Ashburton project on the back burner
Ashburton was planned to be Northern Star's next big hit after the successful revival of the Paulsens mine in Western Australia in recent years.
But the recent downturn in the gold price seems to have killed off hopes of going ahead with the mine, which was expected to cost several hundred million dollars.
Northern Star said it was cutting its exploration and development budget, which would mean Ashburton being delayed "until gold prices recover". "Minimum expenditure commitments will continue to be met to ensure the company retains ownership of what it believes will be valuable assets in the future," it said.
The deferral is a quick turnaround since the start of 2013 when Northern Star managing director Bill Beament began talks with investment banks over tapping bond markets to help fund the mine.
Ashburton was supposed to double Northern Star's gold production to about 200,000 ounces a year.
It is the latest example of a goldminer parking a future mine in response to the recent slump in the gold price.
Newcrest Mining recently slowed development of several new mines and expansions in Australia and Papua New Guinea.
Miners of other commodities have been shelving new projects for more than a year, with BHP Billiton's decision not to proceed with the Olympic Dam expansion in South Australia last year perhaps the most significant.
Northern Star's deferral decision will be complemented by cuts to exploration spending and other administration costs.
Investors are likely to be sympathetic to the company over the Ashburton mine given it was acquired for virtually no cost other than a royalty.
In May the company forecast it would produce between 100,000 and 115,000 ounces of gold in the year to June 30, 2013. On Tuesday it listed full-year production at just under 89,000 ounces, but added that "gold mined" in the year was just under 104,000 ounces.
Northern Star was a 5¢ stock in mid-2010, but rose steadily in the next couple of years to trade as high as $1.57 late last year.
That process won many fans for Mr Beament and investor Michael Fotios, but the shares have not recovered since Mr Fotios sold down more than 7 million shares in November 2012.
Mr Beament said he was confident the changes announced on Tuesday were the right strategy for the goldminer. "We have sought to strike the right balance between the need to ensure our business continues to generate satisfactory returns for shareholders while retaining the assets needed to grow over the longer term," he said.
"This means reducing costs to enable us to keep our team of people and protect our margins."
Northern Star shares closed 1.5¢ higher at 61.5¢.
Frequently Asked Questions about this Article…
Northern Star has delayed the Ashburton gold project indefinitely. The company said the recent downturn in the gold price made the multi‑hundred‑million dollar project uneconomic for now, so it cut exploration and development budgets and put Ashburton on the back burner until gold prices recover.
Ashburton was expected to roughly double Northern Star's production to about 200,000 ounces a year. With the project deferred, that uplift is postponed and the company will rely on existing operations and its current production profile.
In May the company forecast 100,000–115,000 ounces for the year to June 30, 2013. On the announcement day it listed full‑year production at just under 89,000 ounces, and said 'gold mined' in the year was just under 104,000 ounces.
Northern Star is cutting exploration and development spending and reducing administration costs. The company said it will continue to meet minimum expenditure commitments to retain ownership of assets while trimming costs to protect margins and keep its team.
Minimum expenditure commitments are the required spend levels a company must meet to keep ownership or rights over exploration assets. Northern Star said it will meet those minimums so it retains what it believes will be valuable assets in the future, which helps preserve long‑term value for shareholders.
The article said investors were likely to be sympathetic because Ashburton was acquired at virtually no cost other than a royalty. On the announcement day Northern Star shares closed 1.5 cents higher at 61.5 cents. The piece also noted the shares had risen from 5 cents in mid‑2010 to as high as $1.57 late last year, and had not recovered since a large share sell‑down by investor Michael Fotios in November 2012.
Yes. The article places Northern Star's deferral in a broader trend of miners postponing new projects because of weak commodity prices. It cites Newcrest Mining slowing several developments and notes other miners, including BHP Billiton shelving the Olympic Dam expansion last year, have also delayed projects.
Investors should watch gold price movements (since the project is deferred 'until gold prices recover'), Northern Star's updates on meeting minimum expenditure commitments, further cost‑cutting or exploration changes, and management commentary. Managing director Bill Beament said the changes aim to balance shareholder returns while retaining assets for long‑term growth.
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