Explaurum bid could open door to consolidation in gold sector

14th September 2018
Resources Rising Stars

The approach by Ramelius Resources this week to buy smaller explorer Explaurum marks the first hostile takeover bid among Australian gold miners for many years, and some now wonder whether it will kick off what would be a highly anticipated round of consolidation in the industry (reports The Australian).

It may only be small, with Ramelius bidding 12.3c per share for the company that has a market value of $50.55 million, but it is reflective of what could be expected to play out.

The thinking is that gold miners are in a position where they need to consolidate to build scale and draw the attention of institutional investors.

The problem, though, is that no one seems to be eager to be the first to move.

Targets are expected to be groups such as Dacian Gold, Gascoyne Resources, Panterra Gold and Gold Road, where as likely acquirers are Newcrest, Evolution, Northern Star, Regis Resources, OceanaGold and St Barbara.

Talk has centred on whether a North American company could be a target, with JPMorgan noting that the Australian gold sector has outperformed the gold sector on the Toronto Stock Exchange this year by 17 per cent.

In Australia, the miners across the board are being closely watched due to commodity price movements.

Commodity prices have staged a rally since the resources sector downturn, but in the past year President Donald Trump’s new trade laws have placed pressure on prices.

The copper price is now around $US2.60 a pound after trading at $US3.50 last year, while zinc and nickel have also taken a tumble.

The situation has flowed on to the stock prices of Western Areas, Independence Group, Sandfire Resources and copper miner OZ Minerals.

OZ Minerals peaked at $10.67 in June when the copper price was around $US3.10, but now it is $US2.60, and OZ is $8.27.


Image: Explarum Limited

Due to the weaker Australian currency, the local miners will likely meet their earnings targets even though the US dollar prices of commodities have fallen.

But some believe analysts will soon have to start downgrading their numbers on mining stocks, including BHP and Rio Tinto.

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