Aussie gold miner to pay $260M for Pogo
Northern Star Resources acquires high-grade Alaska gold mine
Last updated 9/7/2018 at 5:39am
Australian gold miner Northern Star Resources Ltd. is adding the Pogo Mine in Alaska to its growing portfolio of low-cost, high-grade underground gold mines.
In a deal announced on Aug. 30, the Perth-based miner has agreed to pay US$260 million to buy out Sumitomo Metal Mining Pogo, a joint venture between Japanese firms Sumitomo Metal Mining Company (85 percent) and Sumitomo Corp. (15 percent) that owns and operates the mine.
Pogo currently has roughly 4.1 million ounces of gold in resources and reserves, which means Northern Star is paying around US$63/oz of gold already found there and is getting an established underground mining operation to go with it.
Northern Star Executive Chairman Bill Beament said the acquisition was made even more compelling by the fact that this operation is in Alaska, a jurisdiction that ranks in the top ten for investment attractiveness and top five for mineral potential in the Fraser Institute Annual Survey of Mining Companies 2017.
"Alaska is simply one of the great mining jurisdictions of the world," he told analysts and investors on Aug. 30.
A fair price for a well-run, high-grade gold mine in a North American mining jurisdiction regarded as highly as Alaska checked off all the marks for the Australian miner's first overseas operation.
"We require any acquisition to meet all our criteria, without exception," Beament said. "Pogo is a tier-1 project in a tier-1 jurisdiction with a long track record of producing approximately 300,000 oz (gold) a year.
Perfect project for Northern Star
Northern Star, which has two high-grade underground gold operations in Western Australia, said Pogo fits ideally into its acquisition and operating model.
"Pogo is also an absolutely perfect project for Northern Star to apply its highly-successful recipe of investment in extensive exploration and development, which in turn drives increases in resources and reserves, mine life, production and free cashflow," said Beament.
The mid-tier miner draws parallels between Pogo and Jundee, a high-grade underground gold mine it acquired in Western Australia during 2014.
The combination of multiple lode orientations, host lithology and complex structural geology found in the Jundee ore body is providing Northern Star the opportunity to add new resources through a process of reviewing and testing previous geological models and assumptions.
This process is supported by a drilling database containing more than eight million meters of underground and surface drilling.
Since the acquisition, Northern Star has increased the resources at Jundee by roughly 630 percent and grown the reserve by approximately 350 percent.
This expanded gold inventory, along with upgraded production capacity at the operation, positions Jundee to be a roughly 300,000 oz per year gold producer with a current mine life of about 10 years.
Northern Star's other Western Australia mine, Kalgoorlie, is a similar sized operation that is expected to produce around 330,000 oz of gold in 2019.
The company plans to apply the same resource and production growth strategy that has proven successful at its Western Australia mines to fully realize Pogo's potential.
Expect considerable growth
With the acquisition of Pogo, Northern Star gets an asset that is already almost on par to the operation the company has built at Jundee.
In 2017, Pogo produced 271,273 oz at an all-in cost of approximately US$882/oz from ore that averaged 19.8 g/t gold. This is down from the more than 350,000 oz/year the Interior Alaska mine has produced in years past.
Northern Star plans to leverage its underground mining experience to boost gold production at Pogo in coming years. A large part of this strategy is to ensure there is enough ore available to keep the mill running at full capacity.
Going into 2018, this Alaska mine had 1.99 million metric tons of reserves averaging 11.9 grams per metric ton (760,000 oz) gold; plus 8.45 million metric tons of resources averaging 12.3 g/t (3.34 million oz) gold.
"That is the third highest gold grade of any mine in North America producing over 200,000 oz per annum," said Beament.
The Pogo resources and reserves, which are compliant with Canada's NI 43-101 mineral resource reporting standards, are enough to last the underground operation into 2021.
These reserves, however, were expected to swell when Sumitomo published an updated resource-reserve statement, which was slated to happen this year.
The publishing of these reserves will likely now be shelved until Northern Star does its own work at Pogo.
The main reason for waiting is that Northern Star, as an Australia Stock Exchange listed company, will want the new resources and reserves to comply with the most recent version of Australian Joint Ore Reserves Committee, or JORC-2012, reporting standards.
"We will ... invest in growing the resources and reserves, as we have done at our tier-1 projects in Western Australia, with a particular focus on upgrading it to JORC-2012 status," Beament said.
To accomplish this, the Australian company plans to invest in intensive resource expansion and upgrade drilling over the coming months with the goal of having JORC-compliant resources and reserves calculated in 2019.
"By investing in exploration and development, we are confident we can grow the resource, production and mine life for the benefit of the mine's employees, contractors, the local community and our shareholders," the Northern Star chairman added.
In addition to converting and expanding resources in the immediate mine area, Northern Star Chief Geological Officer Michael Mulroney sees significant exploration upside across the wider Pogo property.
"We expect considerable growth from parallel and new mineralized trends as evidenced by the large number of (currently over 200) drill intersections outside the existing resource model," he said.
More information on the exploration upside at Pogo can be found in Pogo discoveries excite exploration team, an article published by North of 60 Mining News in April.
Transition for Pogo employees
New Pogo ownership means a transition for the roughly 320 employees at the Interior Alaska mine.
The team that integrated Jundee into Northern Star's portfolio will be sent to Pogo to oversee what the company expects to be a seamless evolution to the Australian company's strategy for success.
Besides having an experienced integration team, Northern Star said the excellent management and workforce already in place is an advantage in transitioning the mine and climatizing the Australian miner to Alaska's mining sector.
"The Sumitomo team has done a superb job in developing and operating this exceptional asset," Beament said. "Their track record in replacing the ounces they mined and their consistent production results without compromising social license, over their 12 years custodianship of the mine, is testimony to their skills, strong culture and diligence."
Northern Star CEO Stuart Tonkin, which is at the Pogo Mine to help oversee the transition, agrees the Pogo team, which will soon be Northern Star employees, is exceptional.
Northern Star plans to leverage this already well-run operation at its new Alaska gold mine to strengthen a company that has demonstrated its high-grade underground gold mining acumen in Australia.
"We are not buying Pogo to be bigger, we are buying Pogo to be better," said Beament.
Northern Star expects to formerly close the Pogo acquisition in early October.