Northern Star to double capacity of Super Pit for $1.5bn

Northern Star Resources has baked in 10 per cent running inflation into the cost of the company’s $1.5bn mill refurbishment at the iconic Kalgoorlie Super Pit.

Northern Star Resources has baked in 10 per cent running inflation into the cost of the company’s $1.5bn mill refurbishment at the iconic Kalgoorlie Super Pit, in yet another sign soaring construction costs are far from over in the Australian resources sector.

The Australian gold major pulled the trigger on future proofing the massive Kalgoorlie mine on Thursday, saying the refurbishment would double the capacity of the mill and allow the historic mine to return to production levels of around 900,000 ounces of gold a year by 2029.

The $1.5bn total cost of rebuilding the mill is about $500m more than flagged by Northern Star a year ago, but the company has also lifted its capacity from a planned 24 million tonnes a year to 27 million tonnes a year – more than double its current 13 million a tonne a year run rate.

Northern Star chief executive Stuart Tonkin warned a year ago that the rapid cost escalation in the WA mining industry was adding about 40 per cent to the cost of long lead items of equipment, compared to the previous mill expansion conducted by the company at its Thunderbox mine.

And the new figure published by Northern Star suggests that the pain for WA miners wanting to build new assets or expand existing production is far from over, with the cost estimates including an assumption of a 10 per cent inflation rate – despite the fact Northern Star has already begun ordering many of the long lead items for the project.

Mr Tonkin told analysts the company expected to begin building the expansion next financial year, staging the refurbishment over time to manage costs and avoid interruptions to its existing operations.

“We have the ability to flex – and these are the decisions throughout a three-year period. Do you pay more to get labour and secure it? Or do you take your time and not incur that cost?” he said.

“Because there’s often a trade off between cost and time that other companies are forced into because they’re single assets, single project, and therefore high risk in that regard on the execution phase.”

Northern Star is the second major Kalgoorlie miner to return a major expansion to the agenda in recent months, after neighbour Evolution Mining gave the green light to a $250m mill project in early June at its nearby Mungari operations.

That decision came after a significant deferral due to WA’s tight labour market and spiralling costs due to difficulties across the global supply chain – and competition for both people and equipment from the massive infrastructure build out on the east coast.

But this month has also seen those problems flock home to roost, amid a slew of project delays and blowouts that have thrown a fresh shadow over the state’s mining sector.

Earlier this week BCI Minerals flagged a 60 per cent blowout in the projected cost of its Mardie salt project in the Pilbara – although that also included some scope changes.

Lynas Rare Earths also announced a further delay to its Kalgoorlie rare earths plant, citing delays in equipment delivery and difficulty finding the staff needed to connect up its gas pipeline to power its operations.

And in late May Hastings Technology Metals shares were smashed after the company announced a 44 per cent cost blowout at its flagship Yangibana project in the Gascoyne region of WA, to $948m, which came with a decision to split the development of the project into two stages to make it easier to raise the capital to build the project.

Northern Star chief financial officer Ryan Gurner told analysts that, as the biggest employer in Kalgoorlie already, the company was confident of its ability to recruit construction workers, and that its cost projections would hold good over the construction period.

“The numbers you’re seeing here today are not a study. They’re not a theory. They’re market tested numbers. Everything in the project that we’ve been able to price, has been priced in-market, and we are set at today’s rate,” he said.

“The equipment is ordered. We are placing orders right now for things like power lines, and enabling works.”

Mr Tonkin said the expansion would be paid for from company cash flow through the construction period, with the additional production expected to pay for the costs of the expansion within five years.

The Super Pit produced 320,533 ounces of gold in the first 9 months of the year.

It has estimated gold resources of 28.3 million ounces and an economic ore reserve of 12.2 million ounces.

Northern Star shares closed down 42c, or 3.2 per cent, to $12.62 on Thursday.