minesite article

FYI (source: minesite.com)

July 12, 2012
Northern Star Gets Set To Rewrite Its Resource Numbers And Profits Outlook, Following More Stellar Results From Paulsens
By Our Man in Oz

No-one can ever accuse Northern Star Resources of failing to keep investors fully informed about the progress it is making at its flagship Paulsens gold mine in Western Australia.

Even so, it seems investors still haven’t grasped the significance of what’s been happening at Paulsens, and how it has the potential to make Northern Star one of the lowest-cost and most profitable gold producers on the ASX.
Grade is the key, as it always is in gold mining, and last week the company slipped out a report last week which showed that the head grade at the Voyager Extension zone at Paulsens averages 14 grams of gold a tonne, as against the historic eight grams from the No.1 lode at Voyager, which has produced 150,000 ounces over the past two years.
Even so, only a handful of share traders seem to have appreciated understood how that 75 per cent grade boost could end up doubling Northern Star’s future profits.
One possibility why some investors might have underestimated the significance of the latest news is that the company bombards the market with drilling results and spectacular drill hits which generally turn out to be over a thin section of a metre, or less. Which is perhaps why the company’s shares eased back after an initial rise when the company announced that it is within months of extracting its first 14 gram per tonne ore from Voyager, but then eased back. That production, added Northern Star, will be preceded by a major resource upgrade, and new production and cash flow projections for next year.
Exactly how Northern Star maximises value from its new high-grade deposit is a question for management, though a blending option seems most likely - with the 14 gram material from the Voyager Extension used to boost gold output as well as adding to the life of the mine. Analysts who follow the company have yet to incorporate the new data in their spreadsheets but the Australian brokerage Hartleys noted in a report published two weeks before company confirmed the importance of the 14 gram material that Northern Star was looking to add another seven to 10 years to the mine’s life.
Unsaid, but implied, is that higher profits will accompany the longer life. Hartleys’ recent forecast that Northern Star’s profit will rise from an around A$27.7 million for the year which ended on June 30, to A$43.9 million in the current financial year now looks likely to be upgraded when the company releases its resource upgrade and fresh cash flow projections.
What the company has to incorporate in its fresh set of numbers are the results of a major drilling campaign which has been targeting the deeper and richer ore, and which has returned among its better results 2.7 metres assaying 128.9 grams per tonne, with a 0.7 metre section of that assaying 472 grams.
Northern Star’s managing director, Bill Beament, said in a statement accompanying the latest assays that the outstanding infill and resource drilling results from the extension zone in the Paulsens No.1 lode “show that grades at Paulsens are set to increase from around eight grams per tonne currently to as much as 14 grams per tonne in 2013”. The sharply higher head grade will, he said, “boost the project’s cash margins substantially”.
Bill now has to get the best possible result from the higher grade ore, and enhanced cash flows. Blending the ore with what’s already being extracted higher up in the lode will allow for the extension of the mine life. And maximising the number of ounces produced will generate the cash needed to develop Northern Star’s next mine at Ashburton.
“Northern Star has outlined plans to increase production at Paulsens from 80,000 to 100,000 ounces next year by expanding plant capacity”, Bill said. “However, those previously published forecasts do not take into account any increase in head grade from the current eight grams per tonne.”
No de-coding is required to appreciate that Beament is trying to say, before he has the final numbers, that the 100,000 target from Paulsens is in the bag, and that blending the 14 gram material with the eight gram material, combined with plant modifications, could see the project on track to deliver up to 120,000 ounces a year. Concurrently, the cash cost could fall from its already attractive life-of-mine average of US$560 per ounce, locking in a profit margin north of US$1,000 per ounce.
“The high grade extension zone will form part of Northern Star’s next resource upgrade”, Bill said. “Along with other excellent drilling results from elsewhere in Voyager No.1, and all of the results from the Voyager No.2 lode, which is totally excluded from the current resource estimate of 318,000 ounce.”
Boosting that lowly resource estimate for Paulsens has long been a priority for investors keen to see Northern Star establish itself as a company with more than a handful of years of resource ahead of it.
The problem, which dogs many high-grade mines with rich, but thin, seams of gold is that drilling too far ahead is prohibitively costly. So part of Northern Star’s approach to the resource question has been to undertake a major drilling program from the surface, spearing down a series of “parent” and “daughter” holes to gather as much information as possible to see how the Voyager orebody behaves at depth. It is some of that information which is now being keyed into the company resource upgrade and cash-flow projection.
The latest results, said Bill, provide additional evidence that Northern Star is set to enjoy sharply higher resources, production margins and cash-flow, on the back of the rich extension zone. “The extent of those increases will be at the heart of our calendar year 2013 projections which are now being calculated,” he said.


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