By Barry Fitzgerald
FIFTY-DEGREE temperature swings are tough on the mind and body. But Ken Stowe, president and chief executive of Canada's Northgate Minerals, was more than happy to take the endurance test on a tour of the group's Victorian operations.
Swapping Canada's frigid weather for Victoria's swelter, Mr Stowe called in on the group's goldmines in Stawell and Fosterville, near Bendigo.
He had good reason to be pleased despite the heat and flies, with both mines in a head-to-battle for the glory of being Victoria's biggest mine (currently held by Stawell on 2008 figures). Production is rising, costs are coming down and exploration success is adding to mine life. All that at a time of record Australian-dollar gold prices.
Ownership makes Northgate Victoria's biggest gold producer by a long shot a combined 219,000 ounces is forecast for 2009, worth about $328 million at current prices.
But being the mines' owner has not been a guarantee of success in the past. It was the financial and operational woes of the previous owner, Perseverance Corp, that gave Northgate the chance to establish a base in the local gold industry, a base that it intends to use as a launch pad for future growth.
Perseverance was essentially in the hands of its banks when Northgate launched a "rescue" bid in October 2007. The 20¢-a-share bid valued Perseverance at $282 million and was wrapped up without a hint of opposition in February 2008. While others had put Perseverance in the "too hard" basket, it was just the type of situation that Northgate has specialised in for the last 10 years.
"Our history is one of identifying undervalued, underperforming or undercapitalised assets diamonds in the rough," Mr Stowe said.
"The Perseverance assets fit exactly this model. In the four months between the announcement of the acquisition in October 2007 to the closing in mid-Feb 2008, we worked closely with the management at Stawell and Fosterville to identify the key challenges and formulate a focused action plan once we were in charge," he told BusinessDay from Canada.
"We told everyone that the turnaround would not be instantaneous but would take one to two years.
"Our culture is not one of sending down teams of external consultants to fix the problems. We pride ourselves on being able to make quick decisions based on a wealth of operating experience."
Each mine came with its own challenges. Stawell has been operating for 26 years (originally a WMC mine) and has been in closure mode for a number of years, with minimal exploration or capital investment.
"We have made a significant investment in ventilation and cooling underground to improve working conditions, a new, larger truck fleet to dramatically improve productivity, and $7 million a year in exploration dollars among other things," Mr Stowe said.
"Since we have taken over, our aggressive exploration program has already added about two years to the mine life."
Fosterville had been a relatively new operation in the process of transferring from open-pit to underground. When Northgate arrived, the underground mine was still in its ramp-up phase. Development was falling behind the needs of the surface processing plant and gold recoveries were well below design due to black shales in the ore "robbing" gold in solution.
Three days after taking control, Northgate negotiated a deal to switch from contactor to owner mining over a three-month period and set about accelerating underground development work. At the same time, work on a a pilot plant to identify a practical fix for the low gold recoveries was started.
"We are now constructing a $6 million addition to the plant that should be operational at the end of March and is expected to improve gold recovery to about 90 per cent (82 per cent in the December quarter)," Mr Stowe said.
As it has got on top of Fosterville's issues, Northgate is putting more effort in to exploration. "Our initial exploration efforts at Fosterville have met with considerable success, with the discovery of the high-grade Harrier underground zone," Mr Stowe said.
"We see the two Victorian mines as a solid base from which to grow. By our nature we are not grassroots explorers but rather acquirers of operating or advanced development assets," was the only clue Mr Stowe would give on future Australian plans.