Don’t Miss Out…Mining M&A Activity Is Heating Up!

The gold price has mellowed a bit in the past fortnight, but that isn’t a true reflection of what’s been happening in the world of gold miners!

Much attention is on Newmont [NYSE:NEM] acquiring Australia’s largest gold producer, Newcrest Mining [ASX:NCM], to create the world’s largest gold, silver, and copper producer that’ll be worth more than AU$75 billion.

However, that’s not the only game happening in town right now. And I daresay there’ll be more in the coming months as gold and silver get ready for the next run.

The bull market in precious metals is now entering the next phase. In the past eight months, we’ve seen cautious buying from investors into the producers after the bear market that lasted some two years. You can see the largest producers have been taking off and rallying to near all-time highs.

Smaller producers have made back some of their losses, but they’re still well behind what they were trading at back in mid-2020. As for explorers, many are in the basement, and there’s hardly any buying interest.

During this time, the board and management were looking long and hard at potential deals to expand their portfolio. This is the best time for them to go shopping, but the rising interest rate and poor operating performance have given them reason to tread carefully.

A bad deal could cause the share price to tank, but that’s only half the trouble. Buying a dud deposit could lead to sinking millions into the hole with nothing to show. A good deal, however, is not easy to secure in a recovering market as the vendor will be looking for a higher premium to part with its prized asset.

After all, these companies may appear out of favour in the markets, but board and management aren’t ignorant to what their assets are worth!

With gold and silver building the base at a higher level for the next rally, expect more merger and acquisition (M&A) announcements to come, which could be the catalyst for the miners to surge once again.

Now, let’s talk about another deal happening, so you can see that there’s activity not just at the high-end of the market.

The excitement is spreading, and many investors are still unaware of it, which presents you with an opportunity to get in early.

A bidding war in Leonora kicks off corporate buying season

The potential merger of rising star explorer Genesis Minerals [ASX:GMD] with mid-tier gold producer St Barbara [ASX:SBM] has taken an interesting twist.

In December last year, the two companies reached an agreement to merge and then spin-off into an Australian-based producer and a higher-risk international producer and explorer. This hinged on the completion of a takeover of another junior producer-turned explorer Dacian Gold [ASX:DCN].

Since then, there’s been a couple of twists and turns.

For one, the takeover of Dacian turned into a stalemate as a neighbouring explorer Kin Mining [ASX:KIN] and its funding partner, Delphi Group, purchased a 10.5% blocking stake to stop Genesis Minerals from gaining full ownership.

Without Dacian Gold, the plans for a merger of these two companies went back to the drawing board. The resulting agreement was for Genesis Minerals to purchase the gold producing assets in Leonora from St Barbara for more than $600 million, comprising $370 million cash and the rest in Genesis Minerals shares.

This would be a major win for Genesis Minerals, whose managing director — former Managing Director of Saracen Mineral Holdings Raleigh Finlayson — crafted an exceptional deal to turn an explorer into Australia’s next mid-tier producer.

Now, you’d think that Finlayson and his merry band at Genesis Minerals could have ridden off into the Western Australian Sunset with the crown jewel of St Barbara and get to work.

Not so fast!

Lurking in the shadows was Luke Tonkin, managing director of mid-tier producer Silver Lake Resources [ASX:SLR]. Silver Lake Resources is cashed up, with more than $250 million in the bank, operating two mines in Western Australia and one in Canada that it purchased in late 2021 from a defaulted miner.

The offer from Silver Lake Resources comprised $327 million cash and the rest in shares. The implied value of this offer was just over $700 million at the time of the announcement (the first announcement last month had an implied value of $732 million).

What’s interesting was the market’s reaction to the two offers immediately after their respective announcements. Genesis Minerals shares rallied while Silver Lake Resources shares fell, as you can see in the figure below:

In fact, the seemingly more attractive offer by Silver Lake Resources ended up having less value! Part of that is due to the existing agreements between Genesis and St Barbara, as well as the need for Silver Lake Resources to get an approval to fund the transaction.

And this morning, Genesis Minerals revised its offer by bringing forward a share package and placing a $25 million deposit to secure the Leonora assets.

It seems like the St Barbara board has called the winner, unless Silver Lake Resources or another bidder barges in with an even better offer.

From this episode, you can see there’s a lot behind these meandering share prices than perhaps meets the eye. The longstanding nugget of wisdom of ‘buy low, sell high’ is easier said than done.

The insiders tend to have a higher success rate than the ordinary investor or speculator.

That can change, though, if you know where to look.

There’re now tell-tale signs that the entire ground is about to burst into bloom as more company boards go hunting for choicest targets…whether it’s an undeveloped property, a known deposit, or an entire company!

Take your pick of the vast riches beneath the ground

But it’s not just precious metals. Other metals are now seeing a flurry of corporate activity.

Most of you are aware that the lithium space is firing back up after a sharp sell-off earlier this year. The announcement last Wednesday of a merger between US producer Livent [NYSE:LTHM] and our own major producer Allkem [ASX:AKE] brought renewed enthusiasm back into the space. Many lithium stocks rallied on the day by more than 10%.

But there’s one metal that should be all the rage right now. However, the price action suggests otherwise.

It’s copper.

There’s been much talk about how the world needs a stupendous amount of copper for the next stage of our energy revolution. But how to increase its supply is something keeping mining executives awake at night. Operations have to be quite large to justify the costs, and large deposits take years to discover and develop.

There was a major transaction that closed last month with BHP Group [ASX:BHP] acquiring Oz Minerals for just under AU$10 billion.

So I’m expecting things to heat up in that space too.

Interested? That’s something my colleague, James Cooper, focuses on in his latest event ‘The Red Drought’. Be sure to check it out.

If you’re chasing after gold, I may have something for you on that front. Stay tuned!

God bless,

Brian Chu,
Editor, Fat Tail Commodities