Diggers and Dealers: Miners and analysts see digs and deals in gold's bright future

Gold shines at Diggers and Dealers as old world metal steals the hype back from battery metals stocks
Analysts think M&A will continue to roll out in the gold space after a strong 12 months of dealmaking
With gold prices at record levels of ~$3800/oz, gold miners look to use cash to buy or find ounces

The first day of the Diggers and Dealers Mining Forum in Kalgoorlie-Boulder was a homecoming of sorts for gold miners, whose bosses remain optimistic despite a day of blood letting on markets to rival the Red Wedding on the ASX on Monday.

It came as gold hit all time highs in Aussie dollar terms of around $3800/oz, numbers that seem incredible to the current crop of executives, who mostly entered the industry at a time when prices were marooned in triple digits.

“It was 1999, my first time in a gold company and we were selling gold at $250 an ounce. So we sold gold this week at over $3700. Those are numbers I never thought I’d see in my lifetime,” Wayne Bramwell, the managing director of soon to be 400,000ozpa mid-tier gold miner Westgold Resources (ASX:WGX) said.

The situation has shifted investor eyes back to gold after years in the doldrums playing second fiddle to battery metals and the market’s obsession with electric vehicle materials.

Now analysts think we could see a new wave of deals to consolidate the sector as miners look to revitalise ageing assets, develop new discoveries and bridge a gap to the rising stars of the last gold boom, $16bn capped Northern Star Resources (ASX:NST) and $8bn capped Evolution Mining (ASX:EVN).

“Those miners that are sitting at 500,000ozpa, they want to get to that point to be able to grow themselves to get to that space and as the price goes up we’re going to see more and more,” Lion Selection Group (ASX:LSX) CEO and mining expert Hedley Widdup said.

Competition for ounces

More and more M&A is becoming a competitive process, with Westgold, Ramelius Resources (ASX:RMS), Gold Road Resources (ASX:GOR), Regis Resources (ASX:RRL) and the newly merged entity of Red 5 (ASX:RED) and Silver Lake Resources all among those ASX miners sitting in the 200,000oz-500,000ozpa band looking to standout and attract investors in a crowded market.

With its deal to acquire TSX-listed Karora Resources now in the rear view mirror – previously 220,000ozpa Westgold picking up the keys to the nugget rich Beta Hunt gold mine and Higginsville mine and plant last week – Bramwell says its aim is to consolidate and deliver at its operations.

“We can sell gold, unhedged at $3700 Aussie an ounce all day long. What we have to do in the next 12-24 months is just focus on costs, ratchet up this business which has now got two strategic footprints and find ways to make sure that whatever the gold price does, that it’s profitable over the long term,” Bramwell said.

The Karora deal came after talks between Karora and Ramelius ended. A Takeovers Panel application by Ramelius then revealed it and Westgold had signed confidentiality agreements last year, including a standstill agreement that suggested the two Mid-West gold miners could have wed as well.

Ramelius stepped away after the Takeovers Panel made its decision not to intervene. In a polyamorous twist Ramelius then spent $180 million taking an 18% stake in Spartan Resources (ASX:SPR), itself once a takeover target of Westgold before the true scale of its now 1.49Moz at 8.07g/t Never Never discovery near Mt Magnet had been revealed.

Westgold has a $300 million debt facility on hand to potentially make a bolt on acquisition, but Bramwell says he’s happy to leave Ramelius and Spartan.

His immediate growth focus is drilling for more gold beneath historic mines Westgold has renovated and brought into the 21st century.

“The ability to discover more gold here (in WA?),” Bramwell said.

“I mean, we’ve taken the Bluebird-South junction project, which were two historic open pits, we’re now developing what we see as a multi-decade mine underneath that.

“We’re bringing Great Fingall back online in the next four months, bringing an icon of the industry back online, and Beta Hunt, a 50 year old nickel mine which has been mined for gold for five years.”

Growers and showers

Gold miners emerging in the next tier down are hoping the current gold price delivers a boost as they ramp up to the sort of ounce profile that generates general investor attention.

Ora Banda Mining (ASX:OBM), which owns the Davyhurst mine 120km north of Kalgoorlie, produced almost 70,000oz at all-in sustaining costs of $2767/oz.

They’re shifting from lower grade open pits to higher grade undergrounds at the recently defined Riverina and Sand King mines, beneath historic deposits ancient enough to have Kalgoorlie streets named after them.

“That’s a game changer for us, going from trying to eke out a living at one and a half gram dirt to suddenly delivering to the mill four and a half gram dirt,” MD Luke Creagh said.

Riverina should bump output to over 100,000ozpa this financial year. The addition of Sand King has OBM targeting 150,000ozpa in 2026.

While OBM is in the often-tenuous position of being a single asset producer, Creagh wants to use additional cash flow from a ripper gold price to invest in exploration around the 1100km2 mining hub.

“There are a lot of single-asset companies out there that are wanting to go to multi-asset and have growth that supports internal growth, or picking up exploration plays that have strong potential for being really, really good assets,” Creagh said.

“For us we’re very internally focused at the moment. Less than 2% of our tenement package has been tested below 100m.

“Nine out of 10 of our drill holes are finding stuff and improving stuff. So while you have that as a hit ratio you need to be looking internally. So at this age we’re getting a second underground mine, that’ll fill the mill.

“That’ll put us into a position of really strong cash flows. We can explore, we can also upgrade our own infrastructure, or we can build additional, but it really has to be drill bit, geology driven, coupled with our operational execution.”

1 out of 4

Widdup said developers had struggled with cost inflation in recent years, with Lion looking closely at stocks with multiple exit points outside of bringing a deposit to production, such as having a logical buyer to sell the ounces to or seal a JV with.

Canaccord Genuity analyst Paul Howard, meanwhile, watches the gold sector.

He said 25% of his coverage last year was taken out, in a sign buyers are hot for gold production. He thinks more is on the way with prices at record levels.

“You’ve got a set of developers who are probably a bit reluctant to progress into production and then you’ve got larger companies who see the opportunity, see the value and take it upon themselves at an earlier stage and develop these mines,” he said.

“We see that about 25% of my coverage in the last 12 months has actually been in companies that have been acquired.

“Breaker was acquired by Ramelius, Tietto was acquired in West Africa by Chinese groups and Musgrave was acquired by Ramelius as well. My coverage list was shrinking last year due to M&A particularly in the gold space.”

He thinks M&A is not only likely in WA but in West Africa as well, where the vast bulk of major deposits tend to be operated by a handful of miners with operating experience.

“There’s very few companies with one asset and that tells me that you need that balance sheet to be able to get yourself through construction, and also that ramp-up phase,” Howard said.

He likes Predictive Discovery (ASX:PDI), which has over 3Moz in the reserve at its Bankan project in Guinea.

It’s been clouded in approvals challenges which Howard thinks will dissipate soon.

“Bankan from Predictive would be in the top 20 future West African gold mines and look at all the others in that top 20, they’re owned by majors,” he said.

“And so what that tells me is that I think when Predictive has its mining permitting sorted perhaps late this year, it would be under severe risk of being acquired by a major.”

Consolidation has been seen at the smaller end of the market as well, with Kalgoorlie’s Horizon Minerals (ASX:HRZ) merging with Greenstone Resources and last week Brightstar Resources (ASX:BTR) last week announcing a merger with Alto Metals (ASX:AME) and acquisition from Gateway Mining (ASX:GML) to bring together the historic Sandstone gold district and double its resource base to ~3Moz.

Reliving your youth

On the bill yesterday among the large gold miners was Regis Resources, which was hit hard in recent weeks after revealing a near $1bn capital bill at its main growth asset, the McPhillamys gold project in New South Wales.

It also dropped lower production guidance for FY25, with some market watchers viewing its mainstay Duketon mines near Laverton as mature.

They’ve gone, like Riverina and Sand King, albeit on a larger scale, from low grade open cuts to undergrounds.

Regis MD Jim Beyer disputed the idea they are tired, insisting exploration and development will open up more underground opportunities, showing WA still has plenty to give after more than 130 years of gold mining.

“I think Duketon is not what it was, but Duketon is by no means over and done with,” he said.

“In fact, I think that’s part of our issue, is that the market and the investors still don’t quite understand how to look at it.

“Three years ago, no production came from underground or two fifths of not much. Now more than half of what we mine at Duketon comes from underground.

“And when you look at that and you try to figure out, well how do I value that, you haven’t got much in reserves, it looks like you’re gonna be all over.

“This time four or five years ago our maiden reserve at Rosemont was 130,000-odd ounces. Today the reserves at Duketon in our underground are over 330,000oz so it’s nearly three times what it was.

“So I don’t think the life is over. I think it’s got quite a bit of cash generating capacity in front of it.”

At Stockhead we tell it like it is. While Ora Banda and Brightstar Resources were Stockhead advertisers at the time of writing, it did not sponsor this article.