Ground Breakers: Base metals take off and gold M&A is making its return
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What a time it is to be in base metals, with depleting stocks in metals warehouses and smelter shutdowns in energy starved Europe and China propelling prices to record levels.
Is it a short-term phenomenon or a harbinger of what’s to come?
Hard to say for now, but what we are seeing is a perfect storm for industrial metals aided and abetted by persistent supply chain issues coming out of the pandemic.
Copper is up around all time highs yet again, closing trade on Friday up 4% on the LME at US$10,538/t or US$4.78/lb.
Nickel meanwhile crossed the psychologically important US$20,000/t barrier, over 2.5 times the price lows seen five years ago, rising 3.9% to US$20,066/t.
Tin was up 1.5% to US$38,495/t while zinc continued its climb to levels not seen in 15 years, up 8.2% to US$3847/t. Energy intensive zinc smelters have been among the most notable victims of rising power prices and rationing overseas, with Nyrstar (which also owns smelters in Australia) halving its output at plants in Europe in response to soaring power prices.
Copper supplies in metals warehouses have been ransacked in recent weeks, with LME stocks falling from around 200,000t in September to just 14,150t not scheduled for delivery. Supplies are so tight spot copper is trading at a US$350 premium to 3-month deliveries.
Copper and nickel stocks Sandfire Resources (ASX:SFR), Nickel Mines (ASX:NIC), 29Metals (ASX:29M), OZ Minerals (ASX:OZL) and IGO (ASX:IGO) were among the leading resources stocks on the ASX this morning.
The big iron ore miners were all up despite a slight cooling of prices on Friday.
Ramelius Resources has developed a reputation for swallowing up juniors in its pursuit for growth in recent years, so news it will pay $163 million in cash and shares for Apollo is not altogether unsurprising.
The 56c a share offer includes a cash payout of 34c for each share owned by Apollo’s investors ($99 million in total), along with 0.1375 Ramelius shares for each unit of Apollo stock they hold.
It promises to open a new 100,000ozpa production front for Ramelius, which has ambitions to produce 260,000-300,000ozpa this financial year from its Edna May and Mt Magnet gold mines in WA.
Apollo’s 1.1Moz Lake Rebecca project is located around 100km east of Kalgoorlie, in a fertile exploration district also inhabited by Breaker Resources (ASX:BRB), Kairos Minerals (ASX:KAI) and Silver Lake Resources (ASX:SLR) among others.
A solid and consistent mid-tier gold producer, Ramelius has used its cash generating assets to underpin a string of transitions that have added scale and life to its Edna May mine in recent years.
That has included takeover of Spectrum Metals for its high grade Penny North gold mine, the cash purchase of the Marda gold project near Southern Cross and the buyout of Explaurum, which owned the Tampia gold project in Narembeen.
The distinction here, and something signalling the growing desire for WA gold miners to bulk up and take some risks in their M&A strategies, is Lake Rebecca will open an entirely new front for Ramelius, a standalone project requiring its own processing plant rather than a regional consolidation play.
“Lake Rebecca is an outstanding opportunity for Ramelius to add a key growth asset to its portfolio of producing assets at Mount Magnet and Edna May. The Apollo team has done an excellent job advancing Lake Rebecca to its current stage of development and have clearly demonstrated its potential for development into a high-quality gold mine in a tier-one gold mining jurisdiction,” Ramelius managing director Mark Zeptner said.
The offer, which has a standard minimum acceptance clause of 90%, has been recommended by Apollo’s board.
Apollo managing director Nick Castleden said the offer, which represents a 38.3% premium to the company’s 1 month volume-weighted average price, offered compelling value especially given 60% will be paid out in cash.
“The Offer follows a period of significant corporate interest in Apollo and delivers an excellent result for our shareholders who, over the years, have seen Lake Rebecca transition from a greenfield exploration play to its status as a potential future stand-alone, long-life production asset,” he said.
“Lake Rebecca is clearly an excellent fit for Ramelius’ >250,000oz/pa production profile, and the Ramelius shares that Apollo shareholders will receive offer the stability of a multi-project production house while maintaining exposure to the upside as Lake Rebecca progresses along the path to development.”
Meanwhile, Westgold Resources (ASX:WGX) has lodged its bidder’s statement in its increasingly testy battle to takeover Gascoyne Resources (ASX:GCY), saying it has the support of 10% GCY shareholder First Sentier.
Together they hold a 49%, non-operating stake in the East Kundana Joint Venture near Kalgoorlie.
That generates plenty of profits for the intertwined entities, which are both run by prospector and businessman Anton Billis.
For years they mystified investors by keeping a vast proportion of their winnings from the EKJV, formerly of Northern Star (ASX:NST) fame and now owned and managed by Evolution Mining (ASX:EVN), as gold bullion.
A major selldown of those stocks enabled a special dividend in 2018.
That came around the time Rand was ordered by authorities to sell a $60 million stake in Tribune to unwind a cross-holding structure which allegedly masked the true ownership structure of the companies.
Evolution eventually bought the ~20% stake, meaning it is one of the beneficiaries of a dividend payment schedule that runs like clockwork these days.
Tribune announced today it will pay out 20c a share for the third straight year, while Rand will pay out 10c a share.