Australian mining’s technological and technical expertise is the key to putting more gold miners into the top tier of the global sector, reversing a decades-long trend, according to Newcrest Mining boss Sandeep Biswas.
Cashed-up local gold miners are already positioning themselves as globally significant companies, and a new wave of industry consolidation could see Australia’s mid-tier miners bulk up with assets shed by the big miners, or merge to extend their global reach.
But it is Australia’s leading position as a pioneer in technology that will drive the sector, he says, not a desire to grow for growth’s sake. For years Newcrest has been the nation’s lone entry in the list of the world’s top-10 gold miners. Read Next
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The first decade of the century saw more than 1000 gold sector acquisitions with a combined of $US121bn ($177bn), according to a recent report on the sector by McKinsey.
But despite Australia’s great mineral riches, successful local gold plays were more often the hunted than the hunters as North American and South African gold majors swallowed up a suite of the most successful Australian gold plays, including Normandy Mining and Acacia Resources.
But Mr Biswas says the next five years could see Australia’s new generation of challenger mid-tier gold miners — such as Northern Star Resources, Evolution Mining and Resolute Mining — transform into significant global players as they look beyond these shores for growth.
The last era of mega-mergers — which included Newcrest’s own $10bn tie up with Lihir Gold — also unleashed a massive wave of value destruction in the listed gold sector. The McKinsey report estimates the world’s 20 biggest gold companies collectively cut $US129bn from their enterprise value between 2011 and 2018, in a wave of impairments and writedowns, as the gold price fell in the wake of the top-of-the market transactions.
Most industry executives, and market watchers, believed the mega-merger era was gone. Until last year, at least, when Barrick Gold and Newmont Mining kicked off a second wave, announcing tie-ups with Gold Corp and Randgold respectively. Barrick also toyed with a hostile bid for Newmont, but dropped the idea.
Mr Biswas was recruited to Newcrest from running Rio Tinto’s Pacific Aluminium business to fix the problems caused by its Lihir acquisition, and confessed he was surprised by the latest top-end deals.
“Prior to the megamergers, there was a lot of talk of consolidation. We assumed that would happen at the junior end of the sector — and it turns out the only two meaningful consolidations happened at the top end,” he said.
“I never thought megamergers would happen, before now, but they happened.
“Anything can happen, but I would expect the activity to be more in the junior end, the small to mid-caps — either coming together, or bulking up through taking on divestments from the majors.”
Northern Star and Evolution emerged as new mid-tier powerhouses in the wake of the sector’s retreat from the overexuberance of the previous decade, buying quality Australian assets at a discount as global majors shed mines to simplify their structures and shore up balance sheets.
The two latest megadeals could offer Australia’s mid-tier miners new opportunities to grow, Mr Biswas says, as Barrick and Newmont flag sales to clean out their portfolios of lesser assets.
Kalgoorlie’s iconic Super Pit could be back on the market, along with gold and copper mines in Zambia, Chile and Tanzania.
But the Newcrest boss says the fire sales that created Northern Star and Evolution won’t be seen again, telling The Weekend Australian the big miners won’t be caught selling profitable mines at a discount this cycle.
“The market is different. No one is under pressure to sell.
“If you look at the major gold companies all of their balance sheets have improved, their cash position and their cash flows have improved, so there’s no real desperation to sell anything. So getting assets at a discount is going to be harder now than what happened back then.
“And because of the Northern Star experience, people have seen what can be done. So whatever is up for sale will probably have more competition than what happened back then. They were great counter-cyclical investments — and hats off to both companies for what they’ve done.”
Instead, it is technological prowess that will help extract extra value as mines get deeper and it becomes more challenging to extract ore from deposits.
“You can do all of the restructuring and cost-cutting you want, but ultimately it’s those technology leaps that drive this industry forward,” he says.
“And you’re seeing a lot of companies — and we’re leaders in this space — focusing on new technology that can enable old ideas to come to reality, because that will be the next wave of productivity improvements, efficiencies, that will help mine lower-grade deeper ore bodies, and also process them.”
Australia’s miners have led the development of automation in the industry, in haulage, and in drilling and blasting. Newcrest is spending millions pioneering new processing technologies — including new metallurgical techniques and ore selection processes — to improve extraction rates from difficult deposits.
It is also one of a handful of companies with expertise in block-cave mining — an underground mining method that allows the bulk extraction of low-grade ore by undermining a deposit with a series of shafts and tunnels and allow it to progressively collapse under its own weight.
That expertise led to its $US800m bid for a majority share in Canada’s Red Chris copper and gold mine. Red Chris was barely eking out a profit under traditional mining techniques, but Mr Biswas says Newcrest is confident its expertise can turn the mine into a rival for its flagship Cadia operation in NSW.
Mr Biswas established his reputation in the industry when running the Kalgoorlie nickel smelter for WMC Resources in the 90s and says Newcrest has followed the legendary mining company’s lead in putting technology at the heart of its business, along with safety.
As mining gets more difficult, that expertise and technological prowess will be the key to growth.
“Those discounts won’t be there, but can companies look at the same asset with a different lens and see value? That remains to be seen. We’ve done it with Red Chris, we bring a block-caving lens, which others weren’t using, so we can see value there that others can’t,” Mr Biswas said.
“If you look at the trend in the industry — and this is going outside of gold to other commodities — the high-value, near-surface deposits that allowed open-pit mining, they are decreasing in politically stable jurisdictions,” he said.
“If you’re talking about Australia, or Canada or the US, the trend we’re finding is that these discoveries are more and more underground, not on the surface.”
This was posted in The Australian overnight.
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