Everyone’s talking to everyone in Leonora gold consolidation
The manoeuvring involving Red 5, Genesis, St Barbara, Dacian and Kin could deliver a significant prize – for some. Plus, Cygnus quadruples its land holding in Canada’s hotter-than-hot James Bay lithium province.
The long-awaited consolidation of the Leonora gold district in Western Australia’s north-eastern goldfields is building up a head of steam.
Companies with a combined market cap of $1.5 billion are involved and the hope is that a new regional champion will emerge once the dancing is over, possibly one producing as much as 600,000oz annually.
That assumes consolidation at the corporate level rather than at the asset level. Either consolidation route is possible.
Genesis (GMD) boss Raleigh Finlayson of ex-Saracen fame kicked started the consolidation play earlier this year with a friendly $111 million scrip bid for the troubled Dacian (DCN), which it now controls outright.
Success with the yet-to-complete bid will combine Genesis’ undeveloped Ulysses project with Dacian’s currently mothballed but shiny new Mt Morgans operation, the plan being to feed Mt Morgans with ore from Ulysses while building a bigger reserves position at Mt Morgans itself.
But Finlayson being Finlayson, things did not stop there. His next move was to rekindle consolidation talks with long-time Leonora resident St Barbara (SBM), owner of the historic Gwalia mine, so historic in fact that the 31st US president Herbert Hoover was a mine manager there in the 1890s.
By rights, St Barbara should have got cracking on the region’s consolidation years go. But it took its eye off the ball by taking off to Canada instead, where it paid a whole lot of money for the Atlantic operation which has not lived up to expectations.
Still, the company under MD Craig Jetson is now very much in the thick of the consolidation push. And so it should be. There is a big prize to be had from St Barbara better exploiting its resource base by expanding its processing capacity.
Jetson acknowledged that at a conference in Colorado Springs last week. As reported by MiningNews.net editor Kristie Batten, Jetson said it was crazy that the company’s current resource base would take 87 years to push through the 1.2mtpa Gwalia processing plant.
“Everyone else in the region has excess milling capacity ... there is some work to do with those organisations going forward,” Jetson said.
A week later and up bobs the news that apart from the on-going consolidation discussions with Genesis, St Barbara is also talks with Red 5 (RED), the owner of the reborn and upsized King of the Hills (KOTH) gold project, all of 30kms from the Gwalia operation.
Red 5 produced its first gold from the $226m KOTH project in June and due to some early teething problems, it won’t be hitting its straps until well into the December quarter.
That has prompted the need to go to the market seeking $60m from a discounted placement at 16c a share, $40m of which is earmarked for working capital purposes.
It is not an ideal thing to be doing during regional consolidation talks. But then again, Red 5’s new 4.7mtpa processing plant is the biggest bit of kit in the region. And it will be the lowest cost processor of ore once it is humming.
KOTH has 16 years of its own base load ore feed but the mill is set to be expanded to 5.5mtpa in FY2024, making for lots of optionality between Gwalia, KOTH and undeveloped resources in the region.
Both Red 5 and St Barbara warned that nothing might come of their talks. Genesis has said the same about its talks with St Barbara. But again, the economic and market-re-rating prize from sensible consolidation is too big to let pass for all of the active parties.
It is too much to assume a win for all involved. On that note, it was interesting that after the news of the Red 5 talks with St Barbara was posted, it was Genesis that posted the biggest share price gain of the day (15% to $1.02), albeit with Red 5 in a trading halt for its placement.
One interpretation was that Genesis could do well to steer clear of a Red 5-St Barbara consolidation, focussing instead on its Dacian/Mt Morgans pick up to make for a more leveraged gold growth story without having to give away value to make a deal stick.
Kin Mining (KIN):
Kin Mining – owner of the 1.4Moz Cardinia gold project which sits halfway between St Barbara’s Gwalia and the Mt Morgans operation of Genesis/Dacian - has put its hand up to be a player in the Leonora consolidation in a most unusual way.
Rather than picking up the phone and calling all the key players, it recently bought 20m Dacian shares (1.63% of the company).
Kin said it considered that “accumulating a significant interest in one of the participants in the consolidation of the Leonora mining district, that is currently unfolding, is a sensible strategic move and the current market price of Dacian shares represents good value”.
The scrip bid by Genesis for Dacian is due to close on Monday unless extended, and so far has delivered Genesis a controlling 58.97% of the company.
Given Kin’s size ($70m market cap at 6.9c a share), it is in no position to build a blocking stake. More likely is its support of the Genesis bid and an eventual restart of the Mt Morgan treatment plant, with Cardinia part of the feed source.
And just a reminder that St Barbara rates the Cardinia project. We know that because it sounded out Kin with a 16c a share indicative offer last October after having picked up an 18% stake in the company.
The offer did not proceed because Kin’s main shareholder, the German family company Delphi with 30%, was not supportive. In Kin’s recent fund raising, Delphi increased its stake to 32% while St Barbara was reduced to 15%.
ASX choice for lithium exposure steps up in a big way in November with the expected dual-listing of Canada’s Patriot Battery Metals (TSXV:PMET).
It’s the one whose market cap has increased more than tenfold to $C570 million this year in response to what many consider to be the best lithium discovery in recent times – Corvette in Quebec’s Upper James Bay region.
It’s the one that Ken Brinsden, the recently departed MD of Pilbara Minerals (PLS), reckons is a red hot discovery. So much so he joined the board.
The Canadian exploration market has been hollowed out in recent years, with the speculative dollar finding its way into alternatives like marijuana and cryptocurrencies.
As much as the country’s listed juniors want to get on board with the lithium thematic, they don’t have the money or the expertise. Enter the Aussies, with Brinsden leading the way.
As mentioned previously other ASX-listed lithium stocks have a presence within the broader hotter-than-hot James Bay region - Allkem (AKE), Sayona (SYA), Piedmont (PLL) and Cygnus (CY5).
Cygnus is the smallest by market cap ($51m fully diluted at 27c a share) and as mentioned previously, it recently acquired a 70% interest in the advanced Pontax lithium project in the James Bay region.
It has just acquired another 30km of prospective strike length adjacent to Pontax, taking its total coverage to 40km. The new ground has known lithium-bearing pegmatites with rock chip samples of up to 2.8% lithium.
The company is clearly not messing around. And why would it given the rapid-fire value creation that Patriot and others have demonstrated can happen in the James Bay region – a region that given time, could well challenge WA’s hard-rock lithium dominance.
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One of Australia’s leading business journalists, Barry FitzGerald, highlights the issues, opportunities and challenges for small and mid-cap resources stocks, and most recently penned his column for The Australian newspaper.
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