JUNDEE in Western Australia. Photo: Northern Star

JUNDEE in Western Australia. Photo: Northern Star

Northern Star's Lucrative Timezone Arbitrage

Issue 84, May 2014

Northern Star Resources has continued an aggressive buying campaign, paying A$82.5m ($77m) for Newmont Mining’s Jundee gold mine in Western Australia.

In two separate deals earlier this year the company bought Barrick Gold’s Plutonic and Kanowna Belle mines and its majority share in the high grade Rubicon-Hornet underground complex, all in Western Australia, adding to its existing Paulsens mine.

The binge has lifted Northern Star’s gold production from 89,000 ounces last year to 45,000 ounces last month, at all-in production costs of A$1,010 per ounce ($944).

Jundee, which opened in 1995 and moved underground in ’97, has gold resources of 411,000 ounces at over 4 grams per tonne, adding a further 200,000 ounces to the company’s annual production. “I am highly confident that we will grow the inventory and extend the mine life,” said Northern Star’s managing director Bill Beament, a former mine manager for Barrick.

Beament’s total spending spree this year has cost A$183m, funded by cash reserves, a two tranche equity raising and an increased credit facility up to A$100m. The deals make Northern Star a rare example of a company that has not only positioned its balance sheet to capitalise on a cyclical lull, but which has followed through on the strategy, swapping cash for assets when they are out of favour.

Northern Star has also benefited from the most banal of corporate limitations, time zones, with Barrick and Newmont both keen to concentrate their management time around their mega-mines in the Americas.

Barrick’s rambling portfolio has led to “distracted management”, “no operational synergies” and a “conglomerate discount” being attached to shares, according to investors in the US who have sought a Barrick break-up. “It’s like herding cats to manage something like that,” analyst George Topping said last year. “It’s very difficult across all those different time zones... Selling the company’s Australian assets would be a good place to start.”

Northern Star’s narrower focus on Western Australia gives it a sharper operating focus than majors, the company believes. According to unaudited figures, all-in production costs dropped 13 per cent last month alone. 

“We will grow the inventory and extend the mine life.”

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