Bold Gold Deals Move Increasingly Into the Money

Issue 77, March 2014

Gold’s ongoing rally from last year’s lows suggests its drop in 2013 was a correction in a long term bull market, rather than the popping of a bubble. If so, miners that have closed ounce accretive deals in recent months look set to emerge as long term beneficiaries of the cycle, whilst majors such as Barrick that have been thrown into retrenchment again become its victims. Which deals look the most accretive?


Northern Star Resources

Northern Star has bought 285,000 ounces of annual gold production from Barrick in Western Australia since the end of last year, tripling its own output, doubling reserves per share and lifting its total gold resource to 5.6m ounces.

In December it paid A$25m ($22m) for Barrick’s Plutonic mine, doubling output and funded from cash reserves. Then in January, Northern Star doubled up again, paying A$75m ($67m) for Barrick’s Kanowna Belle mine, plus its 51 per cent share in East Kundana, a bonanza grade underground complex grading 10.9 gold grams per tonne.

The two deals lift Northern Star’s annual output from 110,000 ounces, from its original Paulsens mine, to just shy of 400,000, with acquisition costs backstopped by a $100m equity raising and short term hedging agreements.

Plutonic has been “capital starved”, Northern Star said. Managing director Bill Beament previously managed the mine for Barrick.

Asanko Gold

Asanko Gold pulled off an all-share takeover of PMI Gold last month, after a merger between the two companies on identical terms collapsed early last year. Gold’s subsequent drop swayed PMI’s investors, who voted 99 per cent in favour of the deal on Asanko’s second approach.

The paper cost to Asanko of C$183m ($165m) was two-thirds covered by PMI’s cash backing of $94m, whilst combined cash of $280m accounts for 70 per cent of the new group’s market cap. Money is now being pumped into building Asanko’s Esaase mine, Ghana, with subsequent free cash flow aimed at PMI’s bordering Obotan project.

Coupling the two mines is expected to save $100m in operating and capital costs, with production of 400,000 gold ounces targeted by 2017.


Klondex Mines

In December, Klondex paid $83m for Newmont’s Midas mine and mill in Nevada, $55m in cash and $28m in the assumption of Newmont’s liabilities. On top of production from Midas, the deal offers Klondex a vital processing hub in a prolific gold mining district, with ore from its high grade Fire Creek project, 100 miles to the south, already churning through...
 

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