16/09/2019 - 14:53

Gold stars prepare for pit fight

16/09/2019 - 14:53

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Northern Star Resources and Evolution Mining have emerged as the main contenders to acquire Barrick Gold’s share in the historic Kalgoorlie Super Pit.

Jake Klein (left) and Bill Beament and their respective companies are the front runners for Barrick's stake.

Northern Star Resources and Evolution Mining have emerged as the main contenders to acquire Barrick Gold’s share in the historic Kalgoorlie Super Pit.

Barrick Gold’s half-stake in the Newmont Goldcorp-operated Super Pit is up for sale, but even amid the soaring gold price it may struggle to sell the asset for a premium to its two most likely suitors.

Canada-based Barrick is seeking to offload its only interest in Western Australia, which performed poorly last fiscal year, as part of a $US1.5 billion ($A2.2 billion) asset sale, following the $US6.1 billion acquisition of Rangold Resources last September.

Newmont is also conducting its own $1.5 billion asset sell-off after its merger with Goldcorp, making a move to full ownership of the Super Pit unlikely.

(click to view a PDF version of the full special report)

Northern Star Resources has been touted by many as the logical successor to Barrick at the 30-year-old Kalgoorlie landmark, given its abundant cash reserves ($310 million at the end of the 2018-19 fiscal year), strong presence in the Kalgoorlie area, and an executive chairman seemingly eager to build his gold empire.

In mid-August, Barrick chief executive Mark Bristow even outed Northern Star as “very much one of the front runners” for his company’s stake, but added there was no shortage of interest in the ageing Super Pit considering the current booming gold market.

Two weeks later, Northern Star executive chairman Bill Beament tentatively confirmed that interest during the company’s full-year results teleconference.

“If a potentially suitable asset like the Super Pit comes up for sale, we’ll always have a look, it would be remiss of us not to,” Mr Beament said.

But another mid-tier success story led by a similarly ambitious executive chairman could also be interested in the Super Pit.

Following the release of Evolution Mining’s full-year results, executive chairman Jake Klein said his company’s mergers and acquisitions team was “match fit and ready”.

Mr Klein told Business News the company had plans to expand into North America and that WA, where it operated the Mungari mine, was ripe with opportunity.

Mr Klein did not directly disclose specific projects or companies in WA it is targeting, but instead highlighted recent M&As among the big gold players.

“Through the mergers of the majors, with Barrick Gold and Randgold, and Newmont Mining and Goldcorp, they have said they are going to sell assets,” Mr Klein said.

“Some of those assets may be attractive to us.”

He reiterated this statement when asked specifically whether Evolution had an interest in obtaining Barrick’s Super Pit stake.

The Super Pit

Hartleys analyst John Macdonald believes the two miners are the most viable prospects for the Super Pit, based on their market capitalisations.

“For those further down the (market cap)  list it might be out of their price range,” Mr Macdonald said.

Evolution’s market cap is in the $8 billion territory, while Northern Star is around the high $6 billion mark.

In a research note, Hartleys estimated that using the $US63 per ounce Northern Star paid for the Pogo mine in Alaska, Mr Beament could spend $US320 million ($460 million) for 50 per cent of the Super Pit.

Barrick previously tried to sell its stake in the Super Pit in 2017, but the process failed when Chinese company Minjar was unable to come up with the funds for its $1.3 billion offer.

This equates to a $840 million gulf between Barrick’s previous asking price and Hartley’s estimate of what Northern Star could be looking to pay.

Additionally, there are indications that WA’s most famous gold mine has lost some of its lustre.

Production for the 2019 financial year declined by 32.9 per cent, from 730,000oz to 490,000oz, due to serious geotechnical constraints and pit-wall slippages.

This pushed Barrick down three spots to ninth place on the BNiQ gold miners list (see page 21).

Furthermore, when the Super Pit’s mine life comes to an end around 2034, its rehabilitation costs are expected to amount to a nine-digit figure.

Newmont is striving to claw back some of the lost ounces at the Super Pit with its Morrison Starter extension, which commenced production in the first quarter of this calendar year and has an estimated total production of between 150,000oz and 200,000oz until 2021.

HopgoodGanim Lawyers partner Paul Harley said if either Evolution or Northern Star paid top price for Barrick’s stake, it could signal to investors that the gold M&A market, at least in WA, had peaked. 

“When we start seeing transactions where miners are making premium deals based solely on just adding gold ounces to their balance sheet instead of making strategic acquisitions to feed into their existing processing capabilities, then we’ll have reached the top of the cycle,” Mr Harley said.

Neither miner will have tunnel vision for the Super Pit, however.

Mr Beament is currently in pursuit of a $193 million takeover of Echo Resources, to bolster Northern Star’s Jundee operations, while Evolution has been biding its time over the past 18 months in its search for the next big opportunity.

“We are not shy to conduct extensive due diligence to find accretive value,” Mr Klein told Business News.

It may well be a sellers’ market in the gold sector, but it seems Barrick will have its work cut out to convince these two operators to pay top dollar for the Super Pit.

STANDING BY BUSINESS. TRUSTED BY BUSINESS.

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