The majors are offering a premium for gold juniors and activity is ramping up
Special report: The majors are on the hunt for quality gold assets and this has seen several ASX-listed juniors find themselves presented with attractive takeover offers.
Recent merger and acquisition action among juniors shows premiums are being offered as the majors chase growth assets.
Offers that have been tabled recently include gold producer Ramelius Resources’ (ASX:RMS) play for WA gold developer Explaurum (ASX:EXU).
The contested scrip offer valued Explaurum at an initial 66 per cent premium to its pre-bid price of 7.4c a share.
This deal was followed up by an attempted friendly scrip bid by gold producer Regis Resources (ASX:RRL) for Pilbara gold developer Capricorn Metals (ASX:CMM) at a 93 per cent premium, and a friendly scrip bid by Canadian producer Great Panther for Brazilian gold producer Beadell (ASX:BDR) at an implied 51 per cent premium.
Mark Clark, chairman of $2 billion Regis, told Stockhead recently that the small cap gold players are ripe to be pocketed by the big guys.
Regis is still on the hunt for a new gold project after it lost out on $50 million Capricorn when the takeover target’s biggest shareholder said “no” to the deal.
Investment funds look to resources
Investment funds are also picking up the pace and injecting more cash in the resources market.
Tribeca Investment Partners and Terra Capital believe the supply side is looking very promising at the moment, with majors still trying to pick themselves up after the prolonged period of depressed commodity prices.
“We don’t see the majors doing a lot of greenfield or even brownfields [exploration],” co-portfolio manager Craig Evans told Stockhead
Greenfields is exploration done in new areas where mineral deposits have not yet been discovered.
Brownfields is exploration done close to previously discovered deposits and mines.
This is the type of exploration usually done by producers to “grow” a “resource” or “reserve” — to boost production and extend the mine life.
“They’re still paralysed quite a lot of these large-cap companies in terms of having really been hammered by poor commodity prices up to that period of end of 2014, early 2015,” Mr Evans said.
“Our view is most of the supply side is probably going to come from mid-cap, small-cap, maybe even micro-cap.
“We are in that type of market where the big caps aren’t building. So they’re probably coming to buy. We’re starting to see a bit of [merger and acquisition activity] kick-up globally.”
Acquisitions on the way
Mr Evans predicts that in the next six to 12 months the majors will start doing acquisitions valued at between $500 million and $2 to $3 billion to “buy in some supply side growth”.
This makes the likes of Canada-focused Matador Mining extremely attractive after it landed itself a multi-million-ounce opportunity at the Cape Ray Gold Project, in Newfoundland, Canada.
Canada being amongst the 3 biggest gold producers for 2019, an opportunity exists for Matador in the junior space that ultimately supplies that production profile. The junior market in Canada, has however been focussed recently on cannabis and bitcoin and starved the space of growth capital. Creating an environment rich in undervalued projects.
Matador has locked up 65km of a mineral rich shear zone, where historical ounces have been discovered at a rate of $8/ounce, making the company an attractive growth proposition.
Matador has already delivered a maiden JORC indicated and inferred resource of 750,000 ounces of gold and 2.7 million ounces of silver for its Cape Ray project in just a short time after completing the acquisition of the project.
JORC refers to the mining industry’s official code for reporting exploration results, mineral resources and ore reserves, managed by the Australasian Joint Ore Reserves Committee.
Mineral resources are categorised in order of increasing geological confidence as inferred, indicated or measured.
Managing Director Paul Criddle believes the ground ant Cape Ray and the team at Matador is more than capable of eventually expanding the current resource to a multi-million-ounce inventory, much like some of the camp scale projects developing along the Cape Ray Shear.
The Cape Ray project is located along the same Cape Ray Shear in a similar geological setting as the 3.2-million-ounce Valentine Lake Project owned by Marathon Gold and First Mining Gold’s Hope Brook mine, which historically produced 752,000 ounces of gold. The area also hosts a number of high-grade gold discoveries, with grades of up to 213g/t uncovered by one company during grab sampling. Given that anything above 5g/t is considered high grade, its clear the project is in a good setting.
Since announcing it was acquiring the Cape Ray project in early April, Matador’s share price has advanced over 22 per cent and it is up 50 per cent since mid-March at its current price of 30c.
Matador is now well into a 4000m drilling campaign to extend its current resource base as well as conducting extensive soil geochem sampling along the broader 65km land package. The company is on the cusp of delivering results from these programs that are expected to grow the resource further, with an update due out this quarter.
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