'Nice Deal' As Northern Star Buys South Kalgoorlie Gold Mine
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Northern Star Resources will use a small part of its huge cash pile to buy a small gold mine in the Kalgoorlie area to flesh out its production and exploration effort.
The company announced yesterday that it had agreed to buy the South Kalgoorlie Operations gold mine from Westgold Resources for $80 million including $20 million in cash and 9.5 million Northern Star shares (valued at $6.30 a share, well under yesterday’s $6.71 close - up 1.2%).
The South Kalgoorlie operations, is around 50 kilometres about from Northern Star’s Kundana mining operations and includes the mine operating processing facility and 800 square kilometres of prospective gold exploration ground.
The mine has an annual throughput capacity of 1.2 million tonnes, a Resource of 4 million ounces (Moz) including 250,000oz in Reserves.
South Kalgoorlie Operations is currently producing at the rate of 30,000-40,000ozpa. The plant is also toll-treating ore for third parties.
Northern Star executive chairman Bill Beament said the deal will help ensure the company meets its production target from organic sources.
“Our highly successful exploration strategy in Kalgoorlie has generated huge growth in our inventory and paved the way for us to grow production there to 300,000 ounces per annum,” Mr Beament said.
“To capitalise on this success, we were considering the option of expanding our Kanowna Belle facility.
“However, the South Kalgoorlie operations purchase will enable us to achieve our organic growth target in a more timely and economical fashion and at the same time provide us with significant exploration potential, including a resource inventory.”
Westgold said the divestment of its South Kalgoorlie operations would allow the company to focus on its gold assets in the Murchison.
Managing director Peter Cook said it was a “nice deal for both parties”.
“It provides Northern Star with additional and instant plant capacity in the Kalgoorlie region for its expanding gold operations,” Mr Cook said.
“For Westgold, it divests our shortest life asset, provides a cash boost and upgrades the overall quality of our gold portfolio.”
The acquisition is due to be settled on April 1.
In its financial report last month Northern Star revealed it had $433 million in cash and equivalents at the end of December.
Interim dividend was lifted 50% to 4.5 cents, full franked.
Revenue rose 14% to $A435.3 million in year December half year, with net after tax profit dipping 7% to $79.1 million. Director said the fall was due to the “wind down of Paulsens (while the) Millenium mine is forecast to boost second half after tax profit”
Earnings before interest, tax, depreciation and amortisation reached $201.7 million which Northern Star said was a gross profit margin of 46.3% and 50% when the Paulsens operation is excluded.
A total of 267,278oz gold was sold at an average price of $A1,678/oz. All-in sustaining costs (AISC) were A$1,043/oz and the company says it is on track to meet 2018 guidance of 525,000-575,000oz at AISC of A$1,000-A$1,050/oz, Calendar year production in 2018 is forecast to rise to 600,000 ounces of gold.
Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.
At the AFR he was a finance writer, Finance Editor, News Editor and Chief of Staff. At the Nine Network he was supervising producer of Business Sunday for more than 16 years. He has also written for other online and analogue print publications here and overseas.