Northern Star Resources will spend around $100 million to mitigate productivity lulls at its Kalgoorlie mill expansion, with extra staff brought in as the project nears completion.
Northern Star Resources will spend around $100 million to mitigate productivity lulls at its Kalgoorlie mill expansion, with extra staff brought in as the project nears completion.
Northern Star increased its cost forecast for the final stages of the three-year Kalgoorlie Consolidated Gold Mines mill expansion this morning, from a range between $530-550 million to $640-$660 million, as the project closes in on commissioning mid-year.
The increase is expected to lift the total bill for the mill expansion above $1.6 billion and was attributed to staff increases designed to “mitigate lower-than-planned productivity”.
The expected outlay was revealed in Northern Star’s quarterly report released this morning, which was accompanied by an at-times tense analyst call.
Northern Star managing director Stuart Tonkin said the additional investment was worthwhile to have the expanded plant – which will ramp up to 27 million tonnes of output per annum from 13Mt – up and running.
Northern Star had around 600 working on the project through the build phase, with that number dropping to 350 over Christmas.
It will increase headcount to 800 over the final six months and run night shifts on the project.
Mr Tonkin said taking longer to complete the project with the same level of staff would not solve the issues with productivity at the KCGM project.
“The most important part is getting the plant on, getting ore through it, and step-changing the asset’s cost base and its revenue,” he said.
“Time is of the essence with KCGM, not capital sadly.
“At this point, it’s not sensitive to capital.
“We don’t lightly spend $110 million unnecessarily.
“We want to see this plant operating and starting to contribute.”
Mr Tonkin insisted the extra staff would not be “standing around holding stop signs” when pressed on the headcount.
Northern Star is operating in a record gold price environment, with local dollar prices touching $7,000 per ounce of gold this week.
As it presses ahead with expansion and growth across its assets, the company recorded an underlying cashflow deficit of $329 million for the quarter but held cash and bullion worth $1.18 billion at the end of December.
The state’s largest gold miner faced scrutiny over its disclosure to the market through December when a crusher failure at KCGM and other production issues led it to downgrade guidance in the first week of January.
Mr Tonkin was pressed on the need for greater disclosure by analyst Ben Lyons from Jardan Securities, who told Northern Star management he didn’t think the company’s disclosure timing was satisfactory over the period.
Matthew Friedman from MST Financial quizzed Mr Tonkin along similar lines relating to costs, invoking a passionate response from the Northern Star boss.
“We recognise it was a poor quarter,” Mr Tonkin said.
“We understand the elements that contributed to that – there were many.
“And we understand what we’ve done to rectify it and what the outlook is going on.
“I pick up the frustration from the question, and I pick up frustration from analysts and investors who can’t model this.
“Quarter two is behind us. The second-half outlook is strong, and we will work very hard to deliver that. Where we position ourselves into FY27, is an excellent position.”
Hemi
The future of the Hemi project acquired by Northern Star in its $5 billion all-scrip acquisition of De Grey Mining in May last year was also a key line of focus.
Northern Star said it would increase its expected spending at Hemi from $140-150 million up to $165-$175 million this financial year.
The increase was attributed to a more detailed review of engineering and design works at the significant Pilbara gold deposit where Northern Star still awaits regulatory approval.
Northern Star said conversations were ongoing with state and federal regulators and traditional owners and flagged that a dewatering trial was delayed by the Pilbara’s hot season.
“Once that’s in place and we’ve got a plan that’s acceptable, we’ll commence the trial,” he said.
The trial will inform the company’s dewatering licence for its planned open pits.
Water management a major concern for traditional owner groups in the area and are being engaged in discussions around the dewatering work.
Mr Tonkin said the EPA continued its assessment of the project in parallel.
“There’s no real way to fast track those processes with the regulators,” he said.
“It’s proven that they take their time.”
Northern Star shares were down 4.8 per cent in early trade, to $27.21.
