Opportunity Knocks for Northern Star in Bond Markets

By Stephen Bell

Debt finance is hard to find for many small Australian miners, but those generating plenty of cash like Northern Star Resources Ltd. NST.AU -2.99% believe high-yield bond markets are now well and truly open.

Several mid-cap companies have already made a move. In a recent example, mining service contractor Ausdrill Ltd. ASL.AU +1.89% raised US$300 million through an offering of senior notes to U.S. investors. Now, Northern Star is considering joining them as it weighs funding options for its Ashburton gold mine in Western Australia.

“There is an appetite out there for the high-yield bond market,” Bill Beament, Northern Star’s managing director, told Deal Journal Australia. Talks are underway with investment banks, with the Perth-based company already ruling out raising fresh equity to fund the Ashburton project.

Northern Star earlier this week said its half-year profit rose 78% to 22.3 million Australian dollars (US$23.1 million), driven by production from its Paulsens gold mine in Western Australia at a time when prices of the precious metal stayed near record highs on concerns about the outlook for major economies like the U.S., Europe and China.

Ashburton would be its second major mine, potentially producing 100,000 troy ounces of gold a year. Management is targeting a decision on whether to go ahead with Ashburton later this year based on the results of studies currently underway.

“With our cash balance and what we are generating this year, we can fund Ashburton numerous ways,” Mr. Beament said. “High yield bonds are a big window that has opened up over the past six months as everyone is chasing income.”

He declined to estimate how much it will cost to build the Ashburton project. However, RBC Capital Markets recently estimated it will cost A$160 million to build an ore processing  facility at the site.

Northern Star had A$62 million cash at December 31 and has the potential to generate up to A$85 million in surplus cash from the Paulsens mine this calendar year.

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