Northern Star Resources is poised to announce it has agreed to terms for the sale of its Plutonic goldmine in Western Australia, with the market darling striking a deal with a private Canadian entity for between $50 million and $75m.
The Australian understands that Northern Star is preparing to offload Plutonic in a cash and scrip deal that will leave the Perth-based company with a significant shareholding in the Canadian vehicle.
The deal, which could be announced as early as today, provides an early spark of deal-making momentum to the Diggers and Dealers mining conference kicking off in Kalgoorlie this morning.
This year’s forum is taking place against a backdrop of some of the strongest Australian-dollar gold prices in history, with the booming conditions in the gold sector driving widespread speculation about potential consolidation within the industry.
Northern Star announced in February that it would start a sales process over Plutonic after receiving a number of unsolicited approaches from third parties.
Northern Star bought the mine from Canadian gold giant Barrick Gold in December 2013 for $25m as part of a series of bold acquisitions that have transformed it into one of Australia’s biggest goldminers.
But Plutonic has been overshadowed by the comparative outperformance of Northern Star’s other gold assets, and there has been a growing view that the company could be better placed in focusing its attention on its other mines.
In the March quarter Northern Star emerged as the world’s second lowest-cost gold producer behind Canada’s Barrick. Costs of production would have been lower still had Plutonic been off the books as it is the highest-cost operation in the Northern Star stable.
Plutonic’s cost of production for the 2016 financial year was more than $1700 an ounce, although work by Northern Star since acquiring the operation two years ago has costs now trending down to below a more comfortable $1300 an ounce.
The Canadian entity will now move towards a listing on the Toronto Stock Exchange, where investors are increasingly waking up to the buoyant conditions in the Australian gold sector.
The Canadian group’s backers include Chris Bradbrook, a former director of Crocodile Gold, a TSX-listed Australia-focused goldminer that merged last year to become Newmarket Gold.
Newmarket has been one of the Canadian gold sector’s best performers over the past year, with its shares climbing from C97c (98c) to $C4.40 on the back of its collection of Australian goldmines.
Boutique West Perth group PCF Capital advised Northern Star on the deal.
Plutonic, which sits 180km northeast of Meekatharra in Western Australia’s Eastern Gascoyne region, has produced more than 5 million ounces of gold since it started production back in 1990.
Apart from the sale improving Northern Star’s overall costs of production, the sale also lines up with the group’s focus on growing major production hubs of its assets near Kalgoorlie, Jundee and the Central Tanami project in the Northern Territory.
The company would have taken the view that Plutonic does not fit the plan, even if it means Northern Star will have to restate its full-year 2017 forecast downwards by 100,000 ounces to 500,000, at a better cost base.
The production hub focus nevertheless has most analysts expecting output in 2018 reach an annualised rate 600,000 ounces.
Plutonic is one of several notable Australian goldmines currently on the market.
Barrick last week confirmed it was looking to sell its stake in the famous Super Pit of Kalgoorlie, while Evolution Mining has quietly been working on a sale of its Pajingo gold mine in Queensland as part of efforts to rationalise and simplify its portfolio.
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