Forbes India 15th Anniversary Special

Northern Star Resources: Shining star

Bill Beament's mining firm, close to meltdown a decade ago, is good as gold

Published: Sep 5, 2016 06:25:21 AM IST
Updated: Mar 16, 2017 03:43:50 PM IST

Northern Star Resources: Shining star
Bill Beament’s shares are worth $54 million, more than enough to buy a flashy car to replace the skateboard he rides to the office in West Perth
Image: Carla Gottgens/Bloomberg via Getty Images

Legendary US oilman J Paul Getty had a simple recipe for wealth creation: “Rise early, work hard, strike oil.” Bill Beament has introduced an Australian variation: Rise early, work hard, strike gold.

Getty’s formula made him one of the world’s richest men. Beament has a long way to go before joining any rich list, although the gold-mining company he runs, Northern Star Resources, has come from nowhere to rank as one of the Australian stock exchange’s top 100.

In 2007, Northern Star was down to its last $3,750 (A$5,000), its only asset being a transportable exploration office and a shed in the remote Kimberley region of northern Australia—both of which were for sale.

Miraculously, after pinning a notice on a board outside a local grocery store, Beament managed to sell the office and shed for $225,000, though with only $75,000 in cash and the rest over time. It wasn’t much, but it kept the company alive.

Today Northern Star is valued on the Australian market at $2.1 billion and Beament’s 15.22 million shares are worth $54 million, more than enough to buy a flashy car if he wants to replace the electric skateboard he is sometimes seen riding to his office in West Perth.

The skateboarding 41-year-old chief executive is one example of how Northern Star has defied convention, but the most significant difference is that in 2010, after three years of surviving on loans from directors, it went gold-mining just when iron ore was the hottest ticket in Australia’s resources sector. “They were tough times,” Beament recalls. “We had no employees, just me receiving deferred shares for pay and doing part-time work on the side to earn some cash to put food on the family table.”

Everything changed in mid-2010 when Beament negotiated the purchase of the small Paulsens gold mine in Western Australia for $20.25 million, even though Northern Star’s stock-market valuation at the time was only $750,000.

But before the deal was settled, the vendor demanded a higher price, eventually getting $30 million, ­initially debt-funded but with borrowings rapidly repaid from gold production. “They thought I was mad. I knew we’d got a bargain,” he says.

That confidence came from Beament’s technical training as a mining engineer and years of working in the highly specialised world of deep mining, a place of narrow tunnels and dangerous equipment often hundreds of yards underground. He knew what he was buying at Paulsens and how to extract more gold than the previous owner had.

A rising gold price also helped Northern Star, with the metal climbing from $1,240 an ounce on the day of the Paulsens deal to $1,400 by the end of 2010, on its way in 2011 to an all-time high of $1,895 an ounce.

Paulsens was the start for Northern Star, though the big break came at the end of 2013, after the gold price had crashed back to $1,200 an ounce and major mining companies such as Canada’s Barrick Gold and Newmont Mining of the US were under pressure to cut costs and ­retire debt.

That created an opportunity for Beament to go on a buying spree.

Over the next two years, Northern Star scooped up a series of gold mines in Australia, starting with the Barrick’s Plutonic operation, followed by two other Barrick mines (Kanowna Belle and East Kundana) and then Newmont’s Jundee mine, a deal that cemented Northern Star’s position as Australia’s second-biggest gold miner after the sector leader, Newcrest Mining.

Today Northern Star is producing gold at an annual rate of 560,000 ounces a year at a cost of $780 per ounce, generating free cash flow of $200 million a year and paying dividends, with $250 million cash in the bank, no bank debt and a share price of $3.54, up by 60 percent over the past six months.

Beament acknowledges that the company’s recovery from a time when its cash balance had dropped to $3,750 owes much to good timing with gold prices and luck in buying quality assets from big companies that were downsizing. “In any deal there has to be a mix of good timing and good luck,” he says. “What we’ve also found is that you make your money on the buy and not the sell.”

For Beament, there has been another factor at work: A willingness to take Northern Star into his preferred world of deep mining rather than rely on the open-pit mining methods used for bulk commodities such as coal and iron ore. “They’re more like rock factories than real mining,” he says. “I’ve always loved underground work. It’s more challenging, but the rewards can be greater.”

Beament’s belief in gold has been well rewarded, but he believes there could be more jackpots to come, with the possible election of Donald Trump as US president being a potential bonus for gold miners. “We are in very volatile times, and that’s perfect for gold.”

(This story appears in the 16 September, 2016 issue of Forbes India. To visit our Archives, click here.)