When Northern Star Resources Limited (ASX: NST) entered the East Kundana Joint Venture (EKJV) in 2014 after buying out Barrick Gold, gold production suddenly became a lot more expensive. Executive chairman Bill Beament was expected to deliver top quality gold, but instead he has been producing low grade products that are more costly to make.
Things got worse in 2017 when mining contractor Barminco’s contract at Kundana mine was terminated as it could not agree on new rates with Northern Star following a change in work scope. Beament then appointed Northern Star Mining Services to become its mining contractor without approval from Tribune Resources Limited and Rand Mining Limited (Rand), the other parties in the joint venture.
Apart from sharing a name with the mining contractor, Northern Star did not appear to have any reason to appoint NSMS, not for commercial or even economical reason. But whatever it was, Beament had not made that clear to Tribune and Rand. He just claimed that by “in-housing” the mining, the company could reduce costs and mine the Kundana area more efficiently.
Quite the opposite happened, though.
Since NSMS assumed the mining operations at the Kundana mine, the cash mining costs per ounce of gold produced had increased 38.9 per cent, while ounces produced dropped 13.4 per cent. The products are also being transported about 50km to Northern Star’s Kanowna Belle processing plant instead of any of the processing plants that are significantly nearer to the mine. The Kanowna Belle costs EKJV around 16,000 ounces of gold production every year.
Gold quality decreased at the same time as well. Development and stope mining widths are excessive alongside the ore, causing significant ore dilution.
With cash costs appear to continue increasing and gold quality decreasing, one can only conclude that Northern Star’s Bill Beament made a costly mistake in appointing Northern Star Mining.