of results from Silver Lake before deciding on its future; Beadell is performing well and we're willing to show some patience with Kingsrose. Although some may wish to sell and end their adventure in gold with a small gain, it's worth sitting on those miners for now.

Northern Star has been a stunning succcess, more than compensating for losses elsewhere. It's time to lock in profits. SELL.

Note: The Growth Portfolio is selling 5,400 shares at $2.54 to raise $13,716. 

Disclosure: The author, Gaurav Sodhi, owns shares in Northern Star.