Gold's M&A rumour mill turns again

There is any amount of rumour swirling around the gold sector at the moment but as we go to print, it is very difficult to get a read on exactly what is true, what is conjecture and what is simple fantasy

The merry-go-round kicked off last year with Newmont Mining Corp’s high-profile acquisition of Newcrest. Since then, we have seen Red 5 Ltd and Silver Lake Resources merge and Ramelius Resources Ltd and Westgold Resources Ltd consider a combination, only for them both to separately court Karora Resources Inc. It was Westgold which managed to manufacture a deal for the Canadian miner, only for a mysterious third (fourth? fifth? I’ve lost count) party to emerge in late June.

Spartan Resources Ltd has been dragged into the mill, with suitors for its Dalgaranga project circling. The first to break cover was Ramelius, who snapped up 8.9% of Spartan in late June. However, with a market cap of $1 billion and no reserve for the high-grade, project-defining Never Never deposit, it will be a brave company which takes a full acquisition on.

Elsewhere, the investment community continues to try to ascertain who will buy Newmont’s castoffs, with the Telfer operation in Western Australia top of the list.

And, towering above every other asset in the space is the 12 moz Hemi project owned by De Grey Mining Ltd. As with Spartan, De Grey’s market cap demands any buyer has supreme confidence in the asset.

De Grey has played its hand superbly, playing off corporate interest against regular equity raisings, never leaving itself overexposed to inbound M&A or overcommitted to solo development.

It may be that management pulls off the gold coup of the decade and builds the Tier-1 itself.

On the buyer side, the queue of candidates is lengthening.

Gold Road Resources Ltd – in the unenviable position of being a single-asset producer who doesn’t control the asset – continues to pursue a bolt-on project, having missed out on Tropicana and Lake Rebecca in the last two years ago. ?Ramelius is trying desperately not to look desperate to fill the looming gap in its production profile in coming years and Regis Resources Ltd would plainly love another asset but has its hands full working out the future of its McPhillamys project in New South Wales.

Even Genesis Minerals Ltd appears limited in its capacity to do further deals while elbow-deep in the resuscitation of the Gwalia mine.

The top end of town may have the problem of too many options, but the suburban junior explorers continue to feel like equity markets’ version of Hilary Clinton’s “deplorables” – ignored by the elites and falling behind economically all the time.

There has never been a more prolonged downturn for the junior gold sector in living memory.

The retail market has been essentially shut to gold explorers for two years and they are not finding much support from the bigger corporates either. For now, the established miners are either focused on sweating their existing assets given the altered margins brought by the high gold price or undertaking their own exploration.

Both these tactics are fraught with danger. History proves that when the gold price softens and margins tighten (as they surely must), miners are slow to adjust and suddenly find themselves frantically trying to cut off high-cost ounces from their reserve base and replace them with more quality.

Similarly, the last 20 years have proven miners do not make good explorers with few exploration success stories in Australia coming from larger players.

Instead, it has been the juniors who have made the discoveries which have gone on to be mines. However, with the market and miners having neglected them, few juniors are in a position to offer up advanced projects to the desperate miners.

The only companies moving towards development bring with them largely bolt-ons, good for filling up hungry mills but unsuitable for standalone development.

The situation will have to change. If Australian gold miners are going to come out of the current gold boom in good health and prepared for further growth, they will need a pipeline of new projects. The only way they will fill that pipeline is by taking a risk on early-stage explorers now.

This editorial first appeared in the July-September 2024 issue of GMJ. To subscribe to GMJ and Australia's Paydirt, visit here

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