Saracen Mineral Holdings managing director Raleigh Finlayson has told today’s WA Mining Club lunch that local mid-tier gold miners had squandered a share price premium during the boom years, but had since built up a strong case to trade at above underlying value.
Gold miners traditionally traded above net asset value, he said, while shares in base and bulk metal players were usually priced at fair value.
That could be for a variety of reasons, Mr Finlayson said, including the general view that gold was a store of wealth.
But the premium had been punctured by companies overpromising and under-delivering, obsessing with growth that turned out to be value dilutive, and focusing on marketing.
That was despite gold prices having been very strong in US dollar terms.
Mr Finlayson said although the depreciation of the exchange rate had helped improve some metrics in the interim, good management and strategy had been the main factors, including for metrics such as return on equity.
That was supported by a tendency to shy away from unnecessary capital raisings, he said, despite the market being ripe for it.
A peer group of five Western Australian miners was outperforming many larger international players, he said, including on debt levels and all-in sustaining cost.
The same group was also ahead on measures such as corporate overhead costs.
Mr Finlayson highlighted St Barbara and Regis Resources as two companies that had successfully turned around their fortunes in the past two years, while Northern Star Resources and Evolution Mining would also be in the group deserving a premium.
There were some issues, however.
A great deal had been spent on exploration in the past five or six years with very little to show for it in new ounces.
That meant discovery costs had been quite high.
“Less gold in major deposits has been discovered over the past six years than in any single year in the 1990s,” Mr Finlayson said.
“We’ve got a situation where we’re spending a lot more into the ground and getting a lot less yield.”
Nonetheless, he said the market was at a place where drilling for discovery would be cheaper than acquisitions.
Shares in Saracen fell 7.6 per cent to $1.15 each at the close of trading.
