cashed-up gold miners ponder acquisitions

Cashed-up gold miners ponder acquisitions

Nick Evans, The West Australian
August 4, 2012, 9:12 pm

Cashed-up gold miners ponder acquisitions
Northern Star Resources is forecasting surplus cash next year of up to $85 million because its Paulsens mine has turned into a money-printing operation. Resolute Mining had $139 million in cash and bullion at June 30, even after ramping up its share buyback, while cashed-up Evolution Mining is openly scouting for acquisitions.

Yet while the best-performing gold stocks are rolling in it, and share prices of underperformers are languishing, the much- anticipated consolidation of Australia's mid-tier gold sector is yet to happen.

But industry insiders say market conditions may be about right for merger and acquisition activity to kick off in earnest.

And consolidation is tipped to be a key topic at the Diggers & Dealers conference in Kalgoorlie-Boulder, which kicks off on Monday.

Corporate advisers and industry executives say the freeze on equity markets may stymie the ambitions of companies that have proved up projects, but face reluctance from investors and bankers to fund a first mine. But debt is cheap for companies that already have producing assets, and the emergence of a group of cashed-up producers sets the scene for deal flow to finally take off in the mid-tier gold space.

Companies such as Northern Star, Resolute, Evolution and Troy all have producing assets and solid balance sheets, and have made no secret of plans to buy. High levels of exploration and development activity in Australia and overseas, most notably in West Africa, mean a number of companies have late-stage gold development projects with no clear development funding.

Veteran deal-maker Charles Fear, executive chairman of Argonaut Securities, says prime targets would be companies with unfunded projects with big, 1.5 million ounce- plus gold deposits, with average grades topping 1.5 to 2 grams per tonne.

"In March you had a series of companies that were extremely well-priced in the market, and a higher gold price. So when people looked at the targets that were unfunded, they were too expensive. Those targets have now come back a long way, which makes them attractive," he said.

But predictions of imminent consolidation have dogged the gold sector for years, and even though market valuations have plunged this year, bringing development stage companies closer to levels buyers are willing to pay, there has been little sign of the promised roll-up of the gold sector.

Azure Capital director Richie Bastons attributes the unwillingness of companies to join the dance to the volatility on capital markets.

"The immediate constraint we see is that with such volatile equity prices it's difficult to act or work out the best time to act - particularly for scrip-based transactions, where companies feel uncomfortable entering discussions when their value might have come off 30 to 40 per cent in recent times.

"So in our view the catalyst is likely a period of sustained lower volatility - you need people to accept there's a new paradigm," he said.

Northern Star managing director Bill Beament says there's "the smell of M&A in the air", partly because of increasing pressure from institutional holders, concerned about risk at smaller companies and a dearth of operational experience in boards and management teams.

"We got a very clear message out of our institutional investors, particularly out of the UK, that they're going to stop investing in single mine companies soon," he said.

"There's definitely a lot of pressure from the big institutions to do some consolidation in the industry - that's no secret."

Institutional investors in local companies may apply pressure, but the impetus may also come from outside the country. PCF Capital managing director Liam Twigger says that Zijin Mining Group's offer for Norton Gold Fields was likely to be the first of a number from regional players.

"I've just come back from a conference in Malaysia, and while in Australia we think it's doom and gloom and companies are wondering about how they can improve their value, the attitude to Australian companies and gold opportunities is just huge up there, and we came back with a number of buy mandates," he said.

"We've the Chinese come through and Zijin pick up Norton and certainly there may well be a strategic drive from China, saying we need to diversify our investment base beyond currencies. And while they can buy gold on markets, getting control of gold producers and gold deposits is strategically very important to them."

There's the smell of M&A in the air. "

Northern Star managing director Bill Beament

http://au.news.yahoo.com/thewest/business/a/-/wa/14462097/cashed-up-gold-miners-ponder-acquisitions/