PERSEUS Mining and Teranga Gold could be the next gold miners in corporate activity after the $600 million Adamus Resources deal, as juniors continue to consolidate to fill the "genuine mid-tier gap" in Australia's gold sector.
After Newcrest Mining's $10 billion takeover of Lihir Gold, the gold sector has been one of the busiest for dealmaking, along with coal, as local and international miners scramble to grow through acquisition to increase production and market value amid the soaring gold price.The spot price of gold this morning touched a fresh high of $US1911.54 as continued global jitters push investors into the safety of the precious metal.
After the Lihir deal, US major Goldcorp swooped on Andean Resources - at the time Australia's second-biggest goldminer - in a $C3.6 billion ($3.49bn) deal, followed by Canada's Anatolia Minerals move on Perth-based Avoca Resources, which created Alacer Gold.
But after Adamus became the latest yesterday as it merged with Canada's Endeavour Mining to form a $US600 million West African-focused gold play listed in Sydney and Toronto, Goldman Sachs analysed other small-cap producers that could be targets.
Analyst Ian Preston said the key reason for the wave of gold activity was driven by a need to diversify operational risk, reduce gold hedge-book commitments and increase both production and market capitalisation.
He said the Adamus deal provided continued evidence West Africa remained one of the most "exciting global postcodes" for resource growth and corporate activity in the gold space, and cited Teranga as a potential target and the larger Perseus as potential suitor.
"It is clear that the market is happy to afford a premium to those companies which have potential, but have not yet disappointed the market through capital blowouts of production disruptions," he said. "Teranga's share price is well below what we think is an appropriate value. Trading at these levels, we would view Teranga as susceptible to takeover."
In contrast to Teranga's market value of about $350m, Perseus is valued at about $1.4bn as investors bet on a smooth ramp-up to full production at its Central Ashanti project in Ghana, which Mr Preston said could make its scrip come under favourable viewing.
"With scrip priced as such, we argue that Perseus is well placed to acquire additional production using paper," he said.
Adamus and Endeavour sold their deal, which is subject to shareholder approval, on synergies of their West African assets, and wider production profile and market value to gain more market recognition and grow through acquisitions.
By 2013, Endeavour intends to grow production from existing assets to 250,000oz from 172,000oz, which could more than double with acquisitions and as exploration projects come online.
The deal, which will see Adamus shareholders receive 0.285 Endeavour shares for each share, also enabled Adamus to use Endeavour's much greater cashpile to pay down $US160m of debt at its Nzema project in Ghana.
Mr Preston said reducing the project debt and lowering its hedged gold position, which is typical of project finance, allowed it to put the cash towards the development of its next project.
"We view the deal as a positive for Adamus shareholders with the combined entity having a strong balance sheet, two producing assets, an additional development project providing production growth and a significant landholding...in West Africa with substantial exploration upside," said UBS analyst Jo Battershill.
Other analysts have suggested Kingsgate Consolidated, Medusa Mining and Saracen Mineral Holdings could also be targets.
By late morning, Adamus shares continued yesterday's rise, up 3.5 per cent to 73.5 cents, while Teranga was up 0.87 per cent to $2.32 and Perseus rose 2.45 per cent to $3.34. The broader market was up 1.16 per cent.
