Northern Star raises cash to buy Pogo

Northern Star Resources Ltd. Sept. 3 raised AU$175 million to help fund its acquisition of the Pogo gold mine in Alaska.

In a deal announced on Aug. 30, the Australia-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.

While Northern Star has more than enough funds in the bank to outright buy the mine, the company chose to raise funds for part of the purchase in order to provide plenty of funds for other opportunities that may arise.

As such, the company completed an institutional placement that involved the issuance of 26.1 million Northern Star shares at a selling price of AU$6.70 per share.

Northern Star shares surged on the news of the Pogo buyout and the selling price represents a 3.7 percent discount to the last closing price of AU$6.96 prior to the financing.

The funds raised will pay just under half of the US$260 million (AU$347 million) Pogo purchase price, with the balance being funded from Northern Star's existing cash reserves.

Northern Star reports that the financing was heavily-oversubscribed, demonstrating overwhelming shareholder support for the Pogo acquisition and the Northern Star business model. Supporters included funds and accounts under management by United Kingdom-based BlackRock Investment Management Limited, which has a substantial shareholding in Northern Star and committed to subscribe for AU$57 million of new shares in advance of the financing.

"Existing shareholders, fund managers and analysts from around the world have said they share our view that Pogo is an exceptional acquisition which meets our criteria of owning tier one assets with strong growth potential in tier one locations," said Northern Star Executive Chairman Bill Beament.

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.

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.

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.

Beament said Sumitomo was handing over Pogo in outstanding condition.

"The Sumitomo team has done a superb job in developing and operating this exceptional asset," he 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."

The roughly 4.1 million oz of gold at Pogo are in resources and reserves compliant with Canada's NI 43-101 mineral resource reporting standards.

These resources and reserves were expected to swell with an updated resource-reserve statement slated for completion this year.

The publishing of these reserves is now being shelved until Northern Star does its own work to calculate reserves compliant to Australian Joint Ore Reserves Committee reporting standards. Commonly referred to as JORC, these standards are similar to Canada's NI 43-101 standards for reporting mineral resources and reserves.

Northern Star said that it has already begun the work needed to convert Pogo resources and reserves to JORC compliance.

The Australian company said its priorities at Pogo include maintaining continuity of operations with existing staff and contractors complimented by its own integration team, as well as investing in targeted intensive drilling programs to extend the mine life.

"This is good news for the future of Pogo Mine," said Pogo General Manager Chris Kennedy. "As far as operations and employees, its business as usual."

–SHANE LASLEY

CORRECTION: Northern Star Resources Ltd. Aug. 3 financing was for AU$175 million.