Renowned gold mining executive Raleigh Finlayson is tipping a spate of intensified deals in the Australian gold sector, expressing an uncommonly bullish outlook for the precious metal. As the Managing Director of Genesis Minerals, Finlayson believes the recent takeover tussle for Musgrave Minerals may just be a precursor to bigger mergers and consolidation plays on the horizon.
Speaking on the eve of the Diggers & Dealers conference in Kalgoorlie, Finlayson stated that he is open-minded about the potential for another transaction but declined to speculate further. Nevertheless, Red 5 Limited has been identified as a logical target for Genesis due to its proximity to Leonora and the recently acquired Gwalia mine, which was won from St Barbara after a competitive bid battle with Silver Lake.
The acquisition of Gwalia marks step two in Genesis' merger and acquisition strategy, which began with the takeover of Dacian Gold. The company's ultimate goal is to reach an annual production target of 300,000 ounces.
Finlayson emphasised that the deals pursued by Genesis should be accretive and sensible. The company aims to focus on hitting its production target, similar to the approach that transformed his previous venture, Saracen, into a multibillion-dollar success.
Known for his "hope for the best, plan for worst" philosophy, Finlayson is remarkably optimistic about gold's outlook, a sentiment he seldom expresses. With central banks grappling to strike a balance between halting tightening measures and protecting their economies, he believes this environment creates the perfect conditions for gold to thrive.
The managing director will be one of the most sought-after speakers at the Diggers & Dealers conference, which this year will be notable for the absence of iron ore miners for the first time in living memory and the prominence of lithium and nickel companies. Notably, Australia's largest gold miner, Newcrest, is also missing from the event as New York-listed Newmont Corporation closes in on a $26.2 billion takeover.
Finlayson reflected on the shift in the ASX gold sector's dynamics since the dominance of the former Group of Five – Saracen, Northern Star, Evolution, St Barbara, and Regis – which was second only to Newcrest in prominence. While the sector performed remarkably well a few years ago, the dial has since turned, and many producers have struggled to generate cash flow despite a high gold price.
He attributed this decline to factors such as the slowdown in discoveries, increased costs, declining reserves, and shorter mine life. The limited growth potential has heightened the market's interest in companies with higher production profiles, leading to increased merger and acquisition activity.
The recent battle for Musgrave Minerals, where Westgold's takeover bid was eventually gazumped by Ramelius, serves as evidence of the heightened M&A pulse in the sector.
For Genesis, the acquisition of Gwalia offers the opportunity to increase production from around 120,000-130,000 ounces to 200,000 ounces and eventually 300,000 ounces by consolidating operations in the Leonora district, utilising existing infrastructure. The company also possesses several development opportunities in the region.
Finlayson stressed that Genesis pursued Gwalia for its growth potential rather than seeking unrealistic cost-cutting measures. With fuel, gas, and labour costs on the rise, the company aims to capitalise on existing assets and infrastructure to achieve its ambitious production targets.
As of the December futures contract, gold is currently fetching $US1976.10 an ounce. Genesis Minerals' shares closed at $1.38 on Friday, down 4.5 percent.
In conclusion, as global uncertainties continue to impact central banks, and with gold prices exhibiting strength, the Australian gold sector is set to witness an intensified period of dealmaking and consolidation, as predicted by the seasoned gold mining rainmaker, Raleigh Finlayson.
