Merger & Acquisition activity in the gold sector is heating up
Sean Mason | April 13, 2016 | SmallCapPower: Merger & Acquisition activity in the gold sector could heat up in 2016 given the increased investor interest in gold stocks so far this year. Newmont Mining Corporation (NYSE:NEM) ended 2015 with about US$2.8 billion in cash and equivalents, and there’s at least one small gold miner that would appear to be an ideal fit for this gold mining giant.
Asanko Gold Inc. (TSE:AKG), with a market cap of about C$685 million, has one of the most appealing gold development projects on the planet today. The Company wisely raised cash at the height of the last bull market, which allowed it to develop, with minimal dilution, Phase 1 of its flagship Asanko Gold Mine in Ghana, West Africa, even as interest in gold juniors waned from 2011 to the end 2015.
Its Project has an estimated Measured & Indicated resource of 7.9 million gold ounces and Proven & Probable reserves of 5.2 million ounces. Asanko expects to produce 190,000 ounces of gold per year in Phase 1 at All-In-Sustaining Costs of US$781 per ounce over the next 12 years. Commercial production was declared effective April 1, 2016, which the company said was a quarter ahead of schedule.
Asanko anticipates further upside to come from its Phase 2 expansion, which in combination with Phase 1 is expected to produce an average of 411,000 ounces of gold annually, at All-In-Sustaining Costs of US$798 per ounce, over a 12.5 year mine life starting in 2018. Asanko Gold still had about US$72 million in cash as of March 31, 2016.
Newmont Mining, meanwhile, could be near an agreement to sell controlling interest in its Indonesian operations for US$2 billion, if recent media reports are correct. This would give the company plenty of cash to make the Asanko deal happen, with the likely purchase price being just over US$1 billion.
Newmont currently has two operating mines in Ghana (Ahafo and Akyem), which saw combined production fall from 914,000 ounces in 2014 to 805,000 last year, with a decline to 760,000 ounces expected in 2016, at All-In-Sustaining Costs of US$850 per ounce. To that end, the company hired former Harmony Gold Mining Company COO Alwyn Pretorius to lead its Africa operations, effective March 28, 2016.
Acquiring a project near its existing operations would seem to fit Newmont’s acquisition pattern during the past year, as it purchased the Cripple Creek & Victor gold mine in Colorado from AngloGold Ashanti Ltd. for US$820 million in 2015, which is relatively close to its substantial Nevada gold production.
In 2002, Newmont Mining was the biggest gold producer in the world but has since lost its crown to Barrick Gold Corporation (TSE:ABX)(NYSE:ABX). So, come on Newmont you know you want it! It’s time to go big or go home.