The Northern Star Resources Ltd (ASX: NST) share price is under pressure on Thursday.
In morning trade, the gold miner's shares are down 3% to $12.63.
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Why is the Northern Star share price falling?
Investors have been selling down the Northern Star share price despite the company declaring that today is an "exciting day."
That excitement relates to the company's decision to approve the development of the $1.5 billion KCGM Mill Expansion Project in Kalgoorlie, Western Australia.
According to the release, management expects the development to further strengthen Northern Star's key asset and the company's overall portfolio. It is expected to increase and modernise KCGM's processing capacity from 13Mtpa to 27Mtpa.
Based on a gold price of A$2,600 per ounce (compared to the current gold price of approximately A$2,850), the company expects the following:
- Post-tax internal rate of return (IRR) of 19%
- Project payback of 4.6 years
- Average annual gold production of 900,000 ounces
- Average annual all-in sustaining cost (AISC) of A$1,425 per ounce (group AISC currently A$1,766/oz)
The three-year construction phase has now commenced and long-lead items have been ordered. A ramp-up is expected from FY 2027 before hitting steady-state production of 27Mtpa by FY 2029.
Pleasingly, the development will be fully funded from cash on hand and forecast cash flow. As a result, the company's dividend policy will be maintained.
'A historic new chapter'
Northern Star's managing director, Stuart Tonkin, spoke very positively about the expansion. He said:
Today is an exciting day for Northern Star and a historic new chapter for this world-class asset. The Board's decision to approve the KCGM mill expansion and optimisation represents the next stage to revitalise our largest asset as well as the surrounding district for decades to come. This Project is financially compelling, and a significant enabling step towards delivering our strategy to generate superior returns for our shareholders.
Our confidence in the economics of KCGM to remain a long-life, low-cost gold mine has been further reinforced through the feasibility study phase. Expanding the processing capacity of KCGM will strengthen Northern Star's portfolio, materially increase our free cash flow generation and progress our long-term strategy to be within the 2nd quartile of the global cost curve.
However, based on the performance of the Northern Star share price today, it seems some investors were expecting even better project economics.
