Wedding bells continued to sound across the gold mining industry over the Christmas-New Year break, extending the trend that emerged earlier in 2022.
‘Consolidation’ is the catchword for the arrangements but that’s another way of saying cost rises are the driver, as we will see in the December quarter’s exploration and production reports starting to flow into the ASX.
Quite a few companies will reveal sharp rises in their All In Sustaining Costs (AISC) data and analysts and investors will focus more closely on the estimates for 2023.
Companies showing signs of losing control of their costs will be penalised even as companies try to direct investor attention to the sharp rise in world gold prices at the start of 2023.
Comex gold prices topped the $US1,900 an ounce mark on Thursday for the first time in months after US inflation showed more signs of weakening
Punters reckon that’s good news for gold – it saw another easing in the value of the US dollar (whose high value in 2022 crimped gold prices and demand) with the Aussie dollar back over 69 US cents and looking to regain 70 US cents for the first time since early October.
So far in 2923, the Aussie dollar is up 2.3% but the US dollar index (which measures the greenback’s value against a basket of major currencies) is only off 1.2%.
Driving some of the interest in gold – and all of it in copper, iron ore and other industrial metals – is the belief that China’s re-opening from its Covid lockdown will see a surge in demand for commodities.
It won’t, because China’s appetite for commodities continued in 2020, 2021 and 2022, with demand for copper, lithium, iron ore remaining solid.
Remember while there were monthly blips, demand for New Energy Vehicles – especially battery powered models – surged over the three years thanks to purchase subsidies.
While most of those payments have gone, the Chinese industry still sees another year of strong demand for NEVs in 2023.
That’s some of the background for the Australian resources sector to work with this year as consolidation moves become more commonplace.
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At the top end of the sector, BHP signed a scheme implementation deed to acquire all shares in Oz Minerals for $9.6 billion, or $28.25 a share.
The new, higher price represents a 49.3% premium to Oz Minerals’ closing price of $18.92 on August 5, prior to the initial $25 per share offer from BHP.
The scheme is still subject to shareholder approval as well as a recommendation from an independent expert report, among others.
OZ directors recommend that shareholders vote in favour of the takeover bid in the absence of a superior proposal.
The scheme takeover is expected to be implemented in the middle to late April.
This deal wasn’t driven by the need to curb costs or make up for labour shortages, it is all about the renewables boom and copper’s part in that future, along with nickel from OZ’s proposed West Musgrave nickel-copper mine in Eastern WA.
If the China re-opening price surge for copper really takes hold, this could end up being a nicely-priced deal for BHP.
But further down the food chain in resources, the pace of marriage will continue among smaller players in 2023 as they grab at ways of reducing or spreading rising costs across larger asset bases, production volumes or find new sources to cash to continue exploration programs.
The major deals in 2022 among small to medium gold miners last year involved Genesis-Dacian Gold and at year’s end, St Barbara – a series of transactions that were apparent from the start with the mid-year Dacian bid.
Those deals will see a new company called Hoover House set up to hold a group of assets from the three companies with the greatest potential. Gold assets in Australia, PNG and Canada owned by St Barbara will be spun off into a new company called Phoenician Metals which is expected to list on the ASX.
Now a future $2 billion group is in the process of being created, but we won’t know how it will shape up and the precise details of the strategy until the third or 4th quarters of this year.
But one thing is clear from the series of deals – cost control/reductions are a key part of the new approach. Genesis and St Barbara have already highlighted the advantages of dropping hundreds of millions of dollars of investment in separate projects by both companies.
The big benefit from the deal is consolidating gold mining and production in the Leonora area of WA’s eastern Goldfields.
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Consolidation is also a major point in the just emerged talks between Pantoro and Tulla Resources about a possible link up of the joint Norseman gold project under Pantoro’s umbrella.
The duo has owned the Norseman project (previously known as the Central Norseman mining operation) in Western Australia on a 50:50 basis since May 2019.
Last week saw the two tell the ASX of plans for the consolidation which could end up with combined company with a value of around $100 million.
At the same time, Pantoro also announced it will suspend mining at its Halls Creek gold mine in WA’s Kimberley region to focus on Norseman. Pantoro blamed rising costs and labour shortages for the decision to abandon Halls Creek.
“Costs across the industry have risen significantly over the past year while gold price has remained essentially static. At the same time, skilled labour availability has remained a challenge,” Pantoro told the ASX using comments that will be echoed in December quarterly reports across the entire mining sector this month.
Operations will continue at Halls Creek for about six months until being placed on care and maintenance later this year.
“Pantoro and Tulla Resources confirm that they are in detailed discussion on consolidation of the Norseman gold project into a single entity,” Pantoro CEO Paul Cmrlec told the ASX.
“Details of the potential transaction are being finalised, with both parties negotiating in good faith with the intention to enter into a binding term sheet.
“There is no certainty that a transaction will be documented, announced or completed.”
Norseman is located about 200km south of Kalgoorlie and was closed in 2014 when Pantoro bought its 50% stake for $61 million. The miner also agreed to fund the first $50 million of project expenditure, which was completed in April 2021.
The project poured its first gold bar under Pantoro management in October 2022 and is planned to have average production of 108,000 ounces a year during its initial seven-year project life.
Pantoro also revealed in October that it has spent $179 million at Norseman, with $56 million spent on exploration, $84 million on construction and $39 million on pre-production.
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At the bottom of the gold exploring sector there was another potential marriage revealed over the break that will see Kingwest Resources and Brightstar Resources concentrating on the Menzies gold project in WA as a way of moving forward post transaction.
The companies seem eager to consolidate Kingwest’s Menzies gold project and Brightstar’s processing infrastructure (currently on care and maintenance), both of which are located in the Laverton area of WA’s Goldfields region.
The all-scrip takeover will see Brightstar acquire all of Kingwest, whose shareholders will receive one Brightstar share for every 0.44 Kingwest share held.
Kingwest shareholders should end up with around 43% of the merged company, with Brightstar shareholders owning the other 57%.
“This is a transformational transaction for Brightstar which marks a refreshed strategic direction for the company,” Brightstar CEO Bill Hobba told the ASX in the late December statement.
“The merger with Kingwest creates a larger, diverse junior gold play and means the company can now start to assess development options utilising a larger resource base and our significant existing infrastructure.”
“The transaction is an outstanding opportunity for Kingwest given the ability for Kingwest’s high-grade open-pit ounces to be processed at Brightstar’s infrastructure located in Laverton,” Kingwest chair Greg Bittar said in the statement.
The new merged company says it will hold mineral resources of approximately one million ounces located on granted mining leases. Brightstar’s processing infrastructure would accelerate brining Menzies into production.
The merger coincides with Hobba retiring from the Brightstar board, with Alex Rovira to commence as the company’s managing director in mid-January.
Brightstar said it had also received firm commitments for approximately 100 million shares in Brightstar at an issue price of $0.016 per share to raise $1.6 million. This will be used to advance exploration activities and support working capital.
The companies hope to implement the merger by late April.
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And finally, Perth-based Catalyst Metals has revealed a consolidation scheme of its own for the Marymia-Plutonic gold belt in Western Australia’s northern goldfields.
Catalyst, which is run by James Champion de Crespigny announced that it has made an agreed all-paper $66 million takeover bid for Vango Mining.
Catalyst also revealed that it is in discussions to acquire the Plutonic gold mine next to Vango’s Marymia project. The mine, which opened in 1990, has had numerous owners in the past 32 years.
Vango’s directors have unanimously recommended the off-market scrip takeover bid.
The takeover will see Vango shareholders receive five Catalyst shares for every 115 Vango shares.
Vango shareholders will own up to 35.7% of the enlarged Catalyst group following completion of the deal
Catalyst said Vango’s major shareholders and directors, Hunter Guo and Carol Zhang, have entered into binding pre-bid acceptance agreements with Catalyst in respect of a total of 252 million Vango Shares, or 19.99% of Vango’s issued capital.
The combined Marymia-Plutonic projects would have resources of almost 7Moz with a 3Mtpa plant, providing Catalyst with cash flow, strong potential to grow production and mine life and generate growth through exploration.
The company has global resources of one million ounces of gold at 3.3 grams to the tonne.
Its tenements include more than 40 kilometres of highly prospective and under-explored ground in the Marymia-Plutonic gold belt.
Mr Champion de Crespigny said Catalyst would apply its exploration expertise and operational cash flow from its Henty Gold Mine in Tasmania to drive an aggressive exploration program at Marymia.
“This transaction is important for Catalyst and Vango shareholders … it turns a new leaf for the future of both companies,” he said.
“The combined group will have the financial strength and technical expertise to unlock the value of the prospective Marymia tenements.”
“There is immense potential to create significant value for all shareholders by driving an aggressive exploration strategy on what has already proven to be a plus-15Moz Australian gold belt.”
Vango executive chairman Bruce McInnes said to takeover was an “ideal recipe” to create value for all Vango shareholders and the board “unanimously” supports the bid.
The trick for investors in these situations will be in picking the consolidators and the consolidated – so far Genesis and Catalyst appear to be the former.
