Predators or Prey? Aussie Gold Miners Cautiously Open to M&A
How ASX-listed gold producers are thinking about inorganic growth
They say the only two certainties in life are death and taxes, but there may just be a third: further consolidation in the gold space.
That’s certainly true in the Australian gold sector.
Just days after BlackRock portfolio manager Olivia Markham remarked that Australia lacked a true global gold major in June, the country’s largest listed producer, Northern Star Resources (ASX: NST), confirmed it had been approached by “several” companies about “various corporation combinations”.
While the company said talks did not progress, given Northern Star’s market capitalisation of more than A$30 billion, the list of potential suitors is short.
Chatter at the Diggers & Dealers Mining Forum in Kalgoorlie last week kept coming back to two likely candidates: Agnico Eagle Mines (TSX: AEM) and Gold Fields (TSX: GFI), and while senior representatives from both companies were in attendance, neither would take questions from the press.
Notwithstanding the talk around Northern Star, the largest deal in the Australian gold space so far this year is the merger between Genesis Minerals (ASX: GMD) and Vault Minerals (ASX: VAU), which is due to close in November.
Genesis trumped an earlier proposal from Regis Resources (ASX: RRL), with Regis choosing to walk away.
The proximity of Genesis and Vault’s Western Australian operations – as little as 35km apart in Leonora – is set to unlock A$2 billion of synergies, according to Genesis, against Regis’ promised A$500 million in mostly tax-related synergies.
“With the proximity, we’ve always understood Vault and the opportunity there, and likewise for Vault,” Genesis CEO Matthew Nixon told reporters on the sidelines of Diggers last week.
“I think Regis putting in their offer and going through that process ultimately put a timepiece on it, but that wasn’t the driving factor.”
Regis managing director Jim Beyer was gallant in defeat, congratulating Genesis.
“It’s just unfortunate. From our perspective, there were clear synergies for Genesis that we couldn’t realise, and for that reason, we just left it,” he said.
“Ultimately, there was more value for them than for us, so we just decided that it didn’t make any sense to do anything silly and start some kind of bidding war because the value just wasn’t there for our shareholders to do that.”
Where to from here for Regis?
Beyer said all the companies in the Australian space were always looking at each other.
“You can’t let your business development people sit around and twiddle their thumbs – you’ve got to keep them busy,” he said.
“We’re always looking at inorganic opportunities.”
Regis holds a minority 30% stake in the Tropicana gold mine in WA in partnership with AngloGold Ashanti (NYSE: AU).
At last year’s Mining Forum Americas, AngloGold CEO Alberto Calderon said the company may eventually look to sell its stake.
Beyer confirmed Regis’ interest.
“We love the asset. We think it’s great,” he said.
“If and when that opportunity comes up, that’s definitely something that we would love to be a part of.”
Ultimately, Beyer said deals would happen when they made sense.
“I’d like to think that maybe people recognise that we’re disciplined and we recognise value and we stick to our guns on value,” he said.
“We paid A$900 million for Tropicana, and there was a pretty fair section of the community that was saying, ‘you’ve overpaid for that. You’re crazy’. Of course, we know that those that were bidding for it and missed out, they all like to feed that mill because that’s just what people like to do.
“But here we are, a few years later, and we’ve got over A$1 billion out of it in cash. It’s great. It’s an absolute cracker.”
Beyer said in the case of Tropicana, Regis saw value that others didn’t see, but couldn’t say the same for Vault, which was why the company walked away.
“There’s self-generated pressure to make sure that we’re not sitting there and leaning back in our chair, but we would never feel that we’re under pressure to do a deal that’s not value-accretive for our shareholders.”
‘Like sharks’
Evolution Mining (ASX: EVN) CEO Lawrie Conway said price expectations for assets had cooled since gold peaked in January.
“People are still making good cash, and there’s not a lot looking to sell assets right now,” he said.
Evolution is still open to buying assets.
“We haven’t stopped looking. We just haven’t found anything, and when I look in the portfolio right now, there’s probably not an asset that we would want to sell for all different reasons – each of them have got growth opportunities and are making good cash,” Conway said.
Last month, Evolution announced the A$213 million acquisition of copper junior Carnaby Resources (ASX: CNB), which is considered a bolt-on buy to feed its Ernest Henry plant in Queensland.
Evolution currently has five operating assets and has always said its ideal size would be 6-8.
“We’ve never put out a production target – we don’t say we want to be a 2 million ounce producer – it’s more the margin that we generate,” Conway said.
“We do about 950,000 ounces gold equivalent when you take the copper – that’s pretty good, and we’ve got A$1.4 billion of cashflow.
“That’s why we’re not as concerned about the size and scale, more the quality of the assets.
“We have five operating assets, which gives us an option of up to another three assets that we can bring into the portfolio, and if they’re coming in like a Cowal or an Ernest Henry, you will get the production scale, and I think you’ll get further relevance from a global perspective.”
Most of Evolution’s smaller peers appear to be more focused on organic growth opportunities, though Westgold Resources (ASX/TSX: WGX) managing director Wayne Bramwell admitted no one could stand still.
“I think in some sense we’re quite like sharks – we’ve got to keep moving in this business,” he said.
“Growth is not free. At least we’ve got a business now whereby we can fund our growth aspirations, but we’re very careful about balancing growth and being pragmatic about capital.
“So, look, we do want to increase our production profile, and we’ll show the market our next three-year outlook soon, and that will show a trajectory that keeps this business going north.”
While the focus for Westgold is its organic pipeline, including a low-cost expansion of its Cue processing hub, Bramwell said the company had the firepower to act if there were opportunities that made sense with A$939 million in cash and investments and an undrawn A$600 million debt facility.
“Never say never, but very much the focus is organic,” he said.
The ASX’s fastest-growing gold producer, Greatland Gold (ASX/LSE: GGP), has been linked to smaller neighbours like Antipa Minerals (ASX: AZY) to fill its Telfer mill, but CEO Shaun Day said the company’s aggressive exploration program had doubled the mine’s resources since acquisition 18 months ago.
“We are spoilt for choice. I think the organic program we have is so compelling,” he said.
“Of course, we’re open to opportunities to improve that, but I think we have such a clear pathway ourselves, which is fully permitted, which means the timeline for us to execute the growth program and the increase in grade is potentially quicker organically than it is through acquisition.”
Similarly, Ramelius Resources (ASX: RMS) managing director Mark Zeptner said the company didn’t need to acquire anything after acquiring Spartan Resources last year.
“We can deliver that plus-500,000 ounces without doing anything,” he said.
“I think what I’ve learned is that any deals need to have a good amount of synergies, not just corporate office synergies, but geographical ones, and you saw that with Spartan, and you saw that with Telfer, and you see that with Leonora.
“I think as long as it’s got that. If you’re just getting bigger for bigger sake, the market is very meh about that.”
Developers vulnerable?
Brightstar Resources (ASX: BTR) managing director Alex Rovira said while the valuations of producers had pulled right back, developers were particularly unloved by the market.
“As a developer, it definitely makes your job harder and also increases your risk of takeover,” he said.
“You look at Astral Resources (ASX: AAR), Meeka Metals (ASX: MEK) or Rox Resources (ASX: RXL) that are our peer set, and we’re all nowhere near a 52-week high – well off it, but the gold price where it was six months ago.
“These projects have been meaningfully advanced. There’s been access to capital. People actually delivered value, and yet the business is worth 30 or 40% less, so it’s a really interesting environment.
“I think it definitely poses that heightened risk of M&A when you don’t want it, or at a price that you don’t think it truly reflects value.”
Rovira said the best takeover defence was execution.
“The best defence to M&A is getting your price close to NAV,” he said.
“If you’re trading at one times NAV, there’s no real benefit for someone to buy your business unless they can change it with synergies and change the cost profile, but if you’re trading at 0.2 times, like all the developers are, then that’s money for jam.”
Luke McFadyen, managing director of the fastest-growing ASX gold developer, Minerals 260 (ASX: MI6), said being named as a takeover target was a compliment.
“It certainly doesn’t mean you sell to the first person you ever talk to, and we certainly see a much higher value from where we are today, so you don’t let it distract you, but I see it as a compliment,” he said.
“Whether it gets written about by the media or investors or whatever, it’s part of having a great project that other companies will look at it and go, ‘geez, I’d really like to have that’, but it doesn’t mean you sell it for a 20 or 30% premium from whatever it is today.”
The next targets?
One of the hottest stocks in the smaller-cap ASX space currently is Benz Mining Corp (ASX: BNZ/TSX: BZ), which has more than doubled this year.
Its flagship Glenburgh project in WA has a resource of 510,100oz at 1 gram per tonne, but in June, the company announced an exploration target of 10.1-12Moz at 0.6-0.7g/t gold, including a higher-grade core of 6.1-7.3Moz at 1.7-1.8g/t gold.
Ramelius holds 11.7% of the company, a stake it inherited after Spartan divested Glenburgh to Benz in late 2024 in a scrip-based deal.
Zeptner said the project looked interesting.
“It’s not a bolt-on that you can truck somewhere else. It needs to be a standalone operation, and we know from experience at Rebecca-Roe, you need at least a million ounces, ideally more, to have a standalone project for your own mill,” he said.
“But they’ve obviously been very aggressive and they’ve changed the whole geological model.
“I suppose you could look at it from one point of view that Spartan could have still owned 100% of it, but then you could actually say, nothing potentially would have changed, and it still could be the old 500,000 ounce project.
“So, 11% of something that could be massive is better than 100% of something that was going nowhere.
“We tend to like get confidence in geology … but it’s good to have a foot in the door there on what looks like potentially quite a big project.”
Last week, another dual-listed market darling Southern Cross Gold Consolidated (TSX: SXGC/ASX: SX2) updated its own exploration target for the Sunday Creek project in Victoria to 10.4-11.9Mt at 8.9-12.1g/t gold equivalent (7.4-10.3g/t gold and 0.6-0.8% antimony) for 3-4.6Moz of AuEq.
Pierre Lassonde, Darren Morcombe and Kiril Sokoloff hold a combined 21.7% of the company.
Southern Cross president and CEO Mike Hudson said the company was planning to build the project.
“I’ve staffed it and brought people and families and everyone together to build this, so we’re very genuine about it,” he said.
“We are protected … a third of the stock is in the hands of three people and their supporters who say, ‘where do you find multimillion ounce 10 gram dirt in a first world jurisdiction where you’re not going to lose it?’ You don’t.
“So, why would we sell it at C$2 billion when we know it’s going to be worth X billion?”
Meanwhile, newcomer Waratah Minerals (ASX: WTM), which has 10 rigs drilling out its pre-resource Spur gold project in New South Wales, has been touted as a target due to market expectations of a multimillion-ounce resource
Waratah executive chairman Andrew Stewart confirmed the company had a data room and there was “a few in there” but firmly ruled out bringing in a partner.
“We’d never do a value destructive deal like that. Name a joint venture that’s added value to shareholders,” he said.
“For me, there’s no reason to do that. When you do a joint venture, you may not have technical expertise or you want to finance it.
“If I can go to the market and raise money, the last thing I need is someone owning 20% of the company that’s going to block a takeover – and they all want that because then they don’t have to do anything. They put their foot in it, they park it. We all know now that 20% on your register is a blocking share.
“The best for our shareholders is that you have a discovery, you push it up the Lassonde Curve, and you maximise the value by growing that resource as much as you can in terms of scale and grade.
“Then, if you are going to exit, then you exit the top of the Lassonde Curve, or you have a project that tips over the Lassonde Curve. You take it through the study phases, but it’s got to be a project that you can actually push forward yourself.”