Northern Star Resources Ltd. has discovered a new Central Lodes vein system about 800 meters from the existing underground development at its newest Pogo gold mine in Alaska pointing to an increased resource, even as analysts say that a cultural shift stands as the key risk to it becoming a truly successful acquisition.
Four surface drill rigs are being used to further define the Central Lodes system announced Feb. 12 over a 650 meter strike length and a 500 meter down plunge extent, remaining open in all directions, with a maiden mineral resource estimate due the middle of the year.
Central Lodes surface drilling returned results including 2 meters at 175.3 g/t from 410.4 meters, 3.6 meters at 50.6 g/t from 260.5 meters, 14.3 meters at 6.1 g/t from 453.3 meters, 2 meters at 35.1 g/t from 257.7 meters, and 3.4 meters at 26.8 g/t from 37.3 meters.
The exploration results, which chairman Bill Beament described as "exceptional", came from a A$35 million exploration and concentrated infill drilling campaign from 693 diamond drill holes totaling 133,136 meters in the 12 months to Dec. 31, 2018, using four underground rigs and four surface rigs.
A review of historic drilling by previous owners has also identified more than 2,500 significant unmined intersections — defined as minimum 2 meters wide at 4 g/t gold — outside the current resource, which currently stands at 4.15 million ounces of gold, inclusive of ore reserves.
Beament said those results — with intersections like 12 meters @ 51.5 g/t, 7.6 meters at 66.2 g/t, 2.3 meters at 171.7 g/t, 5.9 meters at 65.5 g/t and 4.7 meters at 50.9 g/t — "clearly pave the way for a significant increase in the mineral resources."
The company has already secured key exploration and production approvals which now cover the proposed production site at the Central Lodes and stretch to the edge of the "highly promising" Goodpaster prospect.
Northern Star will spend a further A$15 million on exploration drilling in the second half, as per its full year guidance of between A$75 million to A$80 million.
Local challenges
Sydney, Australia-based UBS Mining Equity Analyst Daniel Morgan said the market had imputed exploration and productivity success at Pogo when the deal was announced, which would lead to extending the two to three-year mine life remaining at Pogo to about 10 years.
Given Northern Star said it would pull out lots of cost and change the mining method to achieve the bulk scale of underground mining to lower the cut-off grade and allow more mineralized material to be extracted, Morgan believes the key risk in all that is a cultural shift.
While Morgan believes Northern Star will succeed at this, he told S&P Global Market Intelligence that the market will be watching that shift, particularly given perceptions that other Australian companies may have had such challenges.
He said this wariness stems from OceanaGold Corp. finding that getting its workforce to adopt Australian mining practices had been more challenging than first anticipated at the Haile gold mine in South Carolina it bought in 2015.
Commissioning challenges at Haile which saw its 2017 guidance downgraded had industry watchers suspecting that the plant being designed in-house may have reduced the commissioning risk.
Macquarie reportedly noted at the time that OceanaGold, which was known to have top-quality mine building teams, acquired Haile during construction and was therefore was not in complete control of the design.
Toronto-based BMO Capital Markets Precious Metals Analyst Brian Quast, originally from Australia, said that while Haile and Pogo differ in terms of mining jurisdictions, he agreed the cultural shift would be a factor for Northern Star in Alaska.
"Haile is in South Carolina, and is not a mining area. They were trying to hire people out of Nevada that had experience in mining at Haile," Quast told S&P Global Market Intelligence.
"It's different out of Fairfax where there is a history of mining but it's 'sleepy mining' — it's not go-go-go Kalgoorlie or Nevada or one of these big operational centers. It's just more 'I work in the mine because my dad worked in the mine.'"
Quast has Pogo ramping up over 18 months, and believes Northern Star "got a bit ahead of themselves" in thinking they could get 80% there in six months, which the analyst thought was "a bit unrealistic."
Northern Star mined 59,219 ounces at Pogo for the December 2018 quarter at a higher-than-expected all-in sustaining cost of A$1,681/oz due to a change in mining method and sequence.
Yet Quast still believes Pogo will end up being a good deal for Northern Star, "but not nearly as good a deal as the market thought it was right after the announcement."