Barry FitzGerald: Eight potential M&A gold targets in 2021
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M&A activity in the gold space delivered some big pay days for investors in 2020. And 2021 could do the same.
But investing in a stock in anticipation of a 30%-plus premium bid emerging can be like shooting for fish in a barrel.
Lucky then that resources adviser and stockbroker Argonaut has come up a list of eight ASX juniors that it reckons could get a knock on the door in 2021 from a cashed up predator.
Argonaut reckons most of the M&A activity will be in the mid-smaller gold miners/developers.
“In the ASX gold producer sector, 1+1=4 in a rising market,’’ Argonaut said.
“Companies are rewarded for growth, garnering international attention, and gaining entry into ETFs and higher indexes. The low cost of debt provides another compelling reason backing further M&A.’’
Its list of potential takeover targets is as follows:
Red 5 (ASX:RED) – 25.5c
Apollo (ASX:AOP) – 30c
Musgrave (ASX:MGV) – 36.5c
De Grey (ASX:DEG) – $1.05
Bardoc (ASX:BDC) – 7.4c
Genesis (ASX:GMD) – 7.4c
Calidus (ASX:CAI) – 49.5c and
Pantoro (ASX:PNR) – 23.5c.
Argonaut warned that value is in the eye of the beholder, and that some companies “are dressed up for a party but not necessarily a wedding.’’
So there is no guarantee the golden eight will actually receive a takeover bid. It’s just that they have the right attributes to possibly see some action.
What is more certain is that the gold price recovery from recent lows to $US1,881 ($2,466) an ounce means that the producers are again enjoying margins of more than $1,000 on their production – more than enough to open their wallets again for some M & A activity.
Looking at Argonaut’s list of eight, the inclusion of De Grey means that any M & A action could be on the big side of things.
That’s because De Grey has come from nowhere in the last 12 months to become a $1.3 billion company on the strength of its Hemi discovery in the Pilbara.
There’s no resource estimate just yet but Argonaut says Hemi could develop into a 400,000 ounce-a-year gold proposal soon.
“This would make it a target for major gold miners globally, particularly once ore reserves are defined and technical studies, including metallurgy, are well progressed.’’
“A company with an Australian presence and experience processing refractory ore, such as Northern Star/Saracen, Newcrest or Newmont Corp, could be well suited to this asset,’’ Argonaut said.
The firm’s commentary about Red 5 being on the list was interesting as well.
“Developer/producer Red 5 is notable for the absence of any apparent third party interest in it, despite a swelling gold inventory backed by a huge drilling database, first rate location, and tepid market rating,’’ Argonaut said
“It is possible it just doesn’t stack up – or it is a stand-out opportunity for someone? We favour the latter.”
So what of the potential acquirers in the mid-smaller gold miners/developer space?
“Gold Road (GOR), Westgold (WGX), Silver Lake Resource (SLR) and Ramelius Resources (RMS) all have $100m-plus net cash balances and stated intentions to pursue M&A,’’ Argonaut said.
“Westgold is a recovering mergaholic that could relapse once Big Bell is at capacity. Ramelius and Silver Lake have recent form (Spectrum and Egan Street respectively) and Gold Road recently swooped on some loose De Grey shares only to sell two months later at a $17m profit.’’
“Cash is piling up quickly in all cases, but scrip value in this group remains restrained, in our view,’’ Argonaut said.
Argonaut noted that Alkane has taken up cornerstone position in Genesis (19.9%) and Calidus (12.7%) and that it could look to one of them to provide a WA production centre in addition to its existing NSW production base.
Finally, Regis (RRL) and St Barbara (SBM) are seen to be “most likely opportunistic acquirers.’’
“Regis’ Duketon must eventually bow to the weight of a 10Mtpa ore replacement task and McPhillamys is still pending approvals.
St Barbara is actively exploring around its Gwalia mine and said at Diggers & Dealers that truckable ore sources would be assessed for acquisition.’’