Ground Breakers: IGO-WSA is on, costs spiral for gold miners and Vulcan settles with short-seller

After months of negotiations, IGO (ASX:IGO) looks to have finally snared its whale, with reports it has succeeded in its bid to take control of Western Areas (ASX:WSA).

The AFR reported that IGO will make an all cash offer worth around $1.1 billion to finalise the sale.

Both companies entered trading halts indicating the deal was on the way this morning.

Why the hefty price? Aside from the frothiness of 2021 markets and the late cycle pressure on big miners to grow, IGO is facing a nickel conundrum.

Having sold its Tropicana gold mine stake to Regis Resources last year and picking up 49% of Tianqi’s share in the Greenbushes lithium JV and associated processing plant, it is full-on into battery metals.

That includes nickel, but its only nickel producer, the Nova nickel-copper mine east of Norseman in WA, only has around five years of life left despite IGO and a host of juniors pumping millions into exploration for a new discovery.

IGO already dumped plans to develop a nickel sulphate refinery because of its inventory risk. If it wants to maintain its title as a major ASX nickel stock, IGO needs acquisitions.

Western Areas owns the mature but low-cost Flying Fox and Spotted Quoll mines near Forrestania, which collectively produce less nickel than the ~30,000tpa Nova.

But it has a growth profile that far exceeds IGO’s, with the Odysseus mine near Leinster under construction and a number of growth options at its broader Cosmos Nickel Complex potentially providing commercial nickel for decades to come.

Nickel deal share prices today:

Gold producers see costs soar

Gold miners are fond of complaining about their treatment by investors in 2021, with the All Ords gold index down -16.95% this year.

While many have made solid profits (particularly in light of the record high gold prices seen early in the 2020-21 financial year) to say they have not to some extent been architects of their own decline would be disingenuous.

Case in point, the rising inflation across the sector, which is eating into margins.

According to Aurum Analytics, which tracks all in sustaining cost levels across the ASX gold sector, average AISC rose 9.6% or $138/oz over the September Quarter to $1571/oz.

To get a sense of just how sharp that rise has been, average AISC hit a low of $1099/oz in the first quarter of 2018.

In September, only four mines reported costs below that level, all bar one with significant copper credits.

Evolution’s Ernest Henry mine was the standout, with copper by-products generating AISC of negative $1345/oz (adjusted to $653/oz on a gold only basis), while Newcrest’s Cadia produced 109,005oz at $276/oz ($1176/oz gold only).

Kirkland Lake’s Fosterville turned out 134,772oz at $459/oz but was mined at an outlandish grade of over 23g/t. Aurelia’s Hera mine, which produces substantial quantities of zinc and lead, was the other to produce at under $1000/oz.

Eight of the 49 mines surveyed by Aurum Analytics produced gold at costs exceeding $2000/oz.

Inflationary pressures cannot always be controlled, especially in the context of WA’s labour tightening hard border, diesel prices and supply chain delays.

But AISC is certainly something to watch closely over the coming year, especially as the US Fed Reserve threatens to turn hawkish.

Goldies share prices today:

Vulcan settle short-seller dispute

$1.5 billion geothermal lithium stockVulcan Energy (ASX:VUL) has settled a short-seller dispute in the Federal Court that prompted a hit to its share price worth hundreds of millions of dollars back in October.

The case has dragged through the court over the past month, following a report by activist short seller J Capital and its boss Tim Murray, accusing Vulcan of using unrealistic assumptions to paint an overly rosy picture for investors of its Zero Carbon Lithium Project in Germany.

The report prompted a response on the ASX from Vulcan “categorically rejecting” the allegations, stating “the Report contains many
claims that are wrong and misleading,” and subsequently sued J Capital and Tim Murray for false, misleading and deceptive behaviour.

Following an out of court settlement the Federal Court has issued consent orders that J Capital and Tim Murray are permanently restrained from disseminating, publishing or republishing any matter of and concerning Vulcan, its directors and officers.

They have also issued an open apology to Vulcan, managing director Francis Wedin, chairman Gavin Rezos, co-founder Horst Kreuter and Thorsten Weimann, released to the ASX by Vulcan today.

“While J Capital and Mr Murray may have different views about the potential of Vulcan’s Zero Carbon Lithium Project, J Capital and Mr Murray apologise for the allegations regarding Vulcan’s Board and management,” the letter read.

“J Capital and Mr Murray sincerely apologise for any damage, distress and embarrassment caused to Vulcan’s Board and management, and in particular to Dr Wedin, Mr Rezos, Mr Weimann and Dr Kreuter.”

Vulcan shares were up 3.7% this morning to $11.87.

They tumbled from $14.99 in late October to a three-month low of $9.15 on December 6 following the publication of the short report, but have since recovered ground on the back of an offtake agreement with auto giant Volkswagen and the €31.5 million purchase of a geothermal energy plant in Germany.