The indicated and inferred resource for Pegasus is now 2.1 million tonnes at 11.4 grams per tonne gold for 763,000 ounces of gold.

The update, which builds on the initial resource of 355,000oz gold at 9.8gpt, represents a 115% increase in contained resources as well as a 16% increase in grade.

Today’s upgrade helps firm up Northern Star’s belief that Pegasus holds more than 1 million ounces of gold.

Pegasus is part of the Kundana project in the Western Australian Goldfields, which Northern Star recently acquired a 51% stake in.

Capital costs to bring Pegasus into production are just $A10 million due to the use of existing infrastructure via the adjacent Rubicon mine.

First production is expected in the March 2015 quarter with development already underway.

The mine is expected to add about 50,000oz per annum of production, boosting Kundana’s overall production to 125,000ozpa gold.

The company expects the deposit to have a long life with conversion of resource to reserves at Kundana running at about 80%.

Pegasus is also expected to be low-cost. All-in sustaining costs at Kundana were already a low $706 per ounce in the March quarter.

Northern Star managing director Bill Beament said Pegasus would generate significant free cashflow and should grow further.

“This resource increase supports our view that Pegasus is one of the best high-grade gold discoveries in Australia in the past ten years,” he said.

“It is every gold miner’s ideal scenario – a deposit rapidly approaching 1 million ounces at a grade of plus-10gpt located immediately next to an existing operation.

“This gets even better when it is remembered that Pegasus has significant potential for further resource increases.

“It remains open along strike and at depth and we also have outstanding exploration results up to 8km away on the same structure.”

The company recently intersected visible gold in the main structure around 700m below surface, though assays are pending.

Mineralisation has also been identified 2km north of previous mining and 8km north of Pegasus, which will be the focus of a regional exploration push.

A resource upgrade for Rubicon-Hornet deposits at Kundana is expected next month.

Northern Star acquired 51% of Kundana and 100% of the Kanowna Belle mine from Barrick Gold for $75 million in March.

Tribune Resources and Rand Resources hold the remainder of Kundana.

Shares in Northern Star dropped 1.5% to $1.275.