Northern Star Resource's sinking share price since it announced it had slapped $5 billion down on the table to buy its smaller rival De Grey Mining would seem to indicate investors believe it has overpaid for what is essentially a development project, rather than an operating mine.

However, in the analyst community, the reaction is more that Northern Star has paid a full price but had not overdone it.

The proposal is a full scrip transaction, with De Grey shareholders receiving 0.119 new Northern Star shares for each share they hold.

RBC analyst Alex Barkly says the deal offers a premium of 37.1% over De Grey's last closing price and a 43.9% premium on the 30-day value weighted average price (VWAP), valuing De Grey at approximately $5.0 billion.

RBC's own valuation of De Grey is $4.3 billion, suggesting Northern Star paid around a 16% premium.

De Grey's key asset is the Hemi project in the Pilbara which isn't due to start producing until late 2027.

It is expected to have a mine life of around 12 years and at its peak, produce around 700,000 ounces of gold per annum.

While the mine still requires WA state and federal environmental permits, the site already has a mining license.

Mr Barkley says from a De Grey perspective, the 37% premium is adequate for a project which still carries risks relating to its development and rising costs.

He says while Northern Star assumes the technical risks, the timing of the offer could give it a more value-accretive entry point than buying the mine when it was producing.

"In our view, Northen Star has a good operating track record, strong technical expertise, a strong balance sheet and is cash flow generative. This should help allay fears of those risks." Mr Barkley wrote in a note to clients.

J.P. Morgan's Al Harvey describes the deal as a "win-win" for both companies, although Northern Star is paying a "full" price for the Hemi project.

Mr Harvey says Northern Star's foray into a greenfields development is unusual.

"The acquisition is quite different to Northern Star's historic strategy of acquiring older assets in production and recapitalising," Mr Harvey said.

He said that given key De Grey staff would be sticking with the project and Northen Star's experience in refining gold, there were few concerns about the deal.

The other winner is Gold Road Resources, which holds a 17% stake in De Grey.

RBC's Alex Barkley says Gold Road has publicly stated they have considered a strategic sale and have suggested they were holding out for a potential premium.

"While Gold Road may prefer a deal with a greater cash component, Northern Star's ASX listing still would offer Gold Road and its shareholders a liquid realisation of value," Mr Barkley said.

At 3pm, AEDT De Grey was up 29.4%, Gold Road was up (.0% and Northern Star was down 6.1%.