IN less than 12 months, Northern Star Resources has manoeuvred itself from being a humble exploration company to a fully-fledged gold producer, boosting its market capitalisation a hundredfold and reaping a maiden $20 million profit. Despite these achievements, Northern managing director Bill Beament said the company had a long way to go before it reached its full potential. Until July 2010, Northern was an exploration company with a $3 million market capitalisation on the hunt for gold projects. By the time of writing, the company’s market capitalisation had surged to about $300 million. After Northern purchased the Paulsens gold mine, 190km west of Paraburdoo in northern WA, from Intrepid Mines for $40 million, it outlaid $7 million on exploration. The purchase began rewarding Northern almost immediately. Production cash flow enabled the company to pay off its acquisition and capital outlay costs within seven months, according to Mr Beament. He said that in addition to the maiden profit and hundredfold increase in market capitalisation, Northern had also achieved other milestones during the 2011 financial and calendar years.
“We delivered record performance for the financial year of 2011. We produced over 87,000 ounces, which is about 10 per cent better than any previous year that mine has been run. We delivered financial year costs of $588 an ounce [gold] and a total expenditure of $742 an ounce,” he said.
“If we had a look at an EBIDA [earnings before interest, depreciation and amortisation] figure, it was about $67 million EBIDA. If you look at today’s gold price and throw that in for the year, the EBIDA would’ve been close to $100 million. “We delivered a major resource upgrade. When we bought the mine, it only had a 129,000 ounce [gold] resource. Within about five months [of] drilling, we took that resource to 226,000 ounces. We also depleted it 71,000 ounces. If you throw the depletion back on it is close to a 300,000 ounce [gold] resource.”
Northern also gained the 668,000oz Ashburton sulphide gold project 50km southeast of Paraburdoo from Sipa Resources in early 2011. Combining the known resources from both projects, Northern has boosted its global resource base from 30,000oz to 1million ounces of gold.
Since Northern announced the 226,000oz updated resource at Paulsens to the ASX in March, the company has released several exploration announcements detailing high-grade gold intersections, including one in mid-November that was the largest gold hit in Australia for 30 years.
Drilling at the Voyager 2 lode at Paulsens returned an intersection of 0.8m for 12,718 grams per tonne of gold. The huge hit was part of a larger intersection that returned 5.6m at 1713g/t of gold. This result, and others that were announced throughout the year, are expected to form part of a maiden resource estimate for the Voyager 2 lode anticipated for release in 2012.
Northern is also working on a resource upgrade from drilling at the Voyager 1 lode that Mr Beament said would be made public during early 2012. The updated Voyager 1 resource is expected to underpin a revised mine plan that includes increased production, cash flow and mine life projections for Paulsens.
“Commercially, we’ve switched out the contractor,” Mr Beament said. “We do everything in-house and on-site now, and we’ve dropped our operating cost per tonne by 30 per cent.” Ashburton Despite the fact that Paulsens has continually rewarded Northern since its acquisition, the company continues to assess potential acquisition targets that could boost its resources. The Ashburton purchase was part of that strategy.
“We acquired [Ashburton] in February – that’s two deals in 15 months,” Mr Beament said.
He said Northern acquired Ashburton for a 1.75 per cent royalty on all gold produced after the first 250,000oz had been mined. In addition, Northern also replaced the environmental bonds at a cost of about $500,000. Mr Beament said that because Ashburton was mostly a sulphide deposit with pockets of refractory ore, it would probably require a different processing circuit than Paulsens, which is a standard carbon-in-leach operation.
“The refractory ore will be more of a flotation circuit. There are plenty of refractory gold mines around the world. It is just a different processing circuit,” he said.
However, Mr Beament said the processing method that would be used at Ashburton remained “subject to metallurgy”, with test work under way. He added that the company would soon be in a better position to determine the optimal processing method. According to Mr Beament, Northern carefully considered its growth strategies before making them public. “When we put out our strategy in [September], we did it with confidence. It is locking us [in] time-wise and profile-wise, and we don’t put that out
there lightly,” he said.
“Our strategy is to grow our production in two stages to 200,000 ounces per annum. Stage one is taking Paulsens from 85,000 ounces to 100,000 ounces. It is not a big step change, but we know the suite of assets we’ve got and the ore body, and what we can and can’t do, and that is quite achievable.
“The timeline is to bring that into expanded capacity by the December quarter 2012. Stage two involves building a standalone 100,000-ounce sulphide operation at our Ashburton project.” Mr Beament said that part of the company’s strategy in increasing production was to continue its aggressive exploration campaign. “We are spending $20 million over the next 12 months on exploration and drilling: $7.5 million of that is inside the Paulsensore body, and the rest is around Paulsens and Ashburton,” he said.
“That is a lot of money for a company our size, but unless you drill, you won’t find.
“Outside of that, we are very busy. We haven’t stopped looking at assets since we got Paulsens.” He added that Northern would remain focussed on potential gold assets in its acquisition hunt. “Where we are at now is gold, but I have stated long-term I’d like us to be diversified in some way, shape or fashion,” he said.
“We’ll go hard. We have a great balance sheet, great cash flow and cash in the bank, and our market cap is growing.”
By Lorna Seatter