Gold M&A shifts into overdrive, but cautious investors show not all deals will find favour

The pace of gold deals accelerated this week, but not everyone was happy as some prices started to looked stretched.
29th November 2019
Tim Treadgold

The pace of gold deals accelerated this week, but not everyone was happy as some prices started to looked stretched.

Evolution led the way among Australian-listed stocks with the $US475 million acquisition of the Red Lake complex in Ontario from US gold major, Newmont. Investors liked the move, lifting Evolution’s share-price by 8c to $3.96.

There were fewer smiles when Kirkland Lake, a Canadian company which has an Australian listing and owns the high-grade Fosterville mine in Victoria trundled out a $US3.7 billion all-shares merger with fellow Canadian Detour Gold.

The terms of the takeover (0.4343 Kirkland Lake shares for each Detour share) were seen as too generous, with the result being a sharp $12.43 (17.5%) fall in the price of Kirkland Lake’s Australian-listed shares, which closed yesterday at $59, well down on their $81 peak reached in September.

Critics described the Kirkland/Detour tie up as a “head scratcher”, while they welcomed the Evolution move as a natural step for the stock, which has a strong reputation for adding value to the discards of bigger gold producers.

Evolution’s Canadian adventure and Kirkland Lake’s merger follow the acquisition of a half-share in the Kalgoorlie Super Pit by Saracen Minerals Holdings.

Most gold stocks, despite a fall of $US10-an-ounce in the international gold price, had a reasonable week, largely as a result of the Australian gold price edging up $A1/oz thanks to a slide in the exchange rate and a steady flow of positive news.

Catalyst Metals performed a useful trick with a 39c rise to $2.92 despite issuing new shares at $2.25 to raise a fresh $7.8 million to accelerate exploration on its Victorian properties. The key factor driving Catalyst high appears to be participation in the issue of its biggest shareholder, the iron ore business of billionaire Gina Rinehart.

Other gold moves of note included Musgrave Minerals adding 1c to 7.6c after reporting high grade assays from drilling at its Mainland Prospect near Cue in WA, with a best hit of 8.1 grams a tonne over 12 metres from a depth of 108m, and Dacian Gold’s 1c rise to $1.39 after announcing an outstanding drill result of 30.2g/t (one ounce to the tonne) over 23.1m from 266.9m.

Another sector of the market to perform well, despite being largely ignored by investors, was that of service providers which are emerging as the winners from higher volumes of material being shifted even as commodity prices stall, or go backwards.

NRW Holdings posted a modest 10c a share price rise to $2.83 after announcing what could be the company-changing $116.4 million acquisition of the contracting business, BGC, which was part of the empire left by the late Len Buckeridge.

The BGC acquisition represents a remarkable transformation for NRW, which was travelling roughly four years ago with a share price limping along at 5c.

Queensland-focussed Wagners Holding Company also landed an interesting deal with a $35 million contract to supply quarry material for the Carmichael coal mine and railway of India’s Adani group. That news lift Wagners share price by 2c to $2.08, well up on the $1.40 of early August.

On the international news circuit, there were two main items of interest. Rick Rule, a high-profile investor, told a conference in London that a chronic shortage of mining assets ready for development would trigger an exploration rush over the next few years, and an executive from Odey Asset Management, a prominent London hedge fund, told a conference in Singapore that the iron ore market was being “gamed”, or manipulated, by trading houses which profited from the loose price reporting system in which they participate.

Among the iron ore miners, Fortescue Metals led the way with a 30c rise to $9.79 despite a weaker price for the steel-making material and an interesting sell note from the big investment bank, Morgan Stanley, which reckons Fortescue is heading for a price of $7.85 because it has become disconnected from the price of the only material it mines.

Copper stocks were in the news for mixed reasons, led by Metals X which closed its troubled Nifty mine in WA after several years of high costs and heavy losses. The closure was expected, with investors holding the stock at 12c.

Other copper news included:

  • Bougainville Copper, one of the small companies hoping to win the rights to redevelop the mothballed Panguna Copper mine on the island of Bougainville, went for a rocket ride to 50c on Tuesday (up 400% on its 10c price of three weeks ago), before settling back to 26c for a gain of 4c

 

  • RTG Mining, another Panguna hopeful, added 2c to 8.8c and, like Bougainville Copper, received a speeding inquiry from stock exchange regulators with both companies saying interest is growing as residents of the island vote in a referendum to split from Papua New Guinea.

 

  • OZ Minerals add 50c to $10.67 after reporting that it had started construction of the Pedra Branca copper mine in Brazil.

 

  • BHP subscribed for more shares in the Australian-based but London-listed SolGold, which has a promising copper and gold project in Ecuador, a move which helped lift SolGold by 2 pence to 21.8, and

 

  • Stavely Minerals reported more promising assays from step-out and in-fill drilling at its Victoria copper discovery, with a best hit of 11m at 4.62% copper plus 0.57g/t of gold and 25g/t of silver from a depth of 86m. On the market, Stavely slipped 18c to $1.
     

Elsewhere, the battery-metals sector remained under pressure with graphite producer Syrah Resources dropping to a fresh 12-month low of 35.5c while rare earth stocks were flat, despite reports of potential US and Australian Government support for new projects.

Lynas Corporation, the local rare earth favourite, passed an important point during the week when it dropped below the $2.25 takeover offer from Wesfarmers, which Lynas management said was too low, but which is now a fraction higher than the stock’s latest price of $2.21.

Other rare earth stocks barely moved, though Alkane slipped 8c to 56c, largely because of a big capital raising which is earmarked for the company’s gold project in NSW.

Additional news and market moves during the week included:
 

  • Adriatic Metals lost 12c to $1.25 despite reporting more encouraging base metal and gold results from drilling at its Rupice project in Bosnia with the latest featuring a 6m section grading 11.3g/t and 1091g/t of silver.

 

  • Eagle Mountain added 2c to 19c after reporting that it had completed the acquisition of the Oracle Ridge copper mine in the US.

 

  • Encounter Resources said it had generated new copper exploration targets on tenements it is joint venturing with Independence Group in the Paterson Range of WA, a report which lifted Encounter stock by 2c to 13.5c, and

 

  • Peel Mining put on 1c to 27c after saying it had identified a new, high-grade base metals zone at its Southern Nights project in NSW.

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