De Grey and Northern Star will team up to develop Hemi after an agreed $5bn merger. Pic: Getty Images
Mining
Your standout small cap resources stocks for Monday, December 2.
Worth just 5c when its 11.5Moz Hemi gold deposit was found near Port Hedland in February 2020, De Grey has capped off its incredible growth story with a $2.08 a share, $5 billion takeover from the ASX’s biggest standalone gold miner Northern Star Resources (ASX:NST).
$10,000 in De Grey before the Hemi discovery would turn into $416,000 in NST shares based on the trading prices of both companies before today’s announcement. Incredible.
The mine, once in production pending state and federal environmental approvals, will produce 530,000ozpa over its first 10 years.
That would place the mine only behind the Boddington and Cadia gold mines among Australia’s largest operations.
If additional deposits to the west in the broader 13.6Moz Mallina district are developed, RBC Capital Markets analyst Alex Barkley says the $1.365 billion project could lift to 700,000ozpa by FY2031 and potentially over 900,000ozpa eventually.
That could see Northern Star expand from a planned 2Mozpa runrate in 2026 to 3Mozpa around the end of the decade, when a $1.5bn expansion of the Super Pit and Golden Mile at Kalgoorlie to 900,000ozpa is complete.
Northern Star is guiding to a production profile of around 2.5Moz by FY2029.
DEG shareholders will wind up with 0.119 NST shares for each De Grey share they hold, a 37% premium to its last share price and 43.9% over its 30-day VWAP with De Grey investors to hold 19.9% of the company when the expected deal completes in April/May 2025.
Barkley says it’s a 16% premium over the bank’s $1.80 price target and $4.3bn valuation on De Grey, with Northern Star’s board approved scheme deal following reports of interest in the tier-1 Hemi asset from some of the world’s biggest gold miners, including Agnico Eagle and Barrick.
De Grey shares surged 29% this morning to $1.96, but investors are also closely watching the movements of Gold Road Resources (ASX:GOR).
$2.3 billion capped GOR holds a 17.3% stake in De Grey, and climbed 12.6% today, with De Grey MD Glenn Jardine declining to say on a conference call whether Gold Road had confirmed it would support the deal. A Gold Road spokesperson said it was reviewing its options.
Barkley thinks Gold Road, which acquired its initial position two years ago via a scrip takeover of explorer DGO Gold, is likely to vote it up in the absence of a superior proposal.
“GOR have publicly stated they have considered a strategic sale, and have suggested they were holding out for a potential premium,” he told clients in a note.
“While GOR may prefer a deal with a greater cash component, NST’s ASX listing still would offer GOR and its shareholders a liquid realisation of value. GOR is a stock under our coverage, and we expect that in the absence of a higher offer, it would accept this bid from NST.”
$19 billion-capped NST’s shares fell 5.5% this morning.
Hemi is a different sort of asset for Northern Star, which itself grew from a penny dreadful to a global gold superpower by turning around a string of underperforming and mature assets owned by North American majors under the leadership reins of Bill Beament and now Stuart Tonkin.
With Hemi, NST will be tasked with building the project from scratch based off work already undertaken by De Grey in its DFS process.
NST MD Tonkin said Northern Star was capable of developing new assets, not just renovating old ones, citing its history carrying out new developments at its operations over a decade that has seen it become the largest gold operator in WA.
He says there is significant upside and that Northern Star has used conservative gold prices in its assessment, saying Hemi will be at the lowest cost quartile with the ability to ride through the cycles.
“There’s certainly things we consider Northern Star can bring, not just reducing development risk and balance sheet strength,” Tonkin said.
“An asset like this you’re looking decades, and you’re looking at that underground potential. We don’t necessarily have to bring that into our thinking to justify the announced deal.
“You look at consensus numbers on De Grey and you can can understand what gold prices assumptions people have into that as well.
“So I think it’s, it’s a very even and balanced valuation offer both sides. And I think given the all scrip nature of the deal, it gives De Grey shareholders an immediate premium out the gates into a cash-flow generating, dividend-paying company.
“And then it gives them significant upside exposure through 19.9% of the expanded business to enjoy Hemi and the broader Northern Star portfolio going into the future.”
European Lithium’s largest asset is its 74.3% majority stake in Critical Metals Corp, the Nasdaq-listed explorer which holds the Wolfsberg lithium project.
Its shares caught a bump this morning after announcing a milestone in the process for bringing Wolfsberg to fruition, saying the Carinthian state government would not require an environmental impact assessment for the Austrian asset.
EUR says the advantage of the project is that it will be developed underground, with no EIA required in law because above-ground activities will take place over less than 10 hectares.
“This is an extraordinary achievement for Critical Metals Corp and our Wolfsberg project, as we chart a path forward for the production of critical minerals in Europe,” EUR chairman Tony Sage said.
“This decree makes the Wolfsberg Project the first new mining project within the EU that is able to pave the way into the fast-track approval process for new mining projects in the critical minerals sector.
“This is a significant milestone towards sustainable production of lithium from Austrian mining extraction in an integrated European supply chain located in the heart of Europe.”
(Up on no news)
Felix Gold has been moving to expedite plans to potentially develop the historic Scrafford antimony mine in Alaska, looking to supply western antimony to the US at a time when Chinese export controls are sending prices climbing.
Historical grades have come in as high as 58% Sb, with average grades of around 38% based on known production records. Met testwork is upcoming to see if ore from the project can be extracted via low-cost gravity methods.
It’s on top of the 832,000oz Treasure Creek resource, which includes the high-grade Grant mine and low-grade North West Array deposits, within 30km of Kinross Gold’s Fort Knox mill, where toll treatment options are being investigated.
In its last quarterly, Felix noted NW Array was analogous in size and grade to the Gil Sourdough deposit, which has been supplying Fort Knox for two years.
BMG meanwhile is up 60% over the past month, the $17 million capper running higher as drilling plans have firmed up around its Abercromby gold project in WA.
The Capital deposit contains 11.12Mt at 1.45g/t gold for 518,000oz at a 0.4g/t open pit and 1.25g/t underground cutoff.
At Stockhead, we tell it like it is. While European Lithium was a Stockhead advertiser at the time of writing, it did not sponsor this article.
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