Miners flag pursuing inorganic growth in 2025
Mon Dec 02 2024
Every respondent of a recent EY survey of senior leaders in the mining industry has flagged actively pursuing either M&A, divestments, spin-offs or initial public offerings, or joint ventures or strategic partnerships in 2025.
The survey highlights the continuing focus of mining companies on inorganic growth strategies to bolster production portfolios although possibly at the expense of reduced returns in the short term.
EY finds from all the key geographies across the resources sector that companies are grappling with the challenge of meeting demand for minerals and metals while addressing a trifecta of pressures – maintaining capital discipline, achieving sustainable mining, and meeting elevated stakeholder expectations.
Mining companies are under increasing pressure to manage capital effectively while making strategic investments in growth. The continuing focus of miners on M&A needs to shift to building new mines, which will inevitably reduce returns in the short term, EY reports.
It comes as gold giant Northern Star Resources (ASX:NST) has entered into a binding scheme implementation deed to acquire explorer De Grey Mining (ASX:DEG) by way of a Court-approved scheme of arrangement.
In what could be the start of a period of consolidation in the gold sector amid record prices, the $5 billion transaction will provide the Australian gold giant access to Australia’s next major mine. The gold price is currently trading at about $4,085 (US$2,649) an ounce.
This deal is also right on time with the Lion Investment Clock which was recently adjusted to place the mining cycle on the ‘mergers’ phase with the clock ticking towards ‘cash takeovers’ and ‘boom’ time reportedly on its way, as reported by this news service.
The cycle tracker is Lion Selection Group’s (ASX:LSX) patented mining clock in which it closely monitors the mining cycle via the timepiece and aims to align investments and exits with mining busts and booms to take best advantage of weak markets to invest and strong markets to sell.
Lee Downham, EY EMEIA Mining & Metals Leader, says what is clear from this year’s study is that capital has emerged as the number one risk for mining companies, signaling a need to shift gears.
“Miners must move from focusing solely on short-term returns to prioritising long-term value creation. While they have a strong track record of capital discipline, it’s now crucial to balance this with strategic investments that drive sustainable growth,” Downham says.
Resource depletion and new projects are new risks identified in this year’s EY study, driven by soaring demand for minerals and rising exploration and construction costs.
Achieving global decarbonisation targets by 2050 will require a significant increase in the number of mines and volumes produced. Over the next 30 years, EY finds the world will need to mine more than we have over the past 70,000 years. However, capital raised for exploration has declined by 4% year-on-year, with budgets favoring gold over critical minerals like copper.
A lack of new discoveries and long permitting times add further complexity to the situation and put the energy transition at real risk.
Theo Yameogo, EY Americas Mining & Metals Leader, says for example, with few major copper discoveries in the last decade and an average of 15.7 years to bring a new mine online, we are facing a critical supply gap.
Gold is another sector without major discoveries in a long time, although news is emerging about China discovering the world’s largest gold deposit – estimated at more than 1,000 tonnes and worth ¥600 billion (US$83 billion), as reported.
According to the Geological Bureau of Hunan Province, geologists have detected more than 40 gold veins, with a reserve of 300 tonnes of gold, within a depth of 2,000m beneath the Wangu gold field. The bureau says the site’s gold reserve within the depth of 3,000m is further estimated at over 1,000 tonnes – valued at about US$83 billion.
The value of the find and initial exploration suggests it is the largest gold reserve ever uncovered, surpassing the recent discovery at the South Deep mine in South Africa, which holds about 900 tonnes of ore.
The lack of major gold discovered ex-China is likely a major catalyst for the likes of Northern Star to bolster its production profile and near-term development opportunities through M&A as exploration budgets decline globally.
De Grey expects to dispatch a scheme booklet in March 2025. The scheme meeting is expected to be held in April 2025 and, if approved by De Grey shareholders and the court, the scheme is expected to be implemented in late April or early May 2025.
Upon implementation of the transaction, Northern Star will acquire De Grey and its flagship project Hemi – a low-cost, long-life and large-scale gold development project in the Pilbara region of Western Australia. Northern Star shareholders will own about 80.1% of the combined group and De Grey shareholders will own some 19.9%.
Macquarie Capital has been mandated by Northern Star as its financial advisor and King & Wood Mallesons as its legal advisor. Financial advisors for target De Grey are Azure Capital, Barrenjoey, and Barclays, while Gilbert +Tobin and Steinepreis Paganin have been retained as legal advisors.
Hemi is one of the largest undeveloped gold projects in a tier-one mining jurisdiction globally. It has mineral resources of 11.2 million ounces and ore reserves of 6Moz and forecast annual gold production of 530,000oz per annum over its first 10 years.
Reports suggest the deal valuation is believed to be a global record for a gold company without a mine in production. De Grey listed on the ASX in 2002 as a multi-commodity explorer and has had a presence in the Pilbara region since inception.
The Hemi Definitive Feasibility Study (DFS) was published in September 2023 and anticipates construction to start mid-2024 and first gold production in mid-2026 with a final investment decision (FID) subject to finalisation of project approvals and project debt financing.
While significant progress has been made, De Grey is awaiting state and federal environmental approvals before progressing to FID.
In parallel with finalising approvals, Northern Star intends to continue to optimise the Hemi Project development and mine plan under its ownership.
The combined Northern Star group will operate across two tier-one jurisdictions and four production centres with proforma mineral resources of 74.9Moz and ore reserves of 26.9Moz.
As reported by Mining.com.au and in line with EY’s report, the mining sector has now ticked past ‘declining exploration’ and is in a period of mergers before Lion flags it ticking towards cash takeovers, and eventually new floats with a boom time also on the cards, Lion reports in its August 2024 clock update.
Source: https://mining.com.au/