Ground Breakers: Musgrave in the crosshairs as gold M&A heats up

Westgold Resources lobs $177 million takeover offer for Musgrave
MGV recommends shareholders take no action. Could it become the subject of a bidding war?
WGX boss says junior’s high grade gold is better developed with existing infrastructure

There’s been an avalanche of gold M&A over the first half of 2023.

At the top end of town Newmont plans to complete the largest Australian resources takeover in history with the US giant’s acquisition of Newcrest (ASX:NCM).

Then there’s Silver Lake Resources (ASX:SLR) and its Graduate act trying to interlope on the sale of the Gwalia gold mine by St Barbara (ASX:SBM) to Genesis Minerals (ASX:GMD).

Now one of the WA gold scene’s longest mooted takeover prospects is in play, after Westgold Resources (ASX:WGX) lobbed an all scrip off-market bid for Musgrave Minerals (ASX:MGV).

Rob Waugh’s Musgrave has been ripe for a punt for a long time, owing to its near million ounce resource base in WA’s Mid-West, surrounded by major gold miners in the historic Cue gold field.

But its big prize is the Break of Day discovery, which measures 327,000oz at an extraordinary grade of 10.4g/t, more than four times the average grade at its Cue project.

While MGV has a PFS of its own on a standalone operation producing 337,000oz over five years at capex of $121m and a lowest quartile AISC of $1315/oz, Break of Day’s grade makes it a primo target for companies with existing mills in the area.

Westgold is an obvious one, controlling the bulk of the milling capacity in the region.

It has also been advantaged by the growing arbitrage between producer and explorer stock prices.

While MGV shares have risen slightly in 2023 until today, Westgold’s are up over 70%. The stalling and in many cases falling values of micro caps this year (Hedley Widdup’s analysis here) has made juniors with assets of value ripe for the picking.

The terms

Given that shift in the power dynamics, smaller companies are ripe for the picking and both mid and large cap miners are keen to use the relative value of their 2023 scrip to get some deals done.

Ramelius Resources (ASX:RMS) has already pounced on Breaker Resources, mopping up the junior and its 1.7Moz Lake Roe gold project, which will give RMS a 2.8Moz package to develop East of Kalgoorlie alongside the Rebecca discovery it signed up in the Apollo Consolidated acquisition in 2021-22.

RMS could well be a competitor for Westgold when it comes to Musgrave, given its fervour for resources it can truck to its Mount Magnet mill, where it is hauling the even higher grade Penny West deposit 100km.

Bigger fish Evolution (ASX:EVN) also holds almost 4% of MGV’s stock and has a JV with the junior nearby. But the synergies appear to stop there.

Near $7b capped EVN — owner of the much larger Cowal gold and Ernest Henry copper mines — has been shedding its Musgrave sized assets in recent years and its nearest mill is at Mungari near Kalgoorlie, hundreds of kilometres away.

Perhaps anticipating a shootout to come, Musgrave has initially urged shareholders to take no action.

WGX’s proposition is that MGV’s ore could be processed 40km or 120km to the north at its Tuckabianna or Bluebird mills, as soon as FY24.

The offer would see MGV shareholders pick up 1 WGX share for every 5.37 MGV units they hold. That’s an implied equity value of $177.3m or 30c per share, according to Westgold, a 30.5% premium to the five-day VWAP of MGV stock as of June 2023, giving Musgrave holders 18.9% of the combined company.

Westgold says a non-binding offer was lobbed with Musgrave’s board on Thursday and presented on Friday, but chose to go straight to investors after, it claims, the proposal’s confidentiality was compromised after the junior’s shares went 6.25% higher on Monday on a trading volume 6.6x higher than its average 12-month daily turnover despite a lower gold price and WA’s WA Day public holiday.

Ambitions

Given the proximity of MGV to Westgold’s existing infrastructure, MD Wayne Bramwell’s pitch to its investors (WGX itself owns 2.4% of the company’s stock) is that its PFS proposal is “ambitious”.

Bramwell says the current market environment and labour shortages in WA’s mining and resources sector make it no country for young miners.

“Westgold’s view is that Musgrave’s plan to construct a new, small processing plant within close trucking distance of two established larger processing plants is ambitious,” he said.

“Their proposed development path costing $121 million in startup capital at a PFS level of certainty materially escalates risk to Musgrave shareholders, as it exposes them to all the uncertainties, challenges and dilution associated with project development.

“It is a high risk and inefficient use of their shareholder’s capital at a time when securing capital for small scale, single asset companies is becoming more difficult and costly.

“Those risks will escalate and will include approvals, financing, construction, the competition for scarce labour and the myriad of schedule and capital cost blow outs evident in many recent Western Australian resource project start-ups.”

We await MGV’s response, and any potential competitors, with interest.

MGV shares are 16.47% higher this morning, flying to the cusp of the offer price, though Westgold’s have fallen 5.5%, denting the value of its scrip.