Image: Bill Stokes / Diggers and Dealers
Australian mid-tier gold miners looking to North America for growth view their flurry of recent acquisitions as a “beachhead” to expand further.
Northern Star Resources, Newcrest Mining, Evolution Mining and St Barbara have all made major purchases in Canada or Alaska in recent years, while Toronto-based Kirkland Lake Gold, known for its high-grade Fosterville operation in the Australian state of Victoria, returned to its roots with the multi-billion dollar takeover of the Detour Lake operations in northern Ontario last year.
With the Australian-listed sector toasting its success in recent years, overtaking Canada’s mid-tier as the preferred destination for gold investors, companies from down under have bet big on their ability to reverse inefficiencies they see in Canadian and United States operations.
Speaking at the Diggers and Dealers mining conference in Kalgoorlie-Boulder on Monday, Evolution boss Jake Klein, whose company bought the Red Lake mine last year from Newmont Goldcorp, hailed the $US375 million ($523 million) transaction as a counter-cyclical move, coming ahead of gold’s historic bull run this year.
Evolution has kicked off a program to expand the mine from 125,000–130,000 ounces in the 2021 financial year to more than 200,000 ounces a year over time and reduce costs, including through decommissioning dozens of pieces of equipment and reducing the operation’s workforce by about 120 full time equivalent staff.
Klein admitted there was work to do to improve Red Lake before other purchases could be made, but said he believed the move opened the door for more acquisitions in Canada.
“I think Red Lake is a great example of an asset where we bought well,” he said. “The gold price has gone up in the last nine months since we announced the deal, but fundamentally there is value to be created there.
“We’ve done some benchmarking and Red Lake is way off the mark with respect to productivity and profitability, so to me that is an example of accretive buying.
“We believe we need to be really successful at Red Lake before launching into any other major acquisitions in Canada, but we certainly view it as a beachhead into opportunity.”
Western Australia’s leading gold miner Northern Star last week announced its $16 billion merger with Saracen Mineral Holdings, its joint venture partner at Kalgoorlie’s iconic Super Pit.
While its focus is on bedding down a marriage that will see Northern Star grow into a two million ounces a year producer, it also owns the 200,000 ounces a year Pogo mine in Alaska.
Incoming managing director Raleigh Finlayson said he viewed that as a potential launching pad into the North American sector for the soon to be world’s sixth biggest miner by market cap.
“We want to get the asset to 300,000 ounces and then from there, use it as a beachhead to grow,” he said.
“That Tintina Belt is highly prospective, it’s actually relatively immature, so clearly there’s some bolt-on things right adjacent to it which is an absolute no-brainer as a starting point.”
Northern Star’s longtime Kalgoorlie operations general manager Jim Coxon recently moved to take the reins at Pogo – formerly owned by Japan’s Sumitomo – with more Aussie expats leveraging their successes at operations in Western Australia in North America.
Finlayson said Australian operators’ proven expertise could assist in the mission to complete renovation jobs on underperforming North American sites.
“Beyond that you’ve obviously got a base in North America and these guys (Northern Star) are doing some fantastic work with the expats going over there,” he said.
“They’re obviously trying to bring some of the skills these guys have honed really well over here. That becomes an opportunity once you’ve got that nailed to take that and copy and paste it onto other assets.”
It is not just Australian companies prepared to cross the globe and withstand quarantine periods to assess operations, if industry insiders are to be believed.
Western Australia’s mining industry has gone on unabated through the COVID-19 pandemic, with the state government hard border closure so far proving successful in containing community transmission of the virus and production is on the rise due to record gold prices.
PCF Capital managing director Liam Twigger, one of Western Australia’s best known dealmakers, said the state was now a sought after investment destination and mergers and acquisitions activity could come from companies listed in Toronto and New York.
“We are getting a lot of North American interest at the moment,” he said.
“They are running the ruler over everything in Western Australia.”