Aeris’ Cracow gold buy has echoes of Northern Star

Exhibiting the same grit showed by his Test cricketing son Marnus, who bounced up from the ground without fuss up after being sconed by a 150km per hour ball from England’s Jofra Archer at Lord’s last year, Andre Labuschagne was not about to let COVID-19 get in the way of his growth ambitions for Aeris (ASX:AIS).
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Aeris was in the race for the sale of the Cracow gold mine in Queensland by Evolution (ASX:EVN) before the process was parked up because of the pandemic. But a determined Labuschagne convinced Evolution to re-open the sale via Zoom.
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And he won the day, with Aeris securing Cracow for up to $125m, split into $60m in cash, a deferred $15m payment in June 2022 and a 10% net value royalty (after direct costs are deducted) capped at $50m.
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The price is pretty much what the market valued Cracow at in Evolution’s hands, with ultimate success for Aeris dependent on it being able to keep 2-3 years of reserves ahead of the underground operation, something that has been achieved since production started back in 2004.
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Aeris will be stepping up both mine and regional exploration to make sure that happens, with projected net mine cashflows at the current gold price of more than $100m over the next two years helping the cause.
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Ideally, Aeris would have secured the deal without having to raise the equity component of the finance at 3c a share, which compares with its 4.3c price ahead of it going in to a trading halt ahead of the deal being announced.
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The 4.3c pre-deal price reflects the pressure on the company’s Tritton copper operation in NSW from the now-recovering copper price.

But as Labuschagne said yesterday, it really comes down to seizing the opportunity at hand.
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“These things come around every now and then and when you find one that fits, you just have to bite the bullet and go for it. It is about the strategic value Cracow brings to the business and the future growth opportunities.”
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He does not intend stopping at Cracow/Tritton if another opportunity comes along.
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Think of the strong cash flow to come from Cracow after some judicious hedging, and along with Tritton, it becomes a building block for Labuschagne’s bigger ambitions (remembering he had a shot at Glencore’s Cobar copper/gold mine).
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That makes the Cracow acquisition sort of reminiscent of Northern Star’s (ASX:NST) entry in the gold business 10 years ago this week with its acquisition of the now parked-up Paulsens mine in WA. It was the first building block on NST’s advance to becoming a $10.5 billion company.

NST’s stellar run has also been about seizing the moment. The same could be said for the $10b Evolution, created in 2011 with Cracow one of its key assets. Evolution has outgrown Cracow since but like Paulsens for NST, it is where it got its start.
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