Northern Star Resources (NST) It has taken six years of patchy...

Northern Star Resources (NST) It has taken six years of patchy production, and multiple owners, for the remote Paulsens project in WA?s Pilbara region to finally live up to its promise of being a serious gold mine.

Until control of the mine, which is curiously located in the shadow of major Pilbara iron ore mines, passed to Northern Star Resources in the middle of last year Paulsens was treated more as a casino chip than gold deposit.
Owners between 2005 and this year included Taipan Resources, St Barbara Mines, Intrepid Mines and Northern Star, a track record which suggests that Paulsens is an asset that no one wants.

In reality, it is an asset that was before its time, and lacking focused management with the mining skills needed to extract the rich ore that lies at depth in Paulsens.

The other factors investors should consider is that back in 2005, when Taipan owned Paulsens, the gold price was about $US460 an ounce, more than $US1000 less than today, and that the last company to sell Paulsens, Intrepid, did so because it has made an even bigger discovery at its Tujuh Bukit project in Indonesia.

What Northern Star has at Paulsens is a mine that is getting better as it gets deeper thanks in part to management unlocking the geological secrets that include a series of gold-bearing lodes assaying around 12 grams a tonne, an extremely attractive grade in the current gold market.

A glimpse of Paulsens cash generating capacity was on show earlier this year when Northern Star repaid the $40 million purchase price with just seven months of production. The current mine plan is to produce 75,000 ounces of gold in 2011 to generate surplus cash flow of another $40 million with cash costs potentially falling to $50?100 an ounce.

Investors have been slow to recognise the benefit to Northern Star of the high gold grades and success in expanding Paulsens, perhaps concerned that it might be a short-life mine because of the difficulty in drilling very far ahead with the style of ore body found in the mine.

The key to that point is that the latest drilling has extended the Paulsens structure down an additional 250 metres, with even deeper drilling likely to add years to the mine?s life.

After that, there is a second project on the horizon, the Mt Olympus mine previously worked by Sipa Resources and located about 120 kilometres southeast of Paulsens, and closed in 2004 when the gold price was a fraction of what it is today.


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