Recently Alex Cowie editor of Drill&Dig wrote enthusiastically re large margins at UG gold producer NST. Firstly he mentioned the very high grade and then wrote:
"One big factor keeping costs down is that Northern Star owns and operates its own in-house mining fleet. In comparison, many gold miners use contractors to provide the gear and do the mining. This can get expensive, and productivity can suffer.
There is a huge emphasis on increasing productivity and efficiency. This shows in the numbers. The cost of mining each tonne was $98.76 / tonne under the contractor. With Northern Star’s own team, this figure has dropped to $71.90. This may not sound like much (actually is a massive 27%), but it fundamentally changes things. They can mine more at the same cost, but most importantly it means they can profitably mine lower grade ore. Because this is ore that they couldn’t make a profit from before, it allows more gold to be included in the resource figure."
MM reply: Owners of most drilling contractors probably felt a shudder go through them when i read your commentary/observations. I wasn't convinced and made some enquiries. I discovered that Northern Star is run by an ex Operations Manager from Barminco, who has hand picked a crew around him and therefore no real surprise they can do job better/cheaper than run-of-the-mill contractor. HOWEVER, the UG Diamond core drilling work at NST is being done by outside contractors!
Once again the media/analysts fail to differentiate between the 2 separate skills. UG Diamond is specialised work restricted to just a few firms of which SWK is the biggest in Oz.
SWK Price at posting:
28.0¢ Sentiment: Buy Disclosure: Held
