Exploration crisis could wipe out open-pit gold mining in the West

Speaking at a West Australian Mining Club function in Perth yesterday, Mr Beament argued a proposed lift in gold royalties being considered by the WA government could exacerbate a decline in mining activity in the state.

“An eight-year-old can see that if we don’t find more minerals at a far faster rate than is currently the case, the mining industry is going to die,” Mr Beament said.

“There are a number of issues that get far more attention than this exploration crisis, and yet this is as important to Australia’s future as any of them.”

WA gold miners have formed a coalition to lobby against the proposed royalty rise, with the outcome of the government’s review into the issue expected by the end of the year.

While Northern Star has committed $50 million to exploration across its portfolio of assets next year, Mr Beament said exploration activity across the industry as a whole was in decline.

“The painful reality is that at this rate in Western Australia, in 10 years’ time, will only have one open-pit gold mine in production, being Boddington. That reflects many factors, including the simple truth that Western Australia’s remaining deposits are deeper and harder to find,” he said.

“Exploration in the state is becoming an even higher risk investment. The policy framework needs to reflect that changing reality.”

Northern Star’s exploration efforts at its Paulsens underground mine helped it improve the operation’s performance, setting it up for a suite of mine acquisitions over the past year.

The acquisitions from gold heavyweights Newmont Mining and Barrick Gold have transformed Northern Star into Australia’s second-largest gold miner behind Newcrest Mining.

The excitement around the acquisitions propelled Northern Star’s market capitalisation above $1 billion, but its share price has dropped more than 30 per cent since it peaked in mid-August. The share price fall has far outpaced the 6.6 per cent drop in the US dollar gold price and the 1.3 per cent fall in the Australian dollar gold price over the same time­frame.

Mr Beament blamed the recent share price weakness on collapsed financial services firm Van Eyk, which has been rebalancing some of its gold holdings.

Mr Beament said the share price weakness masked a strong reception the company had received during a roadshow to North America and Britain. Filings lodged with the ASX this week shows Van Eck’s interest in Northern Star has fallen from 11.17 per cent to 9.36 per cent.

But the selldown by Van Eyk has been somewhat offset by continued buying by the world’s largest resources investment fund Blackrock, which has grown its stake in Northern Star from 13.2 per cent to 14.2 per cent.