Big investments push up Pogo gold costs

Northern Star Resources Ltd. Jan. 23 reported that it produced 59,219 ounces of gold at Pogo during the Australian company's first three months of ownership of the underground Alaska mine.

Since taking over the operations of Pogo at the end of September, Northern Star has focused on ramping up mill throughput.

The Perth-based miner said it is already recording strong productivity gains at the mine, with a 22 percent increase in mined tonnages and a 33 percent rise in mill throughput. As a result, the cost per metric ton of ore has dropped 23 percent during Northern Star's first quarter at Pogo.

"Pogo is still very much a work in progress," said Northern Star Resources Executive Chairman Bill Beament. "We didn't take management control until Sept. 28 and already we have generated enormous productivity gains."

The new Pogo owner said the productivity gains and lower costs bode well for an updated reserve estimate for the high-grade underground mine, which will be calculated in mid-2019.

While the cost per ton of ore has come down, the cost per ounce of gold sold is higher than the company originally calculated.

Northern Star sold 57,534 oz of gold produced at Pogo at all-in sustaining costs of US$1,210/oz during the final three months of 2019.

Given these costs and the other timing considerations associated with the transition process, Northern Star has increased its cost guidance for Pogo from US$880/oz to US$950-1,025/oz for fiscal year 2019, which ends on June 30.

"The timing of this cross-over, combined with the increased upfront investment in development, drilling and mobile fleet, has led to the spike in costs," said Beament. "While much of this is of a temporary nature, we believe it is prudent to revise Pogo's costs guidance for this financial year."

Northern Star's gradual transition to a more bulk mining approach and the mine sequence at Pogo resulted in the average grade of ore fed to the mill during the quarter ending on Dec. 31 to average 8.2 grams per metric ton, a 27 percent drop from the 11.2 g/t during the previous three months.

However, the mid-tier miner is still in the process of implementing its widespread operational changes at Pogo and while this new approach can be seen in the lower grade, further increases in tonnages and cost reductions are expected to continue through the second half of the company's fiscal year.

Northern Star said the drilling results and related mining opportunities that have already emerged at Pogo underscore the strength of the acquisition and the potential for the Interior Alaska mine to drive strong operational results and add to the company's gold inventory.

To take full advantage of these opportunities, the company has increased its upfront investment in-mine development, diamond drilling, mobile fleet and other measures aimed at enabling it to take full advantage of the opportunities now available.

This accelerated expenditure was a large contributor to the higher than originally expected all-in sustaining costs at Pogo during the first quarter under Northern Star ownership.

Northern Star said it will provide a more comprehensive update on its investments into development and mining at Pogo in February.

–SHANE LASLEY