Aussie gold miners buy up Canada
Strolling around the city streets of Vancouver, you’ll quickly notice one thing: There are almost more shops selling e-cigarettes and vaporiser liquid than there are Starbucks coffee joints.
And there are a lot of Starbucks coffee joints…
The other business that’s big here?
Less so the stuff that leads teenagers astray, and more so the medical kind of cannabis.
And this is rapidly becoming a hot investment sector in Canada.
In fact, the cannabis industry alone is worth $7.1 billion this year.
However, the industry is tipped to almost double to $12.1 billion six years from now.
Of course, pot stocks aren’t a new concept. My colleague, Callum Newman, has been writing about them in Profit Watch for almost a year now.
The problem with the growing cannabis industry here in Canada, though, is that it’s distorting the investment market.
In the past, investors chasing risk would flock to unheard-of mining explorers.
Instead, what’s called ‘risk on’ money is flowing into cannabis stocks…leaving Canadian explorers and junior miners with no interest and no capital.
The problem is, with all the local Canadian investors jumping onto pot stocks and the like, there’s been very little interest in local mining stocks…
…so Aussie miners have been swooping in.
Big guys got bigger
Interest in gold went a little nuts last year.
There’s no other way of putting it.
It all began with Barrick Gold.
Barrick made a US$6.5 billion (AU$9.4 billion) bid for Randgold Mining back in September last year. Suddenly, the world’s largest gold miner (based on ounces mined) was making a play for the 15th largest gold miner.
There was one thing driving the merge: For Barrick to get bigger.
Then in January this year — less than four months after the Barrick-Randgold merge was announced — another big merge became public.
Newmont wanted Goldcorp. Again, the world’s second largest gold miner was going after the world’s fifth largest gold miner.
These mergers mean that, over the next couple of years, Newmont and Barrick will be neck and neck in the race for the title of the world’s largest gold miner.
However, while news of these mergers hogged all the headlines for the first half of the year, they masked an emerging trend:
Australian-listed gold miners are hunting offshore for new assets.
Specifically, they’re hunting for new Canadian gold assets…
The Aussie invasion
See, with all the money leaving speculative Canadian gold miners, the door is wide open for other companies to come in.
As the dust settled on the Newmont-Goldcorp deal, our own Newcrest Mining paid AU$1.1 billion for a 70% copper-gold mine based in British Columbia. The Red Chris mine — owned by Imperial Metals Corporation — is home to an estimated 20 million ounces of gold and 5.8 billion kilograms of copper.
Plus, Newcrest believes that the gold grades will increase with deeper exploration.
Then, just a few short weeks later, Australian gold miner St Barbara paid $795 million for Vancouver-based Atlantic Gold Corporation.
At a similar time, Northern Star Resources waded in and bought the Pogo site in Alaska for a cool $376 million.
The original Japanese owners felt the mine was depleted.
Yet Northern Star is well-known for turning around old, seemingly depleted mines.
The thing is, local analysts are baffled at the costs being paid for old Canadian mines.
One investment director I’ve spoken with said they were puzzled by the amount Northern Star paid for Pogo. Especially when Northern Star reckons it will need to spend another $123 million on new equipment and exploration before knowing the potential of the Pogo mine.
To boot, word on the street around here is that Evolution Mining has been hunting around for tired Canadian gold mines.
Why the sudden rush into North America companies? And why aren’t we hearing about this in Australia?
Part of the advantage for Aussie gold miners is that with a US dollar gold price below US$1,300, they’ve been forced to become lean, efficient operators.
Then there’s the cost of gold in Aussie dollars. The last few years have seen the Aussie dollar gold price move between US$1,500-$1,700, giving Aussie gold miners a comfortable margin on top of the physical gold price.
But most importantly, the Aussie dollar and the Canadian dollar are of similar value. So Canadian assets, in particular, aren’t much more costly than buying in Australia.
And based on the things I’m hearing, the Aussie invasion of buying up Canadian mines isn’t going away…
The conference begins
And now, the first part of the Sprott Natural Resource Symposium begins.
At least for me.
See, your Tuesday is my Monday.
So, sometime around Melbourne’s 4am, I’ll be jumping on a bus and heading out to Granville Island, with a panel of experts and 50 attendees.
The panel is filled with mining executives, geologists and a couple of investment bankers.
I’ll report back tomorrow on what I discover.