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Australian Financial Review: Gold executives see M&A as inevitable as Diggers and Dealers kicks off – ECR Minerals #ECR

The Australian gold industry is primed for a surge in mergers and acquisitions as cashed-up miners look to buttress their reserves of the precious metal as this week’s Diggers and Dealers conference in Kalgoorlie brings together some of the industry’s biggest deal makers.

Increased gold production has swelled the cash flows of Australian gold miners even as the US-dollar gold price has tumbled towards $US1200 an ounce, providing many with the financial firepower needed to pursue acquisitions at a time when some industry leaders are concerned about “peak gold” given the pressure on reserves and a dearth of significant new discoveries.

“Everyone can see Aussie producers generating more and more cash and I haven’t seen evidence of them paying higher dividends to shareholders,” said Gold Road managing director Ian Murray amid a resurgence in the broader mining industry that has added a sense of anticipation to the three-day Diggers and Dealers event, which will host the largest number of delegates since 2012.

Mr Murray said Australian producers considered local assets expensive, fuelling speculation they are eying overseas assets.

Evolution boss Jake Klein has said his cashed-up company is looking to North America for potential acquisitions.

Gold Fields executive vice-president Australia Stuart Mathews said the South African-based company had its hands full investing in the future of existing assets in Australia and pursing a significant exploration program.

Referring to the exploration program, he said: “We will look at M&A when there is something logical which is a bolt on. The actual producing space is difficult.”

The Gold Road-Gold Fields’ Gruyere joint venture is set to pour first gold in the June quarter after a $621 million investment in developing the mine, which sits in the Yamarma belt about 200 kilometres north-east of Laverton.

Potential peak gold

Gruyere, with a 6 million ounce ore body, and the Tropicana joint venture between AngloGold Ashanti and the Independence Group, about 150 kilometres to the south, are considered the two most significant greenfields gold projects in Australia in almost two decades.

Gruyere is forecast to produce 270,000 ounces of gold a year from open cut operations with a 13-year mine life.

Mr Murray added his voice to those declaring that global gold production has peaked, noting a dramatic fall in South African production and a dearth of new discoveries.

“Gold production comes from new discoveries. What big discoveries have been made? The big gold discoveries have dried up,” he said.

Northern Star Resources boss Bill Beament is among those convinced global gold production has peaked, pointing to the declining production profiles and reserves of the world’s biggest gold miners.

“This year, maybe even last year, probably saw the peak of gold production,” he said.

“That has to be the case because if you look at the top end of town, their production forecasts are only going one way and you can’t see it coming back because their reserves are also declining.”

World Gold Council (WGC) chairman Randall Oliphant, Goldcorp chairman Ian Telfer and other industry leaders have made the same call over the past 12 months after decades of steady increase. Industry giants Goldcorp, Barrick and Newmont have all seen their production decline.

Exploration encouragement

However, WGC analysis shows mine production grew 3 per cent in the second quarter of 2018 to 836 tonnes as projects in Russia, Indonesia and Canada continued to ramp up.

Mr Beament is encouraged by the level of greenfields exploration by smaller companies but believes the future for gold in Australia, where Northern Star and others have grown production and reserves around existing mines, is all underground as open pit production winds down.

“Australia’s got a lot more gold to yield but if you fast forward a decade, the only large scale open pit still running is probably going to be Boddington,” he said.

“If you go back 40 years, it was all underground mining until the advent of CIL and CIP processing technology. We’re going to go back the other way.

“This transition from open pit to underground in the next decade will be the biggest transition for any sector.”

Mr Beament said the Australian gold sector was on a strong footing going into Diggers and Dealers despite a recent softening in price. The annual conference starts today and has attracted 2300 delegates for the first time since 2012 amid in wide-ranging resurgence in mining.

Mr Beament said the successful industry-led campaign to block a WA government gold royalty hike last year been vindicated by huge expenditure on exploration and despite Treasurer Ben Wyatt continuing to use social media to niggle at some of the companies involved.

A host of companies with mines or mining tenements in WA have increased their exploration budgets for 2018-19, including Northern Star committing a company record $60 million to its ground in the Goldfields.

“I’m spending record money because I’m not paying that extra tax, so I’m generating a hell of a lot more jobs, finding a lot more gold and the state’s going to get a lot more royalties from that in the future,” Mr Beament said.

“We’ve got the money to do that because WA didn’t bring in that stupid tax increase last year.”

Rising demand factors

Mr Wyatt said no one was happier than him to see the gold industry doing well, but refused to let the royalty issue die.

“All we’ve ever asked the gold sector to do is pay a return to the WA community that is commensurate with that paid by other commodities like nickel, copper and iron ore,” he said.

Deloitte research shows the combined value of WA-based listed companies increased by almost 27 per cent to $193.5 billion in 2017-18.

It is the first time the Deloitte WA Index has been above $190 billion since 2011 and comes off the back of two years of growth.

Deloitte WA assurance and advisory partner Dave Andrews said the revival was spearheaded by strong prices for LNG, crude oil and thermal coal.

“Additionally, battery metals, particularly nickel, cobalt and copper, and rare earths showed strong momentum on the excitement surrounding battery storage demand, the expanding electric vehicle market, renewables, and our hunger for more and more consumer technology,” he said.

Mr Andrews said numerous companies on Deloitte’s WA Index with exposure to those commodities and industries delivered exceptional returns for shareholders in 2017-18.

“If you look at the composition of the higher end of our index today compared to 2011 when it was last over $190 billion, the likes of Pilbara Minerals, Galaxy and Lynas Corporation didn’t feature,” he said.

“And the likes of gold plays Northern Star, Regis and Saracen are now significant contributors to the index.”

Mr Mathews said the gold industry faced labour cost pressures given rise in mining across a range of commodities.

“Gold has been going pretty well but now almost every commodity is going up,” he said. “People are going to be competing for the same talent.”

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