WITH gold coming off its worst quarterly loss in decades, the sector is racing to implement a slew of cost-cutting and efficiency boosting initiatives to stem the bleeding. Northern Star Resources managing director Bill Beament said that while structural changes across the mining industry were progressively reining in costs, much more would be needed before global investors returned. This capital drain from Australian resource stocks was also affecting the ability of mining companies to explore and create new mines.
‘‘We’ve got to get our cost base back to where it was in 2010, because that’s what we are dealing with; a gold price from 2010,’’ he told The Age.
Mr Beament also said the refusal by most Australian gold producers to provide all-in costs of production symbolised the industry’s weak standing in the eyes of investors.
Northern Star was one of only a few miners to release all-in costs for its operations over the March quarter, with its figure of $935 an ounce sitting close to the bottom of WA’s cost curve.
This low cost base, due to a combination of prudent economic management and the ongoing success of its key operational asset – the high grade, high margin Paulsens gold mine – has positioned Northern Star as one of only a few gold companies well equipped to ride out the bear market.
Northern Star had implemented a range of successful cost-saving initiatives well before the downturn, cutting 20 per cent from its cost base throughout the past two years.
It has also already sunk the majority of its capital expenditure items. In the December 2012 quarter – 18 months after establishing its successful in-house Mining Services Division to rein-in costs – the company completed an increase in processing capacity, pushing expected annual production up to more than 100,000ozpa for 2013.
Reducing total costs per tonne by 20 per cent also enabled Northern Star to lower the underground cut off from 4 grams per tonne to 2.5g/t, which allowed the company to mine a larger portion of the orebody to feed into the expanded plant.
Northern Star also recently derisked the mine by installing a new mobile fleet, placing 100,000t of ore on surface stockpiles, and undertaking rapid capital and operating development which has opened up multiple production areas from which to obtain ore.
In the 2013 financial year, the company delivered three resource upgrades which took total resources to 555,000oz; a 485 per cent increase since acquisition.
The company expects total production of between 100,000oz and 115,000oz for the current year, with plant capacity to be extended by 25 per cent to 450,000tpa and average blended grade to rise 20 per cent from 7g/t to about 8.5g/t. Total operating costs were expected to remain at between $850 and $950/oz.
Voyager 1 and 2
The Voyager 1 lode – which runs at between 1250oz and 2000oz per vertical metre – has produced all the gold under Northern Star ownership. It is being mined at about 600m below surface with mineralisation drilled to 950m, but importantly remains open at depth. In the June quarter, Northern Star kicked off first production from the rich
Voyager 1 extension zone.
Discovered late 2010 immediately adjacent to Voyager 1, Voyager 2 – which has returned stunning drill results of up to 12,178g/t – starts near current capital development.
With development expected to intercept this lode in the coming months, Northern Star reported that there was opportunity to mine both lodes at the same time, with no additional capital or level development required. Exploration is underway for further down plunge resource extensions.
The Upper Levels
According to Northern Star, a large part of the Paulsens mineralised structure was not mined by previous owners due to hedging. Despite already supplying more than 500,000oz from about 400 vertical metres throughout seven years of production, the Upper Levels are expected to provide additional mill feed for years to come. The company has increased the Upper Levels resource 156 per cent to 92,000oz grading 10g/t, and first ore development is underway.
Exploration
In 2012, a $20 million exploration program produced a consistent stream of outstanding results for Northern Star. Paulsens is bordered by a gabbro unit, traditionally seen as a fence around the orebody. Theorising that mineralisation could be deposited on the other side of the gabbro, Northern Star initiated a drill program with outstanding results.
Hits of up to 379g/t in the gabbro and quartz – outlined over 700m down plunge and offset – has meant the company couldNorthern Star has expanded its tenement package to 7000 square kilometres potentially replicate the 900,000oz Paulsens lode. Drilling is ongoing, with more results pending.
With more than 100 targets identified to date across two major regional structural trends, the company also expanded its tenement package to 7000 square kilometres through a Fortescue Metals Group joint venture deal, on all non-iron ore rights across the Ashburton region.
All known ore bodies and mineralisation, including Paulsens, lay inside the highly prospective 25km to 40km long Paulsens Mine Corridor, which is part of the Nanjilgardy Fault. Northern Star has reported a number of great early results at the Belvedere prospect – 8km from Paulsens – which returned recent hits such as 8m grading 14.7g/t and 9m grading 12.7g/t.
Since its acquisition by Northern Star in June 2011, the JORC resource of its Ashburton project has been upgraded by 66 per cent to 1.7 million ounces. While it is within trucking distance of Paulsens, studies are well underway assessing a 100,000ozpa standalone operation based in sulphide ore, which would take group production north of 200,000oz each year.
Looking to the future
Northern Star already enjoys relatively strong cash generation from its high grade, high margin ounces at Paulsens.
The company is not resting on its laurels though: while there are sufficient resources to underpin a mine life of more than five years – with further extensions expected – it has sustained a bullish, focussed near mine and regional exploration program, which continues to bear fruit.
Following the company’s strong March quarter, Mr Beament said every decision at Northern Star had one common focus – to drive shareholder returns.
“We do that by ensuring our costs are some of the lowest in the Australian gold mining industry and by paying dividends,” he said.
“We are also determined to see that growth is motivated by the opportunity to lift shareholder returns, not just to expand production for the sake of mining more tonnes and putting ounces through the mill.
“Our motto is that we are a business first and a mining company second. These results reflect that emphasis,” he said.
