Northern Star’s risky rapid expansion

Bill Beament’s Northern Star Resources appears to be on the roll, and we just don’t know if it’s uphill or downhill. The Perth-based gold miner has been expanding their Australian mining operations by purchasing shares or assets of gold mining companies, gaining full control of their mining operations.

Northern Star’s acquired assets

The gold miner’s assets include established gold mining operations in Australia and Alaska. The gold miner operates Jundee, Kalgoorlie (including Kanowna Belle, Kundana, and South Kalgoorlie), Tanami, and Pogo Operations.

Northern Star’s AssetsAcquired fromMonth & Year
Kundana OperationsBarrick GoldMarch 2014 (51% of Kundana)
Kanowna BelleBarrick GoldMarch 2014
Jundee Newmont Mining CorporationJuly 2014
TanamiTanami Gold NLJuly 2015 (25% of Central Tanami)November 2017 (Western Tanami)
South KalgoorlieWestgold ResourcesMarch 2018
PogoSumitomo Metal Mining Co., Ltd.September 2018

Bill Beament’s gold miner owns and operates their mines. Is this why Northern Star decided to terminate the three-year $275 million mining contract of Barminco, so they can self-perform services at the Kundana gold project near Kalgoorlie? Barminco arguably lost one of its biggest mining contracts after being unable to agree on certain terms with Northern Star Resources. It appears that NST wanted to increase its revenues performing mining operations while reducing their partners’ profits.

Northern Star’s Bill Beament went on a buying spree of gold mines because they saw a window of opportunity. He says, the gold price and acquisitions created an opportunity to diversify their assets. They spent millions on the expansion, including exploration to improve the company’s mineral inventory and production.

What are the risks of Northern Star’s rapid expansion?

Northern Star’s expansion may have its advantages in its goal to increase revenues. However, it doesn’t mean that there are no risks when expanding mining operations, especially if the expansion is done rapidly.

Because of its rapid expansion, the company may face a cash flow crunch. To keep the cash flowing, Northern Star should foresee the cash crunch with a realistic plan. Where do they get their funds for purchasing a new gold mine? Will their acquisition increase profits and cash flow?

The rapid expansion may also cause operational inefficiency, which may cost Northern Star’s money, time, and other resources. When expansion happens too fast and too soon, many things may be possible. What risks did Northern Star experience during and after acquiring the different gold mining operations in Australia and Alaska? Where they good business investments?

Our view is that Northern Star share prices will slide later this year as they fail to deliver on their promises. Historically, share markets can be brutal and Bill Beament’s time in the sun may draw to a rapid close.

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