Forget the rumours, Northern Star’s Pogo riches make Super Pit look not so super

Plus, run-away gold price should fuel the urge to merge in junior land
9th August 2019
Resources Rising Stars

After some PC issues were sorted out, Kalgoorlie’s Palace pub got back to its bustling self in the final days of the Diggers & Dealers bash.

And as yesterday became today for the eclectic mix of well-watered miners and money-types, the rumour mill went in to over drive.

Sorting out the factual from the nonsense, and then trying to remember which was which as the sun dawned  on another day under Kalgoorlie’s big blue sky, required some effort.

Having said that, the nonsense ones are easier to deal with. Chatter that Northern Star was in line to acquire the Super Pit at the top end of town from the Barrick/Newmont joint venture is the prime example.

Once Australia’s biggest gold mine, the Super Pit is no longer in Tier 1 territory. Last year’s pit wall slippage and the ever-present challenge of pulling 2g/t dirt from ground riddled with old-timer workings has taken its costs to more than $US1000 an oz in recent quarters.

Reserves and resources are on the thin side of things, even at the currently compromised annual production rate.

Then there is the rehabilitation cost – some put this at circa $350 million - should the Super Pit become not so super and the mine gates are shut.

Apart from all that, owning the Super Pit would be insignificant in terms of value uplift for Northern Star compared with what is coming at its Pogo mine in Alaska, acquired last year from Sumitomo.

Northern Star is about half way through restoring Pogo as a Tier 1 gold producer, with an update on its broader plans for the mine and regional exploration upside to land in September. It is what Northern Star does, and does well.

Using what it has achieved in the past five years at Jundee back in WA as a proxy, Pogo has some serious value uplift ahead. And for the time being at least, Northern Star can do no better thing than capture that uplift, and build the platform to create more.

The Super Pit just doesn’t rank in comparison.

CONSOLIDATION

Northern Star nevertheless is alert as all others are to what will come from the consolidation kicked off by the Barrick/Randgold and Newmont/Goldcorp mergers.

“Consolidation just doesn’t stop. It has flow on effects,” executive chairman Bill Beament said at a company strategy briefing ahead of the D & D bash.

“I am not saying we’re talking to other companies. But it is going to change,” Beament said of the current industry structure.

That structure has the big two mentioned above in a premier league of their own, then a big gap to Newcrest and Agnico Eagle sitting in the middle and another big gap to the likes of Northern Star and Evolution.

Beament reckons there is a dynamic to play out. “And Northern Star is definitely going to have a part to play,” he says.

Because the big end of the gold industry shares as much as 30-40% common ownership, there is also a common pressure for the next wave of consolidation to get going to deliver the potentially huge value uplifts that would come from the second and third ranked gold groups filling the gaps ahead of them.

Beament offered up the suggestion that a Newcrest/Agnico merger was an obvious one at the macro level. After all, it was Newcrest’s pursuit of Goldcorp that eventually prodded Newmont to take it for itself.

“They could join the premier league if they wanted to,” he says.

What about a Northern Star/Evolution combination then? Beament said the companies have the same DNA in that they had acquired assets from the majors and have reputations for operational excellence.

“At the end of the day, there is an opportunity there," he said. So he wasn’t ruling it in, or out.

More generically, Beament said it was clear the gold industry was going to change in the next two or three years. That’s for sure. But for Northern Star at least, it is Pogo first, and an absence of thoughts on the Super Pit.

JUNIOR CONSOLDIATION

Pressure for consolidation is even more intense at the junior end of the market.

One that should get underway but hasn’t just yet is the consolidation on the Sandstone and Gum Creek greenstone belts in WA, where stranded gold resources need to be pooled to create near-term development opportunities.

On the Sandstone belt, Middle Island (MDI, trading at 0.8c for a market cap of $8m) owns a 600,000tpa idled treatment plant which for about $10m in refurbishment costs could be returned to production pronto.

But its current resource base doesn’t quite make it, so it has made a scrip-only bid for Alto Metals (AME, trading at 3.3c for a market cap of $7m) which has a handy 290,000oz resource about 30km away.

Alto has said no thanks, leaving Middle Island to extend the offer until September 30 in the hope there is a change of mind at Alto. It doesn’t look as if that is going to happen but the logic of it all hasn’t gone away.

Up on the Gum Creek belt, Horizon Gold (HRN, trading at 23c for a market cap of $15m) has a 1.39m oz resource at its Gum Creek gold project, including a high-grade open-cut resource of 195,000oz at 7.2g/t gold.

The project benefits from having much of the infrastructure associated with a now-gone treatment plant still in place. Horizon is working on a mining plan which could see it go down the toll treatment route (probably at Wiluna) or building a stand-alone plant.

But the addition of more ounces would be a big de-risking event, which is where Gateway Mining’s (GML, trading at 1.7c for a market cap of $17m) Gidgee project to the south becomes part of the story.

Gateway is close to putting out an interim resource report for the Whistler and Montague deposits. The scale of the interim statement is expected to be a good start but again, a combination with what Horizon has would no doubt provide a more likely pathway to production.

How the obvious deal between Horizon/Gateway pans out remains to be seen. Horizon’s mining plan and Gateway’s interim resource estimate are likely triggers for something to be nutted out. Gold at $A2000-plus kind of demands it.

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