Quite sure everyone has read this but posting for completeness. Also it's a well thought out article.
What might trump Semafo
Probably not the majors as a start.
Orbis Gold, an Australian-listed gold-project developer, is now fending off Semafo, a Canadian junior gold miner, in a $140 million hostile takeover. Speculation is another miner might enter the fray as Semafo looks to have priced its offer on the low side - though you could hardly call $140 million, cash, at a 80-90%- shareprice premium, with a quick closing and no need for due diligence ridiculously unfair.
Orbis Gold's Natougou gold project, in Burkina Faso, has yielded impressive economic results in recent - albeit very early-stage - assessments. It estimates the internal rate of return of Natougou at 100%, up from 60%, after a round of re-sequencing and tweaking of mine plans. It advertises an eight-month payback.
Impressive, yes, but the project is still quite modest in size.
First year production from the flat-lying Natougou deposit - which is to be mined via open pit and requires a high-stripping ratio - is notable: 412,000 ounces of gold. That goes some way to explaining the quick payback on a project forecast to cost $234 million to get to production. Thereafter, output moderates. Over a near seven-year mine life, Orbis estimates production averaging 218,000 ounces gold a year - but that's heavily skewed by first year operations. Year two drops to 290,000 ounces gold and then subsequent output mostly falls to the mid-100 000s.
Write off a major? Maybe you can't do that. But it's fair to say the project doesn't have the obvious bones majors look for - long life and production that can rev their goldometers (say double, yearly, what Orbis has on offer at Natougou now). For the likes of Barrick, the world's top producer, which churns out over seven million ounces of gold a year, a mine producing under 200,000 ounces a year for most of its mine-life probably won't elicit too much excitement. The same could be said of other top gold producers like Goldcorp, AngloGold, Kinross and so forth. Kerry Smith, who covers Semafo as a Haywood Securities analyst, put it succinctly in an email, reflecting other analyst responses to questions on Thursday: "It's probably too small for the bigger companies."
But that still leaves a lot of others that might be interested.
The Who
Orbis has indicated it is in talks about alternatives to Semafo's offer. Whether that means there are companies keen to consummate a friendly takeover, or strategic deals are under consideration, is unknown. A headache for Orbis now is a financing agreement it had arranged with Greenstone Resources for $20 million that could fund it to feasibility. Yet that financing, which still needs shareholder approval, was priced at A$0.42/share. That's an awkward price to ask shareholders to agree to with Semafo's $140 million on the table at A$0.65.
Semafo is quick to highlight that fact, of course.
But it's not hard to imagine repricing talks are underway. And if Orbis does get that done - with Greenstone or perhaps someone else - then Semafo, in making its premium-laden bid, may be doing Orbis a favour. The junior could end up getting more for the same dilution, or the same amount of cash, for less dilution with a repriced financing.
It's also not hard to imagine other miners considering Orbis a target. They must be, in fact, as there are not many multimillion ounce gold deposits like Natougou in decent jurisdictions such as Burkina Faso to consider. The more obvious names are the intermediates and junior miners that operate in West Africa.
Let's rhyme off a few. African Barrick, Iamgold, Nordgold, B2Gold, Endeavour Mining and Resolute Mining. In terms of cash resources these last two names have the least - indeed far from enough on the books to outbid Semafo.
Semafo, by the way, isn't fully funded for the deal either. As of the end of its last quarter, September 30, it had $112 million in cash and equivalents. You assume it's got some debt in mind.
Among the above names, some think African Barrick may stand out. One analyst, who preferred not to be named, noted it has decent cash stores - $270 million - and perhaps more interestingly, that it might like to dilute a hefty stake Barrick still holds in the company by raising more funds through equity for a project like Natougou. Interesting. He also noted Nevsun, which owns the Bisha mine in Eritrea. It has considerable cash reserves, no debt, a stated (and long-standing) openness to growth through acquisitions, only one mine, and a history in the region.
Among the others, there's cash, but also some question marks. Cash-wise Iamgold looks richest. It has about $1.3 billion to work with, $530 million of which comes from the recent sale of its Niobec niobium mine. Much of the rest is undrawn debt. The question here, really, is whether it would consider West Africa for further acquisitions? Some suggest it would rather focus elsewhere.
Nordgold deserves mention too. It is an important miner in West Africa and holds some $307 million cash. However, it shoulders lots of debt - near $1 billion - which might temper its desire to plunk down its warchest into a junior acquisition.
Then there's B2Gold: it clearly likes West Africa and doing deals, with two of its recent acquisitions in the region. But then it did just buy up the 5-million-ounce-gold Fekola deposit in neighbouring Mali through its takeover of Papillon Resources. You wonder if there's enough gas in the tank for it to drive another project to mine at the very moment.
So the bids may come, friendly or otherwise, though Semafo hasn't made it easy with cash on the table and a price that isn't, at the very least, scrapping bottom. Some call it low. Others lean towards fair, given the early stage nature of the project.
In the meantime, Orbis shows it won't go easy. It's not distressed and it's keen to derive maximum value from the project. One guess as an outcome is that Orbis drives hard to get a strategic deal done (or reworked) to land it enough cash - and more perhaps - to get through feasibility work. Orbis could try to convince its fairly tight shareholder base - with estimates that about five entities own near 50% of shares - to forego Semafo's enticing offer with its 80-90% premium in favour of holding on for longer and bringing the project closer to production. The argument here, of course, is that you can build something worth more than the $140 million now on the table. That waiting is worth the much-added risk of saying no.
