06/10/2021 - 11:44

Bumper run for WA’s big companies

06/10/2021 - 11:44

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Record commodity prices and a flurry of M&A deals have defined the past year for listed resources companies.

Regis Resources owns 30 per cent of the Tropicana joint venture. Photo: AngloGold Ashanti

It's no surprise a surging iron ore price has again powered Fortescue Metals Group to the mantle of Western Australia’s largest listed resources company. 

That’s according to Business News’ Data & Insights, which ranks public resources companies by their most recently reported revenue. 

For Fortescue, this increased from about $18.8 billion to almost $30 billion in the past financial year.

The Andrew Forrest-chaired company attributed the growth to completing its highest ever annual shipments in its near two-decade history – driven by increased demand from the world’s biggest importer of steel, China – and strong earnings and operating cash flow from its hematite mines in the Pilbara.

(view a PDF version of this special report)

However, the 2021 financial year was not without challenges. 

In May, Fortescue for a second time revised the capital estimate of its Iron Bridge magnetite project to as much as $US3.5 billion, revealing that inflation, exchange rates, and labour constraints were impacting on materials and installation costs associated with the asset’s development. 

Fortescue also pushed back first production to December next year. 

The total cost blowout could be as much as $US900 million on the company’s initial budget for Iron Bridge. 

Adding to its challenges, a quicker-than-expected decline in the iron ore price has led to a massive sell-off of mining stocks, including Fortescue’s, whose shares were trading at about the $15 mark in mid-September compared with above $26 in July. 

Wood Mackenzie research director Paul Gray said the scale and timing of the drop in the iron ore price came as a shock despite the firm having predicted a downward trend all year. 

He said Wood Mackenzie would revise its fourth quarter forecast of $US155 per tonne to about $US110/t in a forthcoming report on the industry’s long-term outlook. 

“It is not unusual for prices to overshoot in either direction as the market digests big structural or policy changes that impact market fundamentals,” Mr Gray told Business News, referencing China’s recent move to cut steel production as a means of controlling its carbon dioxide emissions. 

“We are already seeing the impact of the production cut policy with lower steel production reported for August and we expect negative year-on-year comparisons to continue over the next few months.” 

The declining iron ore price has hit several smaller miners in WA, including GRW Group and Venture Minerals, which recently suspended their respective operations in the Mid West and Tasmania. 

More are expected to follow.

M&A activity

Contrastingly, the price of gold has remained steady throughout 2021, hovering above $US1,700 per ounce in recent months and buoying the state’s goldminers during the pandemic. 

The strong sector has led to a number of merger and acquisition deals in FY21-22, with the most notable being between Northern Star Resources and Saracen Mineral Holdings, which merged their companies in February.

The deal was first announced in October 2020, less than a year after Northern Star and Saracen each bought a 50 per cent stake in Kalgoorlie Consolidated Gold Mines, which owns and operates the Kalgoorlie Super Pit. 

The merger was implemented through Northern Star’s all-scrip takeover of Saracen, worth about $5.8 billion.

The combined entity continued to trade under the Northern Star banner and was (then) led by the goldminer’s chairman, Bill Beament, and Saracen’s managing director, Raleigh Finlayson

The merger led to Northern Star almost doubling its group production to nearly 1.4 million ounces and reporting a 40 per cent climb in revenue to about $2.8 billion, making it the state’s biggest goldminer and fourth largest resources company, according to Business News

Northern Star now also has a market capitalisation of about $9.9 billion and three production hubs: two in WA and one in North America. 

The company made a number of other deals in FY21, as well as in the current financial year, including the $400 million sell-off of a large portion of its Kalgoorlie assets to ASX-listed Evolution Mining. 

The sale was announced in July, on the same day Northern Star appointed Stuart Tonkin as managing director, taking over from Mr Finlayson

That month, Wesfarmers chairman Michael Chaney started in his role as chairman of Northern Star, replacing Mr Beament, who departed the group to lead copper company Venturex Resources (recently renamed Develop). 

In a similar move, Mr Finlayson is set to leave Northern Star in coming months to join gold explorer Genesis Minerals as managing director.

A smaller merger that came out of WA’s gold sector in the past financial year was between listed companies Dacian Gold and NTM Gold, worth about $97 million. 

Dacian acquired all of NTM’s shares in March and consolidated the latter’s Redcliffe gold project, north-east of Leonora, with its nearby Mt Morgans operations which comprise the Jupiter and Westralia mines. 

Dacian’s revenue more than doubled in the past financial year to about $270 million, placing it inside Business News’ list of public resources companies at 20th.

Its market cap was about $193 million on September 30. 

In June, Gascoyne Resources announced its intention to purchase local explorer Firefly Resources, which owns a project close to the goldminer’s Dalgaranga operations near Mount Magnet. 

The move became clouded recently after Westgold Resources, which also has operations in the Mid West, launched a $103 million unsolicited off-market takeover bid for Gascoyne. 

Westgold claimed the offer provided a “substantially superior financial alternative” to Gascoyne shareholders when compared with the “highly dilutive” merger with Firefly. 

In May, Regis Resources completed its acquisition of a 30 per cent stake in the Tropicana joint venture from IGO. 

Regis paid $889 million in cash for the asset, located north-east of Kalgoorlie and 70 per cent-owned by South Africa’s AngloGold Ashanti

The move allowed IGO to focus on its flagship Nova nickel-copper-cobalt asset in the Fraser Range and Regis to bolster its resources and output. 

Regis, which runs the Duketon operations in WA, expects to produce between 460,000oz and 515,000oz of gold in the current financial year. 

It’s ranked WA’s seventh largest resources company, having generated revenue of $819 million FY21. 

The company’s market cap was about $1.5 billion on September 30.

There was also notable M&A activity in the oil and gas sector, with WA’s Woodside Petroleum set to double in value when it merges with BHP’s petroleum business. 

The $19 billion deal, announced in August, will be implemented via Woodside issuing shares to BHP shareholders before the second quarter of calendar 2022. 

The move is in line with Melbourne-headquartered BHP’s shift to ‘future-facing commodities’ such as copper, iron ore, nickel and potash. 

Its shareholders will own 48 per cent of the combined group and Woodside shareholders 52 per cent. 

Woodside, now led by chief executive Meg O'Neill, is ranked WA’s third largest listed resources company after achieving revenue of nearly $4.5 billion in FY21. 

Meanwhile, Adelaide’s Santos, which has operations in WA, and Papua New Guinea-focused Oil Search are merging their assets through an all-scrip deal worth $21 billion.

In the copper space, Sandfire Resources is set to acquire a mining hub in Spain for $2.6 billion, a move managing director Karl Simich said would transform the West Perth business into one of the biggest ASX-listed copper producers. 

Sandfire is purchasing the Minas de Aguas Teñidas (MATSA) base metals operation in Andalusia, about 130 kilometres from Seville, which includes three underground mines forecast to produce as much as 120,000t of copper equivalent this financial year. 

That adds to the 64,000 to 68,000t of copper Sandfire has predicted will come from its DeGrussa operation in WA. DeGrussa is also expected to produce at least 30,000 ounces of gold in FY22. 

Sandfire reported revenue of about $815 million in FY21, making it WA’s eighth largest resources company.

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