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Northern Star’s Pogo goes up and down

The Pogo Gold Project in Alaska is one of Northern Star Resources’ newest acquisitions from Sumitomo Metal Mining Corporation.

While Northern Star’s Australian mining operations remain propped up by a strong gold price, the gold miner’s Alaskan operations took a nosedive because of a disappointing first-quarter production results. According to the March 2019 quarterly report from Northern Star Resources (ASX: NST), the shares fell at about 2.5% to $8.26 resulting from Northern Star’s Alaskan operational problems. Compared to Pogo mine’s Australian counterparts, Jundee and Kalgoorlie Operations, the Alaskan gold mine operation has higher cash operating costs and all-in sustaining costs (AISC), but with the least amount of ore lifted from the Alaskan mines.

What caused the productivity and efficiency of the Pogo mine to decline?

Bill Beament’s Northern Star blames Pogo’s weak production on two things: the late delivery of underground mining equipment and the introduction of a new mining method. There was a delay in the delivery of equipment, with only 5 of the 16 new pieces arriving in March quarter, temporarily limiting the Alaskan operations. As for the methods used for mining, the Pogo mine used the cut-and-fill and drift-and-fill methods up until 2019, but under new ownership, the lone-hole stoping method was introduced. This delayed the gold miner’s quarterly production temporarily, which caused an upward spiral in the quarterly costs.

The rise and fall of production and operating costs

Some experts say that production is set to rise even after the negative results in the March quarter because they expect the issues to be addressed over the next 6 to 12 months — but at what cost? Will there be an imminent rise in operational costs?

Aside from the bullish outlook towards Pogo’s future, there are also insiders who say that the only thing that keeps the Alaskan gold mine buoyed is the Australian dollar and the gold price.

Is Northern Star’s Pogo acquisition a good investment or a poor judgment call from Bill Beament and the gold miner’s shareholders? Will the Alaskan gold miner generate returns for the shareholders or will Pogo’s production performance fluctuate?

If you own shares in Northern Star it may be wise to cash out and consider diversifying into a company with less risk associated to it.

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