Barry FitzGerald: The time for consolidation has come – but which gold juniors will get the tap on the shoulder?
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The retreat in the gold price to less than $US1,800oz has given rise to a fresh round of corporate activity in the junior end the WA gold scene.
Juniors with existing resource bases are the focus, the idea being that their development prospects remain as strong as ever with Aussie gold at $2,400oz.
An additional factor driving the step-up in rationalisation and consolidation amongst the juniors is that it is easier to achieve when the US gold price is in the dumps, regardless of what the Aussie price is doing.
All that was reflected during the week when some WA mining identities piled into Genesis Minerals (ASX:GMD), the owner of the 1.6m ounce Ulysses gold deposit near Leonora.
Former Saracen boss Raleigh Finlayson, and former Fortescue boss Neville Power, teamed up with the gold juggernaut Northern Star to cornerstone a $20.8 million equity raising by Genesis at 6c share.
They did not buy in to the Genesis story based the existing resource base at Ulysses. They are betting their funds will underpin growth in the Ulysses resource to 2.5m oz and beyond, in a hurry too.
At that stage, Genesis would have a clear stand-alone development opportunity on its hands to capture the big margins still on offer in the gold space.
But would also become a much bigger takeover target for third party mill owners in the region, the most likely being St Barbara (ASX:SBM) with its ever hungry Gwalia mill within easy trucking distance.
The combination of the equity raising turbo-charging resource growth, and the increased takeover appeal as the resource grows, is why Genesis is now 15c, up from 7.3c before the arrival of the new cornerstone investors.
Also in the Leonora region, St Barbara in July acquired an 18.3% stake in Kin Mining (ASX:KIN) which owns the 1.28m oz Cardinia gold project.
Recent exploration success by Kin has raised expectations of the resource growing to more than 1.5m oz in the near-term. It could then start thinking about a stand-alone operation or striking a toll treatment deal with St Barbara.
There is a third potential outcome – a takeover bid for Kin which would have to be pitched at a big premium to the current share price.
The strategic stake picked up by St Barbara in Kin was supplied by Kerry Harmanis, best known for making a fortune back in 2008 during the last nickel boom when his Jubilee Mines was acquired by Xstrata for $3.1 billion.
Across in the Sandstone region, Harmanis is also a player in the likely rationalisation of gold resources owned by juniors that analysts expect will kick off before long.
Harmanis’ player status comes from his 12.3% stake in Gateway Mining (ASX:GML). It is trading at 1.8c which gives it a modest market cap despite its Gidgee project emerging as a high-grade gold camp.
Gateway already has a 240,000oz gold resource under its belt and it has flagged that there will be an upgrade to the figure, as well as maiden estimates at new deposits, by the end of the year.
While it can work away at establishing a bigger resource to support a stand-alone mine development, the whole process could be sped up through a consolidation of resources with those held by others to underpin a central processing plant.
Gateway will be in the thick of things should a consolidation of the Sandstone region get underway. Other players would be Horizon Gold (ASX: HRN, 35c), Alto Metals (ASX: AME, 8c), and Alto’s failed takeover suitor, Middle Island (ASX: MDI, 9.5c).
Someone must be the first to move. But if what stands as one of the most sensible consolidations in the WA gold space gets delayed much longer, an outsider could make it happen.