Gold Digger: Gold M&A is heating up. Which junior is the next takeover target?
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Investors want to see gold miners wisely grow their production profile.
Not like miners did during the last cycle, when some irrational, highly priced M&A action destroyed significant wealth.
The big gold miners have a “lousy recent history” of buying companies, Barrick Gold (TSX:ABX) executive chairman John Thornton said.
He has called his company’s acquisition of Equinox “if not the worst, one of the five worst acquisitions in [mining] history.”
On April 25, 2011, Barrick Gold Corporation announced the acquisition of Equinox for $US7.69 billion. Just two years later the world’s biggest gold miner copped an embarrassing US$4.2-billion write-down, mostly tied to Equinox’ struggling ‘Lumwana’ mine in Zambia.
While the industry has returned to fundamentals and balance sheet health, over adding ounces at any price, “mining companies are also expected to have cohesive and compelling growth stories”, says junior mining investor David Erfle.
“With ounces controlled by juniors currently on sale, there are significant opportunities being created in a depressed market for mining companies to transform their portfolios through acquisitions or alliances.
“Junior miners have driven a 43% increase in global gold exploration budgets in 2021, bringing total spend to $US6.2 billion – the highest annual figure since 2013, according to data from S&P Global Market Intelligence.”
After years of underinvestment during the previous bear market, global miner production profiles are under pressure which makes further M&A inevitable during the next few years, Erfle says.
“This is a good time for resource stock speculators to take advantage of the current weakness in the mining complex to perform proper due diligence on a carefully selected watch list of quality juniors.”
This week, the WA gold mine developer snubbed a 16c per share takeover offer from miner and major shareholder St Barbara (ASX:SBM), and will instead raise $13m to advance the flagship 1.28moz ‘Cardinia’ gold project on its own.
The SBM offer represents a 60% premium to the last closing price but is well below the 23c per share peak hit October last year.
Kin says it rejected the deal after “canvassing the views of its major and substantial shareholders”.
“The Board determined that the proposed NBIO could not progress because the proposed transaction was not acceptable to the major and substantial shareholders other than SBM, and therefore would not have been approved by the requisite 75% voting majority of Kin’s shareholders,” Kin says.
A takeover at the right price is not off the table, though, with “the Kin Board welcome[ing] the continued interest from St Barbara”.
Mid cap goldie Westgold (ASX:WGX) has also made an unsolicited move on small miner GCY, which expects to produce between 70,000 and 80,000 ounces of gold at AISC of $1,600 to $1,700 per ounce for FY22.
A successful takeover bid would create Australia’s 5th largest gold producer (with pro forma FY22 production of ~350,000oz of gold), $680m market cap WGX says.
For GCY shareholders it removes funding risks and concerns of longevity, with mining at GCY’s Dalgaranga operation currently forecast to end in 2025.
The offer — one WGX Share for every four GCY Shares – represents a 34.7% premium to the last closing price for GCY shares.
GCY recommends shareholders take no action.
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The Klaus Eckhof-led explorer recently raised $7 million to fund exploration and development activities at the 4.4Moz Giro deposit in the DRC, ~35km away from Barrick and AngloGold’s 16Moz Kibali gold mine.
Guy Le Page says Eckhof has had a cracking run with African mining companies including Moto Gold Mines Limited (21Moz gold) that was taken out by Randgold in 2009.
“So far I haven’t lost money with him yet, so I am going to roll out his latest gig in the jungle being African gold explorer Amani,” he says.
“The company is looking to accelerate development/ commercialisation options for the project including a desktop study in relation to the Kebigada Deposit as well as a consideration of potential business development and corporate opportunities.
“I think this stock would fit well in any doomsday prepper’s portfolio…”
Eagle-eyed Twitter observers also noted a sustained jump above 0.03c would be good news for Amani Klaus chairman Eckhof, who became acting managing director in February this year.
Part of his remuneration consists of 1 billion performance rights, which are set to vest if the Amani share price holds above 0.01c, 0.02c and 0.03c for 20 days each.
— Treasurehunter (@ASXTreasurehunt) October 1, 2021