AT Northern Star Resource’s 2013 annual general meeting, chairman Chris Rowe told shareholders the company was on the lookout for WA acquisitions to help meet its goal of becoming a top ASX-listed gold producer.
At the time, Northern Star was producing about 100,000 ounces per annum of gold from its Paulsen gold project in the Pilbara region and had a market capitalisation of $301 million, with its share price at $0.71.
A year later, Mr Rowe could tell an entirely different story. The company was on track to becoming a 600,000ozpa producer; was the second biggest ASX-listed gold miner and, with a share price at $1 and rapidly rising, was the best performing ASX-200 company for the 2013-2014 financial year.
In the months since then, the company has soared even higher – as of late January, its market capitalisation had reached $1.19 billion and its share price $2.01.
Within the space of six months the company picked up four producing gold mines from giants Barrick Gold and Newmont Mining, catapulting headfirst into a new role as a leading gold producer.
Northern Star managing director Bill Beament said the company had put together a strategy around where it wanted to be within three years, and it had achieved its aims in less than 18 months.
“When those opportunities are there, as long as you’re prepared for it, you can’t knock them back,” he said.
“The gold price plunged $200 an ounce in 2013 and we had a very low-cost mine, a great balance sheet, good equity price and everyone else was licking their wounds; it was a perfect opportunity to pounce.
“We did shock people doing it so quickly…but the way the mines have transitioned into Northern Star has been fantastic.”
The Paulsens gold project was Northern Star’s first; mined since the 1930s, the operation moved underground in 2005 under NuStar Mining, changing hands a number of times before being acquired by Northern Star in 2010.
Paulsens, a low-cost, high grade mine, gave Northern Star the cash and equity to launch its acquisition program and, in March 2014, the company picked up the Plutonic gold mine from Barrick for $25 million.
Plutonic, located in WA’s Murchison region, added another 100,000ozpa to Northern Star’s capacity, effectively doubling its production in one stroke.
Another deal with Barrick followed in March – this time for the Kanowna Belle and Kundana mines, located near Kalgoorlie, for $75 million.
Kanowna Belle and Kundana, jointly known as the Kalgoorlie operations, produce about 80,000ozpa and 100,000ozpa, respectively, and are located on large tenements in a highly prospective area.
However the biggest coup came in July, when Northern Star purchased Newmont’s Jundee operation in WA’s northern Goldfields for $82.5 million.
The acquisition of the low-cost mine, capable of producing about 200,000ozpa, elevated Northern Star to the ASX’s second biggest gold miner, on track to produce between 550,000 and 600,000ozpa.
The rapid-fire acquisition of four large-scale, well-established mines could have caused headaches for Northern Star and for mine workers.
Instead, Mr Beament said the only surprise had been how positive the transition process had been.
“To transition people who have been at the operations for such a long time so seamlessly is a credit to both Barrick and Newmont and our own team.
“When you work at a mine you’re loyal to the mine, not necessarily the shirt you wear…Jundee and Plutonic and Kundana have been around for a long time and the workers have seen a few owners.
“But they’ve come into the fold at Northern Star extremely well, and they’ve done it extremely quickly…we couldn’t be happier.”
While the acquisition free-for-all may have looked rushed to outsiders, Mr Beament said it had been a long-time coming – the opportunities just happened to arise in close succession.
“We did a lot of workshopping and strategising before we went and bought these assets – we built the management team, we built the capability within our business, banking-wise, management-wise,” he said.
“We looked at plenty of assets and plenty of companies but we had strict discipline on what we went for.
“These things don’t happen overnight; we agreed we wanted to expand, enacted a plan and executed it.”
After an acquisition-focused 2014, this year is set to be about consolidation and resource expansion for Northern Star.
Mr Beament said the focus since mid-2014 had been on gaining an understanding of the new assets’ geology, maintaining production, bedding the acquisitions down and “proving that the wheels aren’t going to fall off”.
With that largely complete, Northern Star launched a $50 million exploration campaign to give the assets a “shot in the arm”.
“We’ve already made two new discoveries in Kalgoorlie, we’ve greatly extended Jundee…we’ve got 23 drill rigs out at the moment and we’re seeing pretty fantastic stuff every day,” Mr Beament said.
“That will translate into extending these mine lives in due course.”
While some of the new mines have been around for years, Northern Star remains confident in expanding their resources – largely because of the work of Barrick and Newmont, who Mr Beament said “did most of the work for” Northern Star.
“They drill starved these assets…these assets were too small to fit in their portfolio, so they never got the money in the last four or five years to extend their geology,” he said.
“But they didn’t get rid of the geology departments and for the past four or five years these guys have had fantastic think time.
“They’ve already done the discoveries and found the mineralisation, we just have to go in and confirm the results.”
Mr Beament would not rule out new acquisitions in the near future, but did refer to the company’s ‘internal motto’ – “you’ve got to earn the right to grow again”.
“You’ve always got to keep your eye out, you can never stop looking – we never have, ever since we bought Paulsens four years ago, because things come up when you least expect,” he said.
“It’s an interesting environment in the industry at the moment; it’s the haves and the have-nots…it’s hard for explorers and developers at the junior end of the market.
“[New acquisitions] won’t happen right now, but might again in 12 months.”
Costs and markets
Despite recent strong gains – the gold price has soared more than $200/oz since December – the market remains volatile and keeping costs down is essential to Northern Star’s continued success.
Overall, Northern Star has a low cost base – its all-in sustaining cost was $1037/oz in the December quarter, while its average realised price reached $1417/oz.
However that cost was “distorted”, according to Mr Beament, by a non-cash item for rehabilitation liabilities inherited from its acquisitions, worth about $50/oz.
Costs also remained high at some operations because of large investment programs – while Kundana’s carries an all-in sustaining cost of just $632/oz, Plutonic’s gold costs a high $1787/oz.
Mr Beament said the Northern Star’s massive investment in Plutonic over the existing gold reserve had temporarily sent its costs up, with seven diamond rigs spinning at the site and a development jumbo operating.
“It’s like it’s in a construct and build phase, but it’s an operating asset; it’s like us building a new mine,” he said.
“But we look at it as a whole business, it’s about the overall company profile margin per ounce.
“You’ve always got different parts [and] that’s why you’ve got to diversify your portfolio; one is higher for a period of time, one is lower to offset it, and that’s what gives us flexibility as a business.”
It is that flexibility and low-cost base that had enabled Northern Star to ride out fluctuations in the gold market for the past two years.
On top of the company’s strong base line, Mr Beament is relatively confident in the future of the gold market.
“The volatility is here to stay, but there’s not much downside on the US gold price and the [Australian] currency will stay low,” he said.
“There has been a fundamental change in the last six weeks; people around the world are realising that gold is a safe haven again.
“If we keep our cost base around $1000/oz we can ride those bumps and sleep well at night…and when [the price] is up, it gives us the confidence to make strong decisions quickly.”