It’s hard to get away from the big gold mining companies when it comes to mining news of late, and headline figures such as the $4.7bn in synergies that Barrick and Newmont will gain from their new joint venture in Nevada are hard to beat.
The deal, for those who missed it, means Barrick’s $18bn hostile bid for Newmont is off the table and Newmont’s $10bn merger with Goldcorp is on, with the two giants working together to develop one of the world’s greatest gold prospects, in Nevada.
Most observers believe that this large scale activity among the majors will eventually trickle down to the junior gold mining stocks, as the search for efficiencies causes divestment of non-core assets and people. John Kaiser of Kaiser Research told Howe Street’s Discovery Watch that while the JV arrangement will allow the two giants to pursue a more effective exploration strategy in their key adjoining prospects in Nevada, they are now unlikely to do much exploration beyond that very promising district. But instead of the rest of the state “going cold”, he believes savvy smaller investors such as Rick Rule are already preparing shell companies to take over the unloved peripheral assets.
“You are going to see a lot of exploration going into these systems to see if there is a lot more to them than the big guys were able to figure out,” he said.
But while these new junior gold stocks may provide more spectacular returns to investors than the big companies, major deals continue to dominate the gold mining landscape for now. Australia's largest gold producer, Newcrest Mining, announced it was buying a 70% interest in Imperial Metals' Red Chris copper and gold mine in British Columbia. The Melbourne-based company, which is also the world's No. 3 gold producer by market value, is paying Imperial $806.5 million in cash and will act as the mine's operator.
On the funding front, though, the junior mining stocks enjoyed a good week. The Orenic Index, which tracks junior mining finance in North America, rose this week on the back of an increased number of financing rounds - albeit individually these were smaller. The number of individual financings jumped to 26, although total funds raised fell to C$49m, a four-week low, and the figure included no brokered financings and no bought-deal financings. Among the deals, NuLegacy Gold (TSXV:NUG) completed a private placement of 350,000 shares @ C$0.15 for C$52,500.
Staying on the finance side of junior mining stocks, Randy Smallwood, president and CEO of Wheaton Precious Metals, this week gave his take on why the royalties and streaming models are proving so popular with investors and mining companies alike.
“The mining industry perpetually needs capital, and it needs to reinvest into itself consistently because resources do not last forever. The streaming industry is a source of this capital, and we compare favorably against equity and other traditional forms of finance. Having this in place can often dramatically affect the returns on projects; streaming always improves a project’s economics and the return on invested capital,” he said.
Smallwood also gave a hint about the kind of mining projects he likes to partner with. “The key driver that makes us want to invest in an asset is its profitability for our partners as well – it has to be an asset that falls into the lower part of the cost curve. We recognize that we work in an industry that suffers from cyclical commodity pricing, and if a mine falls in the bottom half of the cost curve, it is unlikely to shut down due to low prices and more likely to continue production. This is important because we want to make sure we receive metals continuously,” he said.