Northern Star eyes $1bn Super Pit expansion amid rapidly rising construction costs
The cost of key items for building mining plants has surged in the past year, but Northern Star is confident in its plans for a massive expansion of the mill at Kalgoorlie’s iconic Super Pit.
The cost of key items at major mining projects has jumped as much as 40 per cent over the past year, according to Northern Star Resources boss Stuart Tonkin, highlighting the rapid cost inflation afflicting the sector.
Northern Star is considering a $1bn refurbishment of the mill at its Kalgoorlie Super Pit operation to double the plant’s capacity and lift the iconic gold mine’s output by as much as 200,000 ounces a year.
Northern Star released the details of pre-feasibility studies into the best way to refurbish the Super Pit mill on Tuesday, but is yet to commit to the project.
Mr Tonkin told analysts the company was leaning towards the refurbishment and expansion of the existing mill – which can currently process about 13 million tonnes of ore each year – rather than bolting on additional processing lines or fully rebuilding the ageing plant.
Refurbishment and expansion – at a cost of about $1bn – would almost double its capacity to 24 million tonnes a year, with a new mill likely to be capable of processing 22 million tonnes a year. Bolting on additional infrastructure would only add four million tonnes to its annual capacity, the company said.
But Northern Star’s feasibility process had highlighted the mining industry’s rapidly escalating costs since the company launched a similar expansion of the mill at its Thunderbox mine. While stressing that the Thunderbox work was still running on time and within its $180m budget, Mr Tonkin said market soundings indicated that the price of key items needed for gold processing plants had escalated dramatically since Northern Star announced the Thunderbox expansion in August 2021. Delivery times for equipment had also blown out, he said.
“If you took like-for-like and year-on-year, some of the things that we bought and used for Thunderbox can almost have double the lead time and 40 per cent extra cost for the same thing,” Mr Tonkin told analysts.
His comments came a day after Evolution Mining deferred a multimillion-dollar expansion of the mill at its Mungari operations, outside Kalgoorlie, citing rapid cost escalation.
Similarly, St Barbara this month shelved its plans for an expansion of its Simberi gold mine in Papua New Guinea, preferring to put the mine on the market rather than sink additional capital at a time of sharp inflation.
Evolution’s announcement triggered a sell-off of Australian gold stocks on Monday, as nervous investors dumped the sector on fears of more bad news to come in next month’s quarterly production reporting season, with a raft of key gold producers hitting 12-month share price lows.
While a final decision on the Super Pit is still some time away, Mr Tonkin said current inflated costs were factored in to the company’s $1bn cost estimate for the refurbishment, which would see about 70 per cent of the existing Super Pit plant progressively replaced, and said the company was confident the mill expansion made financial sense.
“Ultimately it drives a very balanced capex for the longevity of the asset and it gives us a very compelling internal rate of return towards 30 per cent,” he said.
“It sits at around $1bn of capex and it has a payback period within that sort of two to four years – depending on what gold price assumptions are made.”
The Super Pit produced 472,000 ounces of gold last financial year at all-in sustaining costs of $1385 an ounce. Northern Star’s existing expansion plans for the mine would lift the annual output to 650,000 ounces annual by 2026. The mill expansion under consideration would add an extra 200,000 ounces of output a year, potentially lowering average costs by up to $200 an ounce.
Northern Star shares closed up 43c, or 6.1 per cent, to $7.45.