Northern Star Resources (NST) has announced it’s agreed to acquire the South Kalgoorlie Operations (SKO) from Westgold (ASX: WGX). This is a value accretive deal which lifts the constraint on processing that has until now capped production in the Kalgoorlie assets. The acquisition comprises the 1.2Mtpa SKO processing plant and associated resources (4Moz) and reserves (250koz) within the tenement package. Under the agreement NST will pay WGX a consideration of $80m comprising 9.5m NST shares at A$6.30ps for $60m and a further $20m in cash. Settlement of the deal is expected on 1 April 2018. NST has flagged production growth in the 100% owned Kundana assets and we see the increased output being re-directed into the South Kal plant. We see strong potential for NST to lift group production by >100kozpa in FY19. Despite the positives the stock continues to trade ahead of our valuation and this transaction back fills value. We maintain our HOLD recommendation and revise our target price upwards to $6.12ps (from $5.70ps).
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