Mega-Miners: The Trend for 2020
We’re 43 days from a new year.
We are 43 days from a new decade.
The dawn of 2020 is upon us.
Although I’m a little disappointed.
The futuristic movies from the 70s and 80s promised me flying cars and hoverboards.
To this date I’m still getting around in my petrol-guzzling beast.
And having to use my feet to get around…ugh.
However, as the end of the year rolls around, it’s time to start making forecasts of what to look for in 2020.
And there are two big trends to come.
The first one?
Gold miners are out to get bigger…
The trend for 2020, actually began around last year.
It marked the beginning of the big guys getting bigger.
It all began with Barrick Gold.
Barrick made a US$6.5 billion (AU$9.5 billion) bid for Randgold Mining back in September 2018. 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…
The Aussie invasion
Right now, the Aussie dollar gold price has been kind to Australian gold miners.
The difference between the cost of mining gold, has been significantly lower than what they are selling it for.
Meaning Aussie gold miners have been banking serious cash.
And it appears they’ve been using that wisely.
Rather than hand the extra money out in dividends to shareholders, they’ve been holding onto it. Waiting for the right time…
That moment arrived earlier in 2019.
See, there’s many gold miners and explorers listed on the Toronto Exchange in Canada. The ‘pot stock’ boom in the Northern Hemisphere has meant a whole lot of locally-listed miners have missed out on much needed capital.
Enabling some of our cashed-up miners to move into the space.
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 AU$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.
I was chatting with a local Canadian investment director as Aussie gold miners were buying up local assets.
They were baffled at the prices being paid for these sites. Particularly the amount Northern Star paid for Pogo.
Especially when Northern Star reckons it will need to spend another AU$123 million on new equipment and exploration before knowing the potential of the Pogo mine.
Why the sudden rush into North American 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 from AU$1,600 to around the AU$2,150 it is today.
Meaning Aussie gold miners have a comfortable buffer on the US dollar gold price range of US$1,300–1,500.
But most importantly, the Canadian loonie is only about 10% higher in value compared to the Aussie. Making the Canadian assets not much more costly than buying in Australia.
Thing is, these merger trends are only getting started…
The super pit gets a new owner
There have been rumours in the industry for some time now.
Barrick-Gold has been looking to exit their 50% stake in the Kalgoorlie Super Pit. The other 50% belongs to Newmont Goldcorp Corp [NYSE:NEM].
And low and behold, I wake up to news this morning that Australian-listed Saracen Minerals Holdings Ltd [ASX:SAR] is looking to make a AU$1 billion bid for the super pit. With the Australian Financial Review writing:
‘It is understood the company was putting the finishing touches on the proposed deal on Sunday night, with proceeds used to acquire a 50 per cent stake in the Super Pit gold mine in Kalgoorlie.
‘The raising comes soon after the $2.8 billion listed Saracen agreed terms to buy the Super Pit stake over the weekend. A deal was signed in Toronto, sources said.
‘Perth-based Saracen is expected to pay around $1 billion for the half-share owned by Barrick Gold Corporation, which had Credit Suisse run an auction for the stake.’
Word has it that there were a couple of other large established gold miners looking at the iconic Australian gold site.
What can we take away from this? Granted this is like the multibillion-dollar mergers we saw at the start of this year from our US counterparts.
The biggest thing for investors to note here, is that the big gold miners are out to get even bigger.
Every ounce of gold out of the ground, is an ounce of gold, out of the ground.
Meaning, years of slashing exploration budgets means today’s gold miners have no choice but to buy each other out — or buy older assets and try to get more out of them.
The trend of gold miner mergers wasn’t just a flash in the pan.
I’d suggest we get used to this.
Going into 2020, there are going to be more gold miners merging…and more miners buying old assets.
Until next time,