With little fanfare, Western Australian ASX stalwart Vimy Resources this week farewelled itself from the bourse after 14 years as a listed company.
Vimy shareholders are expected to receive scrip in takeover suitor Deep Yellow (ASX: DYL) on Thursday to conclude a $658 million deal first announced in March to create an Australian multi-asset uranium leader.
It will mark the end of Vimy, which listed as Energy and Minerals Australia in May 2008.
At the heart of the enlarged Deep Yellow will be Vimy’s Mulga Rock project, north-east of Kalgoorlie.
Many uranium industry watchers believe Mulga Rock will be the only uranium project ever to be developed in WA – though anti-nuclear and environmental groups will continue their efforts to prevent mining from happening.
After years in the wilderness, uranium has become part of the global narrative around clean baseload energy.
It also explains why this merger was consummated despite the turbulence on global capital markets over the past two months. Myriad deals have fallen over since then because of changes in market valuations as well as suitors’ sudden inability to fund transactions.
Vimy chair Cheryl Edwardes and managing director Steven Michael had been consistent with their narrative to shareholders that being part of a larger, stronger group would enhance the development process for Mulga Rock.
As a scrip-swap deal, the post-merger ownership ratio – Vimy shareholders will account for 47 per cent of the enlarged Deep Yellow – overrode any concerns about short-term movement in the target and suitor’s share prices.
Given the rout in equity markets, there will be plenty of opportunities for cashed-up companies to look to secure their next chapter of growth over coming months.
Gold Road Resources (ASX: GOR), which this week delivered one of the best – if not the best – June quarterly reports among ASX gold stocks, is a case in point.
The Duncan Gibbs-run company is finalising the compulsory acquisition of the last handful of shares in $230 million takeover target DGO Gold (ASX: DGO).
Gold Road has already assumed control of DGO and begun the process of integrating its target.
An early sign of Gold Road’s intent with regards to DGO’s asset portfolio will come courtesy of the 6.8 per cent stake in Dacian Gold (ASX: DCN) worth about $10 million, which is now owned by Gold Road.
Dacian’s board on Friday recommended in favour of Genesis Minerals’ (ASX: GMD) scrip takeover bid. Genesis wants to consolidate gold assets in the Leonora and Laverton area – and will pick up an operating mill from Dacian – and has its sights set next on St Barbara (ASX: SBM), the owner of the Gwalia underground operation.
But back to Gold Road and the reasons for its pursuit of DGO.
The jewel in DGO’s crown, of course, is a 14.4 per cent stake in De Grey Mining (ASX: DEG).
De Grey owns the world-scale Mallina gold project in WA’s Pilbara. The Hemi deposit, part of Mallina, is regarded as the best new gold find in Australia since Gold Road discovered Gruyere in 2013.
As Gold Road demonstrated to investors this week, the returns from a Tier 1 gold mine can be exceptional and – importantly in this climate of fast-rising costs – a real point of difference.
Gold Road developed Gruyere, north-east of Kalgoorlie and (in Outback language) just up the road from the Mulga Rock uranium project – in a 50-50 JV with South Africa’s Gold Fields. Gold Fields is Gruyere’s operator.
Gruyere has had its teething issues since first gold was poured in July 2019 though the mine hummed in this June quarter.
Production was a record 85,676 ounces (on a 100 per cent basis), with Gold Road accounting for its share of output at an all-in sustaining cost of $1250/oz. Importantly, Gold Road – already a regular dividend payer – reported record free cashflow of $43.6 million for the quarter.
In the same way that manipulation occurred in years gone with the ways companies adhered to the C1 cost measure to appease analysts, AISC has become similarly problematic and inconsistent.
Cashflow performance captures a much more accurate picture, which explains why Gold Road’s shares have jumped 13 per cent since Thursday’s June quarterly release.
Like Gold Road, companies that have mines in operation today – and therefore are not exposed to constantly escalating capital budgets – are likely to better handle the expected economic turbulence over the next few years.
With the same minimal fanfare as Vimy’s exit from the ASX, Mineral Resources (ASX: MIN) used its June quarterly on Thursday to announce an ASX first – maiden earnings from lithium hydroxide production.
For all the talk among ASX players about their exposure to the battery minerals boom, none have positioned themselves like MinRes to deliver earnings ahead of the pack.
MinRes used its quarterly report to flag a lithium hydroxide EBIDTA contribution for the 2021-22 financial year – effectively based on just five months of ramping-up production – of $US150-160 million (unaudited).
MinRes has, in typical fashion, moved quickly and innovatively to shift from spodumene production at its 50%-owned Mt Marion mine south of Kalgoorlie and the turned-back-on Wodgina asset in the Pilbara to advancing directly to lithium hydroxide production.
MinRes’ share of Mt Marion’s spodumene concentrate is being converted into hydroxide in China via a toll-treating agreement with its Mt Marion partner Ganfeng. The toll-treating arrangement delivered the hydroxide EBITDA surprise contained in Thursday’s June quarterly.
MinRes is yet to provide the full picture on where Wodgina’s spodumene concentrate is headed – the market expects toll-treating or JV hydroxide investments in China – while the $10 billion Perth company also has a stake in the Albemarle-led Kemerton operation south of Perth. Kemerton, finally, is heading for the construction finish line.
Not that MinRes had to wait for Kemerton to book first lithium hydroxide success across its portfolio.
Investors responded, marking MinRes up 13 per cent in the past two trading days.