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When one of Australia’s top gold producers Northern Star Resources (ASX:NST) announced its intention to acquire De Grey Mining – developer of the standout Hemi gold discovery – it was a veritable bombshell on the ASX, not to mention among investors closely watching the materials sector more specifically.
On Monday, Northern Star said it had entered a binding Scheme Implementation Deed (SID) with De Grey to facilitate its acquisition, with the total equity value of the latter being set at A$5 billion.
Under the arrangement, De Grey shareholders would get 0.119 new shares in Northern Star for each of their own, with this pricing De Grey shares at A$2.08 – a 37.1% premium to the company’s last closing price (of A$1.52 on November 29), as well as a 43.9% premium to De Grey’s 30-day volume-weighted average price of A$1.45.
Northern Star underlined – in its announcement – the fact this acquisition would propel it to a position of holding 74.9 million ounces of mineral resources, in addition to ore reserves of 26.9 million ounces, based on deposits across it three production centres in Western Australia (plus one in Alaska).
The jewel in the crown
The Hemi project will provide a solid complement to Northern Star’s two focal assets in WA – its Yandal production centre in the Northern Goldfields region, and the Kalgoorlie production centre further south.
Hemi itself has provided headline news since 2019, when it was identified as a near-surface, high-grade gold discovery for De Grey: Fascinating not only due to its size – spread across 1,500 square kilometres – but also because the gold there is intrusion-hosted, a mineralisation type new to the Pilbara region, and with a scale of mineralisation previously unseen in the area.
The project is developing around six main zones – Aquila, Brolga, Crow, Diucon, Eagle and Falcon – with mineralisation across 2,000 metres north to south and 3,500 metres east to west, with depths of up to 500 metres, and remaining open in all directions.
Crucially, it hosts a mineral resource estimate of 11.2 million ounces, according to an update released in mid-November, which showed the numbers had jumped by 0.7 million ounces in just one year since the previously reported MRE.
These qualities have led many to claim Hemi is one of the world’s largest undeveloped gold projects, and it’s in a top-tier location.
Aiming to be a top five gold mine
Hemi’s attractions as an asset go beyond the mineralisation it holds, with an additional focus on what is predicted for its production future.
In September 2023, a definitive feasibility study (DFS) for the project outlined expectations for annual production of 530,000 ounces over Hemi’s first 10 years, with De Grey’s board signing off on development activities which would allow for open-pit mining to kick off from the Brolga starter pit, and first gold expected by the second half of 2026.
The financial parameters were also strong: According to the DFS, Hemi would provide a pre-tax free cash flow of $6.3 billion over the first 10 years, based on what a gold price of $1,295 per ounce would yield over that time period, with an average of 530,000 ounces to be produced over years one to 10.
This would put Hemi in any top five list of Australian gold mines, going beyond Northern Star’s Kalgoorlie Consolidated Gold Mines (KCGM), which in the 2024 fiscal year, produced 449,032 ounces – although the company is propelling it to an annual level of 900,000 ounces by 2029 according to a $1.5 billion expansion project launched in 2023.
The predictions also go beyond the numbers for AngloGold Ashanti’s Tropicana mine in the Yilgarn Craton – another top five Aussie gold mine – which in the 2023 calendar year produced 442,887 ounces.
Building from a solid base
With DeGrey signing off on the DFS, construction was expected to begin in mid-2024, and the company moved through the required activities quickly from the third quarter of 2023 and throughout 2024.
According to the company’s September quarterly report for the latter year, DeGrey issued tenders to contractors for EPCM (engineering, procurement and construction management) and EPC (engineering, procurement, and construction) bids for the Hemi process plant, and achieved a 30% milestone for Front-End Engineering Design (FEED).
The company also expended $169M in orders for long lead items and the mine’s permanent camp – this being within 0.5% of the DFS capital cost estimate for these items.
In terms of the project’s future following acquisition, Northern Star said it would bring crucial experience to Hemi – particularly the know-how honed from its KCGM expansion project, together with general de-risking through its proven development and operating expertise and strong balance sheet.
With Final Investment Decision (FID) yet to be finalised – subject to environmental approvals from the State and Federal governments – Northern Star has highlighted its plans to optimise Hemi’s development and mine plan, while retaining the majority of DeGrey’s management team, and intending to retain all other operational workers.
Gold, gold, gold!
Of course, another reason why a high-grade, low-cost project is attractive to investors, and an asset worth acquiring is the performance of gold as a commodity, which stormed to an all-time high of $2790.07 in October, remaining impressive from then until now (today’s number is $2639.80).
Northern Star managing director and CEO Stuart Tonkin said the acquisition of DeGrey would be a boon to shareholders, and play a key role in enshrining the company’s place as a top 10 global gold major.
“De Grey’s Hemi development project will deliver a low-cost, long-life and large-scale gold
mine in the Tier-1 jurisdiction of Western Australia, enhancing the quality of Northern Star’s asset portfolio to generate cash earnings,” he said.
“We remain committed to our profitable growth plan to 2-million-ounce per annum by FY26, with the KCGM Mill Expansion and addition of Hemi propelling a significant further increase in Northern Star’s production to ~2.5Mozpa by FY29.”
Northern Star has been trading at $16.08, while DeGrey shares are at $1.91.
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