Why this gold veteran rejects the ‘fancy new metals’

Raleigh Finlayson started looking for his next venture in Australian gold mining around the same time his peers were declaring the sector to be out of vogue (reports The Australian Financial Review).

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It was August 2021 when industry talisman Bill Beament publicly lamented gold’s lack of relevance for the decarbonisation trend, while Evolution Mining chairman Jake Klein said investors’ focus on decarbonisation had left gold in “the doghouse”.

Finlayson has never matched Beament and Klein for swagger and showbiz, even though he is in their league for value creation after a decade growing Saracen Mineral Holdings to the point where it merged with Beament’s Northern Star to form the second biggest gold miner on the ASX.

So while Beament and Klein were generating headlines at Kalgoorlie’s Diggers n’ Dealers conference, Finlayson turned up to collect the life membership award and looked to his next adventure in the famous gold region.

“It would have been the easy and obvious option to flip out of gold and into the new fancy metals,” says Finlayson of lithium, nickel and copper.

“When sentiment is low that is when you have got to have the courage of your convictions to swim the other way, so that is the primary reason why I am in this gold vehicle Genesis Minerals.”

Genesis has four gold targets within a 30 kilometre arc near the historic Western Australian gold mining town of Leonora, and across those four targets the company estimates it has total gold “resources” of 2 million ounces.

Some of the Genesis tenements overlap with land that Finlayson’s grandfather purchased more than half a century ago and where Finlayson himself did his early education over the radio through “School of the Air”.

The industry dynamic in the gold province around Leonora, Laverton and Leinster is for mining companies to have surplus capacity within the mills that process raw ore into saleable gold, with Finlayson saying milling capacity in the province will soon be close to ten times what it was in 2014.

Genesis does not own a mill, meaning the rapidly growing gold resources on its books could be a very useful addition for one of the hungry mill owners in the neighbourhood.

The closest mill is about 30 kilometres away at St Barbara’s flagship Gwalia mine and that mill has been short of feedstock in recent times, although St Barbara hopes the recent acquisition of gold junior Bardoc will ease those pressures.

Northern Star, Red 5 and Dacian are also expanding mills in the region.

While Genesis looks like logical acquisition fodder for one of those companies, Finlayson says the company will spend another year or two growing the size of its gold resources and hasn’t given up on the notion that Genesis could build its own mill if its assets prove big enough to warrant it.

“There is lots of milling expansion happening in the region, so we are keeping an active watch about what is happening around us, so if we get to a point where we are ready to pull the trigger on our stand-alone development, [we can be sure] that that is actually the most accretive option for our shareholders versus something that may involve mergers and acquisitions and milling capacity in the area,” he said.

The culture at Saracen under Finlayson’s leadership was initially conservative and based on the idea of planning for the worst while hoping for the best.

He agreed to fix gold offtake prices before it was fashionable and earned a reputation for consistently delivering on cautious guidance.

That strategy was built on the belief that Saracen did not initially own Australia’s best gold mines, although once the company was well established Finlayson raised his risk appetite by making an ambitious and successful bid for half of Kalgoorlie’s Superpit in 2019.

When asked if Genesis’ early years would feature the same conservative approach he imposed on Saracen, Finlayson said he would run the company with a mix of courage and caution.

“A leopard doesn’t usually lose its spots, my DNA is around not blowing up the company ... it is important you are in good shape in the down times and that is when good M&A opportunities jump out,” he said.

“At the same time, we have obviously earned the respect of shareholders with what we have done in the last decade, so that probably gives us more opportunity than we saw in the first five years of the Saracen journey.

“So it is probably a bit of a blend and hopefully all the positive things out of Saracen will come across into Genesis.”

The macro trends that drive gold prices and equities have already swung a couple of times since Finlayson got involved with Genesis in September.

The rising interest rate cycle that rendered gold less attractive as a safe haven last year was disrupted by the outbreak of war in Europe in early March, triggering a flight to gold and surging gold prices.

By March 17, the war had overlapped with the first increase in US interest rates in four years, dragging prices lower and giving investors mixed signals on the outlook for the yellow metal.

Finlayson says investor sentiment toward gold remains “neutral to negative”, but he has no doubt that will be different sooner or later.

“There will be things that will happen like they always do, I can’t put my finger on it, I don’t know what the gold price is going to do but I know there will be cycles,” he said.

“In tough times we will be well prepared with our DNA to handle that, but then there will be good times that we will want to take advantage of.”

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