New Pogo owner looks toward mine's future

Northern Star Resources Ltd. Oct. 1 announced that it has closed the deal to buy the Pogo gold mine in Interior Alaska.

The mid-tier Australian gold producer paid US$260 million to buy this high-grade underground operation from a joint venture between Japanese firms Sumitomo Metal Mining Company (85 percent) and Sumitomo Corp. (15 percent).

"On behalf of Northern Star, I would like to thank Sumitomo for their assistance and the outstanding condition in which they have left the Pogo Mine," said Northern Star Resources Executive Chairman Bill Beament.

When Sumitomo decided it wanted to sell Pogo, it did not just put the Alaska gold mine on the auction block for the highest bidder. Instead, the Japanese firm identified around 30 companies that might be a good fit and vetted these companies based on numerous criteria, including mining capabilities, corporate reputation and history of integrating workforces.

Northern Star came out on top of all the global mining companies that went through Sumitomo's screening process.

As a result, the Perth-based company was given the opportunity to acquire the roughly 4.1 million ounces of gold in resources and reserves at Pogo for US$63/oz of gold and get an established underground mining operation to go with it.

Northern Star said its decision to take up Sumitomo's offer to buy Pogo goes beyond the more than 300,000 oz of gold per year that this Alaska gold operation would add to the Australian miner's yearly output.

"Our recent acquisition of the Pogo gold mine in Alaska was not aimed at climbing the global production ladder, it was aimed at achieving more of the objectives that matter to our shareholders," Beament informed a crowd gathered at the Denver Gold Forum on Sept. 24

The Northern Star chairman emphasized that despite the good deal, Pogo is not a run-down asset in need of investment to become a great mine.

In fact, Pogo exceeds the criteria Northern Star established three years ago for acquiring assets. This includes a solid production history, strong resource-reserve growth potential, an outstanding social license and located in a top tier mining jurisdiction.

"The Sumitomo team has done a superb job in developing and operating this exceptional asset," stated Beament. "Their track record in replacing the ounces they mined and their consistent production results without compromising social license, over their 12 years' custodianship of the mine, is testimony to their skills, strong culture and diligence."

Northern Star management scoured Pogo's production history to determine the mine's ability to produce gold at reasonable costs and relied on its team of geologists to see if the asset will be able to continue expanding into the future.

The Perth-based miner was pleased with the operation's past and the prospects for its future.

What Northern Star management found is Pogo has produced more than 3.8 million ounces of gold from ore averaging 13.6 grams per metric ton gold.

In 2017, Pogo produced 271,273 oz at an all-in cost of approximately US$882/oz from ore that averaged 19.8 g/t gold.

"This has fantastic established history of consistent high-grade gold production at a competitive all-in sustaining cost," Beament told attendees of the Denver Gold Forum.

Peering into the future, Northern Star sees great opportunity to build upon this fantastic history.

Going into 2018, the Alaska mine had 1.99 million metric tons of reserves averaging 11.9 grams per metric ton (760,000 oz) gold; plus 8.45 million metric tons of resources averaging 12.3 g/t (3.34 million oz) gold.

"That is the third highest reserve grade in North America for mines doing greater that 200,000 oz per annum," said Beament.

Northern Star is currently working to convert the resources and reserves at Pogo to standards compliant with Australian Joint Ore Reserves Committee reporting standards. Commonly called JORC, these standards are much like Canada's NI 43-101 standards for reporting resources and reserves.

This work will benefit from an expansive exploration program Sumitomo Metal Mining budgeted for 2018.

"We do have to invest with the drill bit and convert some of those resources into reserves; that is well advanced. Sumitomo left the asset in fantastic shape, they budgeted about US$18 million (on exploration) in this calendar year and those results are just coming in as we speak," Beament explained.

"There is a significant amount of mineralization present at Pogo that is not even in the resources," he added.

The Northern Star Resources executive said that a new JORC-compliant resource-reserve calculation should be due out in the next month.

The Australian miner is also pleased with the Alaska-based management and workforce that comes with Pogo.

"This aint broken – we inherited a great team, we would not be stepping into Alaska without picking up a great management and an existing workforce that we think we can further improve on," he said.

To make these improvements, the company has brought a team to Pogo that has proven its worth in seamlessly implementing Northern Star's strategy for success at a similar high-grade gold mine in Australia.

"This provides us the opportunity to leverage the company's underground mining expertise and exploration skill sets to optimize the Pogo mine and target significant mine-life extensions," he added.

The offer to buy Pogo was made even more attractive by the fact that the mine is located in Alaska, a jurisdiction that Northern Star and numerous other Australian mining companies are finding an extremely attractive place to invest.

"No offense, but you are not going to see Northern Star rush off to places like Africa – we like U.S., Australia and Canada," Beament said.

While the Pogo sale did not close until Sept. 28, the deal was structured so that Northern Star benefits from production from the Interior Alaska gold mine starting on July 1 of this year.

As such, Pogo is expected to add at least 250,000 oz to Northern Star's fiscal year 2019, which also begins on July 1, production at a cost of about US$880/oz.

With this as the starting point, Perth-based Northern Star plans to carry forward Pogo's legacy of consistent high-grade gold production at a competitive all-in sustaining cost into the future.

–SHANE LASLEY