The Outback in the Interior
Northern Star Resources revitalizes Pogo Mine
Workers at Pogo melt the extracted material into doré bars before shipping to refineries around the world.
Australia-based Northern Star Resources Limited staked its claim in Alaska’s mining industry last year, paying $260 million to purchase the Pogo Mine from joint partners Sumitomo Metal Mining Company and Sumitomo Corporation. Located roughly 90 air miles (137 land miles) southeast of Fairbanks in Delta Junction, Pogo sits on the Tintina Gold Province and controls some 42,206 acres of mining and exploration leases. The acquisition joined the gold producer’s two other Tier-1 projects, Jundee and Kalgoorlie.
Now two-thirds of the way through an eighteen-month transition plan focused on modernization and increased production, CEO Stuart Tonkin says that the Pogo investment has exceeded expectations.
“If anything, the regional opportunities and the exploration upside is probably better than we first thought when we looked at the asset to acquire it,” he says. “The actual support from our employees that we inherited at the operation and the communities of Fairbanks and Delta Junction has been awesome. So, one year in we’re very pleased with the transition, and the results are now showing people the potential we saw in it.”
From Down Under to the Far North
While Australia is known for its rugged outback and decidedly not-Arctic weather, Northern Star’s expansion into Alaska’s frigid Interior isn’t as far-fetched as it may first appear. The surface landscape and climate are two major variables that differentiate Pogo from Northern Star’s Australian assets, but the mine’s potential for increased growth and production dovetails nicely with the company’s overall vision.
“We loved the geological potential of the region,” Tonkin says. “Although there are some isolated parts, there are a lot of parallels to how we operate our businesses across our Australian operations and how we intend to operate Pogo. So, we weren’t scared away.”
Northern Star was drawn to Pogo, the eighth largest gold mine in the United States, because of what it viewed as “significant opportunities to grow the production profile, resource, and mine life via resource conversion and exploration on a highly prospective tenement package,” the company stated in an October 2018 on-site presentation.
The Pogo acquisition gives Northern Star access to a prolific gold mineral belt with a long history of gold production, although it acknowledges that it will take work to push that production into the future.
“We bought the mine at a point where it typically has a short mine life, so it’s reached a point where you’ve got fewer working areas and fewer operating fronts,” Tonkin explains. “That [production] rate was on the decline; our job was to change that by reinvesting. We just need to put the investment into developing more mining areas and get that online.”
Pogo reached peak production levels of 300,000 ounces of gold per year before it began to taper off in the years immediately preceding Northern Star’s purchase, Tonkin says. During the eighteen-month transition period, the company has focused on implementing new processes and modernizing aspects of the mine to not only restore Pogo’s output to previous production levels but do so in a way that can sustain it over the next ten years.
Already Northern Star is making gains; the company expects gold production to reach 200,000 to 250,000 ounces in FY2020, up from the 183,555 ounces of gold produced in FY2019. While Pogo is primarily a gold operation, Tonkin says they do get a small portion of silver—usually about 10 percent—in the gold deposits.
But Pogo’s production potential wasn’t the only draw of doing business in Alaska.
“Beyond that, Alaska is a great place to do business,” Tonkin says. “We’re very pleased with the cooperation, attention, and acceptance from the regulatory agencies, the community, and the employees.”
A year after its $260 million purchase of the Pogo Mine, Northern Star Resources expects to produce 200,000 to 250,000 ounces of gold in FY2020; the goal is to restore the mine to its previous production levels of 300,000 ounces per year.
Northern Star Resources Limited
A Change in Method
Northern Star knew coming into Alaska that restoring Pogo to its prior production levels—and doing it sustainably—would require a hefty financial investment in increased exploration and drilling to discover new veins of ore and extend the mine’s life.
“We have had to—and we understood this when we bought it—reinvest heavily into the operation through exploration and drilling, increased investment in the discovery,” Tonkin says. “So, we kind of really ramped up the exploration.” Tonkin says the company ran multiple rigs both above and below ground, “showing us where the mineral lines continue and where new ones may be.”
In addition to the aggressive investment in exploration, which Tonkin says Northern Star will continue in the coming years, the company implemented significant changes in how it mines the ore, moving away from jumbo fill to put more emphasis on longhole stoping. The method increases production rates through increased ore drive efficiency and allows the advancement of more tonnes per meter.
“That just means we’re doing kind of less activity to break the same tonne, which actually allows the unit cost to be reduced, which then allows us to take a lot more material profitably than the mine was historically doing,” Tonkin explains.
In its FY2019 fourth quarter update, Northern Star made clear that it considered longhole stoping a key component to its goal of achieving significant cost reductions and improving profitability. The current cut and fill method costs $136 per tonne mined, compared to a cost of $42 per tonne with longhole stoping, which represents a 69 percent cost reduction per stoping tonne. Northern Star’s goal is for 60 percent of its total processing tonnes to come from stoping; as of June 2019, stoping represents 33 percent of the company’s processing feed tonnage, putting the mine operator on track to reach its target.
“There’s still a lot of work to do,” Tonkin says. “It’s not different from what we had expected, but it takes a lot of time. We still have to work out the older areas, but that’s really the future of the mine, to get that fully implemented in the coming year.”
Northern Star Resources Limited
“All the benefits point to always keeping the most advanced, best available equipment and maintaining it well to get the most hours and operating time on it; that’s our philosophy and our model. We invested $120 million in the fleet because we saw that was holding back performance.”
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An Investment in Modernization
Northern Star’s investment in restoring Pogo extends beyond increased exploration and drilling to include a complete overhaul of the mine’s equipment and fleet in order to improve efficiencies and take advantage of technological advances.
Machinery and underground equipment becomes unreliable after two to three years, Tonkin says; when Northern Star took over, some of what was left behind was a decade old, if not more. The company also committed to replacing all of the trucks, production drills, light vehicles, and service vehicles left behind; at the same time, they reduced the fleet size by half to ease congestion in the mine and improve efficiencies.
“All the benefits point to always keeping the most advanced, best available equipment and maintaining it well to get the most hours and operating time on it; that’s our philosophy and our model,” Tonkin says. “We invested $120 million in the fleet because we saw that was holding back performance.”
The updated fleet supports Northern Star’s current and future requirements, including the expected higher productivities. Technological advances on the new equipment include semi-autonomous guidance for tele-remote loaders, automatic drilling on development jumbos, and long-hole drills. The new equipment allows holes to be drilled two to three times faster than what was possible using the old equipment, while the bolting and meshing capabilities of the jumbos increased productivity and allowed Northern Star to reduce the number of drills required from nine to five.
The semi-automated loader not only improves productivity and efficiency but enhances employee safety as well. Without a driver, the loader can move more quickly through the mine to pick up broken material, Tonkin says, meaning more can be accomplished in the same amount of time it would take a driver-operated loader to perform the same task. And because the operator isn’t physically driving the loader, there’s no danger of falling from it or being injured by loose rocks.
“It’s almost like putting autopilot on in vehicles or planes,” he explains. “It allows less fatigue on the operator trying to drive through, and it can do very repetitive tasks at high speed with minimal damage to the equipment. It allows the operator to be away, enclosed in a cabinet with monitored screens, and operate the loader autonomously. These are the kinds of things that can really make a difference in a productive mine.”
Tonkin believes the upgrades have a positive impact on employee morale as well.
“It changes your employees’ attitude and culture to have something new versus something old,” he says.
The investments have already begun to pay off, with Northern Star seeing increased production and decreased costs from quarter to quarter.
During the fourth quarter of FY2019, Northern Star mined 27 percent more ounces than during the third quarter and increased the amount of gold sold by 33 percent for a total of 48,009 ounces, according to the company’s fourth quarter operational update. The stoping tonnes, which account for 33 percent of the mine’s mill feed, increased 250 percent, while the all-in sustaining cost decreased 18 percent from the third quarter to $1,207 per ounce.
Northern Star expects gold production will continue to rise as it brings additional areas of the mine online and increases the number of available stoping panels.
Northern Star invested $120 million to upgrade and modernize Pogo’s fleet.
Northern Star Resources Limited
“We have had to—and we understood this when we bought it—reinvest heavily into the operation through exploration and drilling, increased investment in the discovery.”
Northern Star’s transition as owner and operator of Pogo and the changes it has implemented have gone fairly smoothly, Tonkin says, in no small part due to the staff the company inherited as part of the purchase.
“The staff understood that things are necessary to renovate the operation and get it profitable and reinvested,” he says. “All in all, with the amount of changes that have been put underway and the pace that we’ve ramped things up, that’s been accepted fairly well.”
Northern Star’s commitment to its staff and the region equals its commitment to Pogo’s expansion.
“The majority of staff are from Fairbanks and Delta Junction,” Tonkin says. “That’s what we’re investing in; that’s basically going to be the future of the operation, so it’d be great to increase the Alaska-based staff and even at some point give them a chance to grow with [the company].”
As part of the transition, employees from Northern Star’s Australian projects came to train the Alaska-based staff on the upgraded equipment; the company also flew some Pogo employees down to Australia to witness firsthand how the company operates. And a contract expiration in December also allowed for an influx of local hires.
“We basically were able to replace [the incumbent contractor] and hire another sixty local Fairbanks and regional contractors, so that was a great thing,” Tonkin says.
The payoff from Northern Star’s hard work and financial investment will ultimately benefit everyone, Tonkin says.
“It’s understood that it requires a lot of work and investment, but the reward there for staff, the community, and continued employment is pretty strong,” he says. “We think all stakeholders benefit from keeping the mine open and keeping it profitable.”
In This Issue
Alaska’s Giving Pipeline
Few large foundations support “the general good” or social service projects in Alaska, so the Last Frontier has a pretty thin philanthropic layer, according to United Way of Anchorage Vice President Cassandra Stalzer. However, the oil and gas industry has a history of stepping in and filling the gaps in Alaska communities by providing money and volunteers for myriad charitable efforts in the state.