AN acquisition deal with Barrick Gold Corporation has set Northern Star Resources on the fast track to doubling its annual gold production.
The deal, expected to be finalised this month, will see Northern Star acquire the Plutonic gold mine for $25 million – equal to $14 per ounce of resources. The acquisition will be funded from Northern Star’s existing cash reserves, which stood at $45 million at the end of September 2013.
The mine, 180km northeast of Meekatharra in WA, produced 86,000oz of gold during the first nine months of 2013, at an all-in sustaining cost of $1110/oz. As of the end of 2012, it had proven and probable reserves of 206,000oz of gold and resources of 1.75 million ounces of gold grading 10.8 grams per tonne.
The acquisition includes a 3 million tonne per annum processing plant, an underground mobile fleet, a 15 megawatt gas fired power station, an 8MW diesel back up station and a 600-person accommodation village.
The acquisition will increase Northern Star’s total reserve and resource inventory by 80 per cent, to 4moz of gold.
“We’ve doubled our production for less than 10 per cent of our market cap, it’s a screaming buy,” Northern Star managing director Bill Beament said.
According to the company, the acquisition would transform Northern Star into a top-four Australian only gold producer with annual production of more than 200,000oz of gold.
The move has been likened to Northern Star’s 2010 acquisition of the Paulsens gold mine: both had strong cashflow from production prior to the acquisitions and both offered scope to increase the mine life through exploration.
Additionally, just as Mr Beament was familiar with Paulsens prior to its acquisition, he was also the Plutonic project manager for two years. Meanwhile, Northern Star’s chief operating officer Stuart Tonkin succeeded Mr Beament at Plutonic for two years and the company’s business development and technical services manager Bernie Sostak was Plutonic’s chief geologist for eight years.
“Plutonic is the ideal acquisition for Northern Star in every respect,” Mr Beament said.
“It delivers strong production and cashflow today, it comes with outstanding exploration potential, it provides scope for efficiency gains using our underground mining expertise and we know the project extremely well due to the substantial time we spent working there in previous careers.
“Northern Star now offers global institutional investors the production scale and resource base they require, the diversity that comes with having two major operating hubs and the growth potential attached to the exploration upside – all in the backyard of
Western Australia.
“This acquisition meets our key objective of delivering superior financial returns from high-grade, low-cost gold mines in Australia.”