Yesterday, ASX-200 gold producer Ramelius Resources confirmed it had acquired 98.5 million shares in high-grade explorer Spartan Resources as a “strategic investment”, giving it an 8.9% stake.
While an 8.9% stake in a company is not necessarily a game-changer, Ramelius coughed up some serious cash (around A$90 million) to get there.
“Ramelius has an enviable portfolio with multi-stage operations and a development project that is underpinned by the long-life low-cost Mt Magnet operation,” Ramelius managing director Mark Zeptner said in a statement about the purchase.
“We also have extensive greenfield exploration opportunities and our investment into Spartan Resources provides us with a strategic addition to the portfolio.”
Spartan hits new high
There’s been plenty of takeover speculation surrounding Spartan, given its status as arguably the ASX’s hottest gold explorer.
The company was on its knees in late 2022 and worth substantially less than A$100 million when it recapitalised early last year.
But the discovery of the Never Never deposit at the Dalgaranga gold project has reversed Spartan’s fortunes.
Never Never has high-grade resource of 952,000 ounces of gold at 5.74 grams per tonne gold and is not closed off. The company has recently made another high-grade discovery, Pepper.
Spartan shares hit an all-time high of A91.5c on Wednesday, briefly pushing its market capitalisation over A$1 billion.
“Ramelius has been speculated as a potential acquirer of Spartan for quite some time,” Argonaut analyst Patrick Streater noted yesterday.
“Whilst the Pepper Lode is still being drilled out and adding material ounces to the mine plan, we think the Spartan share price still has room to run higher in the short term.”
Mt Magnet firing
While Ramelius’ 9% share price rise so far this year has underperformed the gold price, it has outperformed most of its mid-tier peers due to its operational strength.
The company reported record March quarter production of 86,928oz of gold at all-in sustaining costs of A$1344 an ounce, smashing guidance of 70,000-77,500oz at A$1375-1475/oz.
It led Ramelius to upgrade full-year guidance for the second time to 285,000-295,000 at A$1550-1650/oz from 265,000-280,000 at A$1750-1850/oz. Original FY24 guidance was 250,000-275,000oz at A$1550-1750/oz.
The Mt Magnet operation is the jewel in the crown, with production set to grow (and peak) in FY25 at 239,000oz due to the addition of the Cue mine before dropping to 166,000oz in FY27.
Spartan’s Dalgaranga is just 65km from Mt Magnet and its Checkers mill.
While Dalgaranga has a mothballed mill, it would require some refurbishment.
“Haulage costs to the Checkers mill are insignificant considering Never Never is likely to be a circa 6g/t underground feed,” Argonaut said last month.
“In our view, Ramelius can justify a A$500-625 million transaction for Never Never given our modelled cashflows which we think Never Never can produce.”
Ramelius still had A$446 million in cash and bullion following this week’s Spartan raid.
In its statement, Ramelius said it had “no current intention to acquire control or make a takeover offer for Spartan”.
Gap emerging
What makes the Spartan buy more interesting is that Ramelius has a likely production gap emerging.
Its Edna May underground mine is set to wind down later this year, though the company is reviewing the viability of a third cutback of the pit.
Macquarie recently noted the stage three cutback would require an 18-month strip, “which would result in a production gap at the asset even if a final investment decision was made in the near-term”.
A prefeasibility study for Ramelius’ third hub at Rebecca/Roe is due mid-year, though it would not be developed soon enough to prevent a gap.
Ramelius healthy but hungry
Ramelius is actually one of the more acquisitive miners on the ASX, having done seven deals in seven years, including two last year (Breaker Resources and Musgrave Minerals).
It’s not just Ramelius’ track record that indicates it’s not quite done with M&A yet.
It recently emerged that the company had signed a standstill agreement with fellow Murchison miner Westgold Resources in November 2023 and earlier this year, confirmed talks with TSX-listed producer Karora Resources.
Karora and Westgold have since announced they are merging with each other, leaving Ramelius somewhat jilted.
Argonaut said the withdrawal of Ramelius from Karora talks brought a potential Spartan takeover back into play.
Zeptner told reporters at Diggers & Dealers last year that the company was mindful of maintaining a strong balance sheet and “match fit” team.
“They say time kills deals – you can’t dilly dally around. You’ve got to be ready to go at a moment’s notice,” he said.
“But I don’t get to choose when opportunities become available or the price becomes realistic.”
Making things more interesting is the online chatter suggesting another big chunk of Spartan shares changed hands and remains (publicly) unaccounted for.
Major Spartan shareholder Tembo Capital reduced its stake by 5% this week and there could be more register changes to play out at Spartan in coming days.
