Monsters of Rock: As gold prices rise, Westgold looks to beef up its M&A firepower
Gazumped by the larger Ramelius Resources (ASX:RMS) in a very brief tug of war over Musgrave Minerals in which, to be fair, it simply let its side of the rope fall, Westgold (ASX:WGX) has beefed up in preparation for its next M&A tilt.
$987 million capped Westgold has been one of the top performers on the ASX this year, with the mid-cap goldie riding a wave of higher gold prices and improved operational performance to a 131.67% gain in 2023.
It was sitting on $217 million of cash and gold as of September 30. But M&A is competitive, and a new $100 million revolving corporate facility with ING and Societe Generale has been drafted up to take it there.
The miner produced 63,104oz of gold in the September quarter at an all in sustaining cost of $1935/oz.
Unlike in previous years, that’s largely – and now all – unhedged. Having sold that gold at $2888/oz on average last quarter, prices should be even better in December.
That means it and other unhedged Aussie gold miners are well positioned to take advantage of strong gold prices and a weak Australian dollar.
Westgold recently reopened the Great Fingall mine near Cue, which will deliver around 45,000ozpa at an all in cost of $1801/oz. But it is looking further afield at M&A opportunities that can revitalise a portfolio based around a network of old Mid West gold mines.
“Westgold is confident in the trajectory of our business and see the support of two tier one international financiers, such as ING Bank and Societe Generale as strong validation of the Company’s growth plans,” WGX MD Wayne Bramwell said.
“With $217m of cash and bullion at the end of Q1, FY24 Westgold is fully funded to develop organic
growth assets such as the Great Fingall mine at Cue. With a strong balance sheet and growing cash flows
from our operations this new corporate facility provides an additional $100M in additional firepower to
move quickly on opportunities we see emerging.
“Westgold has demonstrated both intent and discipline regarding growth and will maintain that discipline. Critically the Company remains debt free with the corporate facility fully available and currently undrawn.”
Westgold was also scuppered in a bid for the old Gascoyne Resources and its nearby Dalgaranga project before its merger with Firefly in 2021. Its spawn Spartan (ASX:SPR) looks a far more attractive prospect now with its high grade 721,000oz Never Never find next to the previously grade starved Dalgaranga mill.
But it will also come at a higher price if anyone wanted to acquire it, which Spartan shares up 287% this year to a market cap of near $400 million.
That came as gold bounced above US$2000/oz for the first time since the middle of the year, as hopes of US Fed rate cuts sent bullion higher.
Most of those gains came before the minutes of the last Fed meeting came out which had … little indication rate cuts were actually on the horizon.
There is a little good news for gold miners at least, with the gold price having held up even after safe haven demand faded with little sign the Israel-Hamas conflict would extend to other parts of the Middle East.
A temporary ceasefire announced today could cool those concerns further.
But gold prices are also responding well to lower US dollar values and a drop in the 10 year nominal yield, Commbank mining analyst Vivek Dhar said.
“Just looking at the last time that both the US dollar and US 10 year nominal yields were last at current levels, gold futures were ~$US1,950/oz,” he said.
“The US dollar and US 10 year nominal yields were last at current levels on 30 August and 20 September respectively.
“It’s hard to justify why current gold futures are tracking closer to $US2,000/oz. One reason could be that gold markets are factoring stronger US interest rate cuts next year. That is broadly consistent with our view that the FOMC will deliver 150bps of cuts next year.”
Gold miners were mixed in response, with Northern Star (ASX:NST) and Evolution Mining (ASX:EVN), but Newmont (ASX:NEM) among the top large caps mirroring a more than 2% overnight rise in its US shares.
Running over 5% higher today was Canadian lithium explorer Patriot Battery Metals (ASX:PMT).
It owns the Corvette lithium project in Canada’s James Bay region of Quebec, where the main CV5 pegmatite delivered a resource of 109.2Mt at 1.42% Li2O, one of the ten largest spodumene deposits known thus far.
But its shares have traded down 12.2% this year, halving between a June high of $1.96 and early October.
The CV5 pegmatite is an imposing 4.35km long, but that covers just part of the 50km trend interpreted across the Corvette property.
Seven clusters have been found so far, and today’s drill results from CV9 could be among the most promising outside the CV5 peg.
The company announced today that a drill hole had hit around 100m of near continuous spodumene-bearing peg at CV9, with three holes returning intersections of over 60m.
Caveat – Ken Brinsden-chaired Patriot remains in the hands of the assay gods. Preliminary modelling shows the pegmatite thickens to at least 80m wide at one location and is open in multiple directions, PMT said.
That shares similarities with CV5 – 14km to the east – in depth and scale. But proof is always in the pudding, and results for 4000m of core remain to come back from the lab.
“This is a very strong start to the drill exploration at the CV9 Pegmatite. Although no core assays have been received yet, the presence of spodumene and the length of pegmatite encountered in multiple holes, highlighted by an approximate 100 m near-continuous spodumene-bearing hit in the final hole of the program, are very positive in terms of potential of this pegmatite to hold significant scale,” PMT’s VP of exploration Darren L. Smith said.