Aussie Gold Sector Lacking Scale, says BlackRock
Is bigger actually better?
The Australian gold space doesn’t have a true global major, but does bigger actually equal better?
BlackRock is a major investor in the Australian gold sector.
“I guess one of the things that the Australian gold universe sort of lacks is those big, sizable, scaled producers,” BlackRock portfolio manager Olivia Markham told the AFR Mining Summit in Perth last week.
“You don’t have anything like the scale of a Newmont or a Barrick or Agnico Eagle sitting here in Australia.
“The other thing, which is actually kind of one of our favourite ways to get exposure to gold – depending on where we are in the cycle – but it’s to invest in the gold royalty companies that massively outperformed the gold producers over the last 15 years.
“Once again, that ecosystem doesn’t exist [in Australia].”
Australia’s largest gold producer is A$26.5 billion Northern Star Resources (ASX: NST), which is down nearly 25% year-to-date due to a series of guidance misses.
The next largest is A$25 billion Evolution Mining (ASX: EVN), with the remainder of Australia’s mid-tier space having market capitalisations of less than A$10 billion.
“The skills, absolutely, in that kind of mid-cap space is really deep, it’s really solid here,” Markham said.
“It’s just we don’t have that same scale as much in Australia versus what we see in the North American space.”
The opportunity
Evolution chairman Jake Klein said the lack of scale represented an opportunity for Australia.
“Most of those mines, which are now operated by foreign producers, used to be owned by Australian producers,” Klein said.
“As Olivia from BlackRock said, we have a great depth of talent here. We have great companies in that mid-tier sector, but we haven’t really gone on to create global leaders in the sector.”
Klein said Newcrest Mining was the closest thing Australia had to a major before its US$17 billion buy-out by Newmont Corporation (NYSE: NEM) in early 2024, while Normandy Mining, acquired by Newmont in 2002 was an earlier example.
“Those are companies that got a long way and were well recognised, but got taken out by majors, so we’ve actually contributed to these majors,” Klein said.
“I think if we can continue to deliver superior returns, the money will come, and I think we should try and get there the whole way.
“Evolution, Northern Star, a number of companies are kind of emerging into that space, but we’ve got a longer way to go, but takeover is not necessarily the end objective.”
However, Klein reiterated that Evolution was not chasing size for size’s sake.
“We are a bit frustrated that so many investors look at production top line growth when the better measure is really the quality of that growth,” he said.
“How big are the margins? Our margins are great, they’re over 60%, and then what is the longevity of that those margins? What’s the mine life?
“So, the quality of the portfolio and the quality of the ounces really matter, and I think if there could be a shift from an investor perspective towards really trying to get to that level of these are businesses – they are delivering cashflow, the longevity of that cashflow is really important, and the quality of the assets, in addition, quality of management, but that’s a judgement call – that’s what makes very good gold companies.”
Aussie consolidation
VanEck’s Imaru Casanova told the event she saw Australia as being ripe for consolidation in the gold sector, though she stressed bigger wasn’t necessarily better.
“The best consolidation is regional, it’s rational, and it’s tracked,” she said.
“Strong, proven management teams controlling more assets – we’re all up for that.
“What doesn’t work? Scale for its own sake, diluted management focus, cross-continental complexity, synergies that are never delivered, integration risk that is always underestimated, poor rushed due diligence that leads to material surprises.
“We want growth that makes sense, regional know-how that can be leveraged, manageable size – 6-8 operations – clearly stated synergies with honest post-mortems, and quarterly tracking against commitments.”
So far this year in Australia, Genesis Minerals (ASX: GMD) has announced the A$639 million scrip acquisition of Magnetic Resources (ASX: MAU), a deal viewed as logical further consolidation of the Leonora-Laverton district of Western Australia.
Last month, WA mid-tier producers Regis Resources (ASX: RRL) and Vault Minerals (ASX: VAU) announced a merger of equals.
The companies have spruiked tax synergies of A$500 million, but analysts have noted the lack of operational synergies.
Wayne Bramwell, managing director of fellow WA mid-tier producer Westgold Resources (ASX/TSX: WGX), said it was for Vault shareholders to decide on the merits of the deal when they met to vote on it in the September quarter.
“Stand back a little bit further, then it’ll be the BlackRocks of the world and VanEck, which will then decide later on whether that much larger company is a better investment opportunity,” he said.
“Longer term, the new expanded Regis will have much larger firepower and be of a scale similar to Evolution, so time will tell, and everyone will have a different view.”
Klein said Evolution, which had acquired all of its operating assets, focused on deals that were accretive.
“There has to be an arbitrage in it that the market didn’t see,” he said.
“Thinking that one plus one is somehow by going to make three, I think is wishful.
“So, I’m not judging the Vault-Regis deal, I’m just saying that for the M&A which BlackRock, VanEck and AustralianSuper really want to see, you need an underlying arbitrage in the value that the markets not seeing to make the combination work.”
Klein said physical closeness of assets was the obvious, but not necessarily the only, upside.
“What are the things the markets are missing? Is it exploration upside that maybe the market’s not understanding?” he said.
“But there needs to be something more than just ‘we hope the market’s going to like us because we’re bigger’.”
While Westgold got significantly larger through the merger with Karora Resources in mid-2025, it’s more recently been a seller, offloading assets to Valiant Gold (ASX: VAL), Alicanto Minerals (ASX: AQI) and Corazon Mining (ASX: CZN).
“We’ve been divesting assets, and in some sense, I think it’s a really smart thing to do,” Bramwell said.
“The Australian gold sector has lost at least four explorers through merger and takeover in the last 12 months.
“Westgold itself has probably catalysed two new producers in the last 12 months, so we are trying to backfill the bottom end as the other ones at the top are getting taken out.”