Northern Star’s 600,000 ounce per annum production target rate was ticked off the list in June. Now, the miner’s focus turns back to exploration to firm up reserves and – with luck – find the next big Goldfields deposit.
FOUR years ago, Northern Star was fresh from completing its landmark Jundee and Kalgoorlie operations acquisitions.
At the time the miner only had one producing asset to its name, the 100,000ozpa Paulsens mine.
In a few short years Northern Star has spent $200 million on exploration, adding 5 million ounces of reserves and more than 9moz of resources; and its market cap has responded in kind, growing from $424 million in January 2014 to $4.4 billion in 2018.
In June this year the miner reached its 600,000oz run rate milestone, six months ahead of schedule.
Northern Star executive chairman Bill Beament said June quarter success – which saw it produce 183,949oz – was the culmination of a big year across its portfolio.
“There was a lot of material changes that were handled very well by the team throughout that 12 month period to deliver that full-year production,” Mr Beament said.
There was the wind down at Paulsens in the first half of FY18; the ramp up and first commercial production at its brand-new 50,000ozpa Millennium mine; and plant upgrades and optimisation at Jundee and Kanowna.
Then the big one; the $80 million acquisition of Westgold Resources’ Southern Kalgoorlie operations in a highly prospective area near the Kalgoorlie Super Pit.
Acquiring South Kalgoorlie
The strategic purchase of the South Kalgoorlie operations has increased Northern Star’s Kalgoorlie processing capacity to 3.2 million tonnes per annum.
The acquisition included a 1.2mtpa processing facility, a 4moz JORC resource including 250,000oz in reserves, and an 842sqkm gold tenure.
The new asset would debottleneck processing capacity in and around Kalgoorlie for Northern Star, which had been an issue for the miner.
“We were considering the option of expanding our Kanowna Belle facility,” Mr Beament said in April.
“However, the South Kalgoorlie Operations purchase will enable us to achieve our organic growth target in a more timely and economical fashion and at the same time provide us with significant exploration potential, including a Resource inventory.
“The facility is one of the best-run facilities in the district and is well within trucking distance of our Kundana Operations.”
Northern Star also had the option of utilising capacity it had access to through toll treating agreements in the Goldfields.
“We’ve got some secured there for the next 24 months – that’s the buffer so if there is opportunities to keep margins strong, we can actually go above the 3.2mt of our own secured milling capacity and go up to 4mtpa,” Mr Beament said in a July conference call.
In August, the miner also confirmed the asset contributed to a 5.7 million ounce portfolio-wide increase in gold resources.
In FY19, production is set to grow to about 640,000oz per annum – with Jundee and Kalgoorlie each contributing 300,000ozpa-plus.
FY19: A Year of Exploration
Despite growing its resources, production and processing capacity, the work was “far from over”, Mr Beament said.
“We have already embarked on the next leg of organic growth,” he said.
“We’ve budgeted $60 million toward exploration in FY19 and that is a record spend for the company, and an increase of a third on what was already a significant commitment last year.
“It reminds us of three years ago when we saw the visibility across the geology, and the ability to do a step change in reserves and resources, which we delivered last year.
“It’s like ground-hog day for us.”
Of the $60 million spend, about 65 per cent will be evenly split between Kalgoorlie and Jundee, converting a significant slice of the company’s 15.9moz resource base to reserves. The remaining 35 per cent will be spent on regional activities, largely around South Kalgoorlie.
“We’ve had the South Kalgoorlie operations for only three months, so it’s like a new car – it’s getting a bit of love and care and attention, but we are conservative,” Mr Beament said.
“We’ve got a large exploration spend on the South Kalgoorlie operations.
“It’s only 10-15km along strike from the great Super Pit and hardly had any money has been spent on it over the past 20 years; we see a huge geological upside of six major structural corridors ripping through the guts of the 1000sqkm tenement package.
“We’re quite excited about South Kalgoorlie and what it can bring for Northern Star.”
Mr Beament said the company expected to deliver a material upgrade to its current 10-year mine life in the middle of next year.
“Our recent exploration results in continued organic resource and reserve growth over the past few years have provided overwhelming evidence that there is a lot more gold to be found around and in our existing asset base,” he said.
“We look forward to growing our resource and reserve base in the coming years.”
In addition, a further $74 million has also been budgeted for expansionary capital in FY19, including $34 million on dual purpose drill drives to deliver significant reserve/resource and production growth; $20 million on ancillary projects for future years’ production growth; and $11 million on a new 10-year capacity tailings facility for Kanowna Belle processing plant.
Drilling activities would also continue at its Tanami regional project (100 per cent), and the Central Tanami project of which Northern Star has a 25 per cent interest.
The Road Ahead
With a lot happening across its portfolio, Mr Beament assured the company would not chase production growth for growth’s sake.
“Northern Star is always a business first and a mining company second,” he said.
“What matters is that we achieved that increase through organic growth.
“This means that the increased production translates directly to increased financial returns for our shareholders, and as [recent] results show, we produced gold last quarter at an all-in sustaining cost of $982/oz, generating 50 per cent EBITA margins.”
Interestingly, Mr Beament said its shareholder range had seen some “radical” changes over the last two years, with an increase in foreign ownership.
“We’re now at about 56 per cent offshore owned versus 44 per cent domestic so that’s a huge change in the last couple of years,” he said.
“This is definitely predominately out of North America (our largest shareholder BlackRock is in London).”
Mr Beament said after attending a couple of major conferences in North America earlier this year, it was clear sentiment was strong across the Australian mining industry – whether that was for iron ore, gold, nickel, or coal.
“We’re [Australia] the best in breed across the resources industry, and that is well and truly recognised globally now. [That’s] why you’re seeing investors around the world looking at Australia’s great operations and [our] ability to maintain those operations and run them,” he said.
“We’re also in a tier one jurisdiction and that can’t be understated.”
Northern Star’s Paulsens mine in the WA Pilbara was now in care and maintenance.
Northern Star has budgeted $60 million toward exploration in FY19.
Kanowna Belle underground operation.