The contest for the $1bn Greenstone gold stake in Canada is understood to be down to just Gold Road Resources and the project’s joint venture partner, Equinox Gold.
Gold Road Resources confirmed reports in DataRoom on Monday that it is competing in a sale process for Greenstone Gold Mines, run by Orion Resource Partners.
“This participation remains ongoing and Gold Road has not entered into any definitive acquisition agreements,” the company said.
“Gold Road continues to evaluate strategic opportunities and will only pursue acquisitions if it is in the best interests of its shareholders.”
RBC-advised Orion owns 40 per cent of the asset, leaving operator Equinox Gold with the remainder. The understanding is Equinox has a pre-emptive right to buy the remaining stake if it wants to match the price of the top bidder.
However, some think this is unlikely in this instance. As operator and majority holder, Equinox already has full ownership benefits without having to use its own equity to own the whole.
Also, if Gold Road pays an attractive price for the stake, it would lift Greenstone’s overall value.
Gold Road’s share price fell 6.6 per cent to $1.70 on Monday on the news, ahead of an anticipated equity raising to fund the transaction.
Goldman Sachs is advising Gold Road.
Other suitors in the running are understood to have fallen away, leaving the ball in Equinox’s court.
There are a number of reasons while a deal makes sense for Gold Road. If it can buy the asset, the $1.97bn Gold Road becomes a $3bn company, which puts it at a significant advantage to its rivals.
It will be a clear No.3 player in the market, (excluding African gold miner Perseus) and as a result, it will attract more exchange-traded fund investors, which allocate funds through an algorithm to gain a balanced exposure to key investment themes.
Then there is the opportunity to take advantage of the rally its share price has been on, fuelled by the record $US2000-plus gold price, by raising equity to fund the transaction.
The Duncan Gibbs-led Gold Road will be the third largest Australian listed gold stock behind market leader Northern Star ($17.5bn) and Evolution Mining ($7.8bn).
There are a number of gold miners with market values between $1bn and $3bn, such as De Grey Mining ($2.4bn) Emerald Resources ($2.2bn), Capricorn Metals ($2bn) and Regis Resources ($1.68bn).
Gold Road’s main asset is a half-share in the West Australian Gruyere mine it owns with Gold Fields and it is focused on lifting its performance.
Greenstone is developing the Hardrock Project and the Kengamisis, Brookbank and Viper Properties in Ontario.
Gold Road also owns 19.9 per cent of Australian listed gold miner De Grey Mining.
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