Looking elsewhere for golden value on the ASX

Merger spin off gold ASX Northern Star Saracen Minerals
The acceleration of spin-off activity in the gold sector is forecast to increase as majors merge to create supersized plays.

The gaze of ASX gold watchers has averted from the exploration minnows to the top end of town, after the stunning ‘merger of equals’ of Northern Star Resources (ASX: NST) and Saracen Minerals (ASX: SAR) that will create the world’s sixth biggest gold miner by market capitalisation.

We say ‘stunning’ because no one really expected it, although in glorious hindsight it was an obvious ploy given the duo’s dual ownership of the Kalgoorlie Super Pit and the vaunted $1.5 billion to $2 billion of synergy benefits flowing from the union.

Given the buoyant gold price – albeit off recent record levels – there no doubt will be more such supersized plays. But what’s perhaps more interesting is the acceleration of the spin-off activity as we are already seeing in the sector.

As veteran broker Richard Morrow from EL & C Baillieu puts it, “flotsam and jetsam” will break away from the new mega miner.

“Many experienced mining execs will not make the merged team and will leave to create their own gold companies,” he said.

“Many projects won’t make the grade inside the $16 billion monolith. These projects will find their way into new companies where the mining potential will be examined by fresh sets of eyes. Again, new companies and new mines will emerge.”

We suspect value will emerge among these spin-offs, rather than the established producers which have run hard already.

Meanwhile, the spin-off activity has begun in earnest.

Exploring Victoria’s golden triangle

Over months of lockdown, the denizens of ‘Sicktoria’ have endured a stream of quips from their liberated neighbours, such as the one about Australia being like the Spice Girls because everyone is doing their best except for Victoria.

But you can’t take away the free-settler state’s historical status as one of the world’s leading gold producers and its latter day reputation as being one of the most prospective.

Still, the recent gold price retraction from record levels took the gloss off North Stawell Minerals’ (ASX: NSM) much anticipated listing, with the shares now well shy of the $0.50 a share issue price despite the raising closing well oversubscribed.

A spin-off of the Victor Smorgon family’s Leviathan Resources, North Stawell is exploring the notion that the rich gold resource that supports the working Stawell gold mine extends 50km undercover.

The mine is worked by a consortium led by Leviathan, having produced 5 million ounces historically.

North Stawell’s 262sq km of tenements are at the periphery of the so-called ‘Golden Triangle’ between Stawell, Bendigo and Ballarat, which has produced 66Moz of gold historically.

One of the tenements, Wildwood has a certified resource of 55,000oz (875,000oz at 2 grams per tonne).

The Holy Grail is to unearth a clone of Kirkland Lake Gold’s (ASX: KLA) revived Fosterville mine, which contains a monstrous 2.7Moz of gold at more than 30g/t.

The underground mine also produced 619,000oz last year, making it one of the world’s most profitable projects.

Armed with $20 million from the raising, North Stawell will launch a $14 million, 75,000m drilling program over two years.

The Smorgons retain a 36% stake post IPO. North Stawell also enjoys the backing of Arete Capital Partners, a boutique resources fund chaired by WMC legend Hugh Morgan.

North Stawell itself is chaired by Jerry Ellis, the former BHP (ASX: BHP) chairman and Monash University chancellor.

New Zealand-focused debutant

By comparing its New Zealand prospects to Victoria’s “mesothermal” (large and continuous) gold deposits, the latest ASX gold entrant Siren Gold (ASX: SNG) stretches the ‘nearism’ concept all the way across the Tasman.

In truth, Siren’s Reefton gold project on the South Island stands up on its own merits: the region produced 2Moz of hard rock and alluvial gold from 1870 to 1954, while OceanaGold’s (ASX: OGC) Globe Progress open-cut mine spat out 620,000oz before being mothballed in 2015.

Siren Gold shares debuted strongly on Tuesday, at a 45% premium to their $0.25 a share issue price.

We’re relieved to read the $10 million raised will be “utilised in a cost-effective manner to advance the company’s business.”

Meanwhile, private company Federation Mining has the backing of Australian Super to redevelop the nearby Blackwater Mine, which produced 750,000oz up until the 1950s.

Further afield

Megado Gold is due to list this month under the ticker ‘MEG’, having raised $6 million in an oversubscribed whip ‘round.

Megado’s shtick is not so much about nearism as Ethiopia, which is not known as a gold province but hosts several multi-million-ounce mines.

Megado’s ground covers 510sq km with geography “analogous to WA’s eastern goldfields” – so it is a ‘nearism’ yarn after all.

Still on distant locales, Pathfinder Resources (ASX: PF1) is seeking to raise $6 million based on Argentina’s King Tut gold project that was last mined in the 1950s.

And this one’s definitely not a ‘nearism’ play because this King Tut is nowhere near Egypt.

Pathfinder is emerging from the shell of Winmar Resources, named in honour of former St Kilda AFL football player and anti-racism advocate Nicky Winmar.

Pathfinder intends to acquire the King Tut project and retain two existing ventures: the Gowanda cobalt project in Canada and some iron ore turf in the Hamersley region of Western Australia.

But from what we can see, the raising is all about King Tut, which is in the La Rioja province close to the Chilean border.

Pathfinder was slated to list on 14 October.

Interest surges for metal detector manufacturer

For do-it-yourself prospectors, the gold bug has been as easy to catch as the coronavirus in a White House situation room.

One of the profit reporting season’s quietest achievers, Codan (ASX: CDA) makes metal detectors as well as land mine detectors and communication systems.

Codan’s full-year numbers were a nugget:  a $64 million net profit, up 40%, on revenue of $348 million (up 34%).

Codan gleans two-thirds of its revenue from detectors, which range from a US$99-249 (A$140-350) entry-level model for casual prospectors to a US$8,000 (A$11,200) version for the more serious trophy hunters.

Codan exports 90% of its products to customers in 150 countries, including Africa’s artisanal mining scheme.

In fact, the Dark Continent accounts for close to half of revenues. Last month, the company won a US$10 million (A$14 million) one-off contract to provide tactical radios to a “large African government” – presumably a solvent one.

Since the start of calendar 2020, Codan shares have surged more than 50%, while the ASX gold index is up about 24%.

Demand for Codan’s gear could be affected by the current gold price retraction, although the company’s diverse offerings mean it should be better insulated than the diggers and drillers themselves.

Management has said the current year has started well, but is reserving details for its 28 October annual general meeting.

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