Salvation from cooperation

DESPITE recent feverish consolidation, the future of the global gold industry remains dependent on cooperation between the mega-majors and juniors, and investment in new young talent.

“The majors need the junior companies and the juniors need the majors,” former Teck Cominco president Steven Dean told the Australian Gold Conference this week.

“There is insufficient economic recovery of gold, in accessible places, to sustain the rate of production replacement for the mega-majors.”

This meant these newly emerged companies, currently mining between 6,000,000 and 8,000,000 ounces annually, would shrink or, at best, slow in growth.

Optimising the economic recovery of such deposits required exceptional entrepreneurial management, but in general, mega-majors did not offer environments conducive to cultivate and foster free-thinking managers, Mr Dean suggested.

 “The gold business is not a business which benefits materially from global scale,” he said.

With the exception of liquidity outcomes, the “drive for size” had possibly been an investment bank con, Mr Dean said.

The best discoveries over the past 20 years had been made by junior companies, and other facts, while potentially offensive to some in the industry, needed to be understood to improve the status quo.

The mega-majors had acquired a reputation for “doing over” junior companies in joint ventures, and while the larger companies were able to raise funds cheaper, the juniors were generally more efficient users of exploration capital.

There was adequate liquidity in most producers, Mr Dean said, and big funds did not have to hold gold stocks as they once did.

The future was for fleet-footed, high margined entrepreneurial gold companies – good operators who partnered juniors for their next discovery, he said. Joint ventures and strategic alliances were essential for both the mega-majors and the juniors, but strict rules were needed when putting deals together.

These should ideally cover who is involved in the deal making, timeframes, restrictions on equity holdings, and technical support.

Mr Dean said juniors should look critically at what constituted a fair deal, with a view beyond the immediate deal, and the large corporations should empower local offices with deal-making capacity and accept letting go of some projects.

Juniors were more fleet-footed in doing deals with property owners or in staking open ground, a case in point being Avoca Resources ability to pay for Olympic Dam tenement application fees with a credit card.

Avoca’s managing director Rohan Williams backed Mr Dean’s perspective, unequivocally stating deals with top global players, and the ability to move fast on land near a market-boosting discovery, made last year’s float possible.

Avoca would continue to target large anomalies, with a view to approaching the majors regarding project generation or farm-outs, Mr Williams said.

“Most of last year’s resources floats only had two years worth of funds, but major-junior alliances, do get market support,” he said.

Mr Dean said the industry could also join together in promoting the sector’s track record on returning long-term value, and in selling the industry as a career choice.

Younger investors had enormous freedom of choice, but viewed gold companies as low-tech, with a distrust of derivatives, no control over the sale of their product, and with a history of paying little heed to ESE impact issues, he said.

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