Suitors sense a golden opportunity to make a play for De Grey

De Grey Mining owns the Mallina Gold Project in Western Australia.

The $1.3bn Australian-listed De Grey Mining is understood to have fielded approaches from various parties interested in buying the gold explorer.

While the obvious contender for the business is Gold Road Resources, which already owns a 14.4 per cent interest, other possible suitors include the $1.5bn Capricorn Metals, industry giant Newcrest and South African miner Gold Fields which jointly owns the Gruyere Gold Mine in Western Australia with Gold Road.

There was talk at the Diggers and Dealers mining conference in Kalgoorlie last week that Gold Road was sounding out investors about whether they would like Gold Road to make a play for De Grey Mining.

Gold Road inherited its major stake in De Grey Mining this year after launching a $308m takeover of DGO Gold, which originally had the De Grey holding.

A conference participant suggested that Northern Star buy De Grey, but it said it was not interested in mergers and acquisitions.

Northern Star embarked on a $16bn merger with Saracen in 2020.

Canadian miners, including Kirkland Lake, have been considered potential buyers in the past.

Kirkland has since merged with Canada’s Agnico Eagle Mines, and plenty of discussion surfaced at Diggers and Dealers about whether it would either expand, or exit the Australian market where it owns the Fosterville gold mine in Victoria that could be worth $1bn.

Should it be placed on the block, however, buyers will be cautious about overpaying for the asset. The challenge is that the mining deposit is of a particularly high grade in what is known as the Swan zone. But it is hard to predict if the gold resource quality will be as high in other zones of the Fosterville project, and production will be lower if it is unable to find zones with gold of the same quality.

Opinion about whether Fosterville would be sold by Agnico Eagle was divided at Diggers, with some suggesting Agnico Eagle was more likely to be a buyer than a seller.

De Grey Mining is set to produce 500,000 ounces of gold annually for the next decade. It owns the Mallina Gold Project in Western Australia, capable of producing 10.6 million ounces of gold. But it is in the investing phase and is positioned for an equity raising to fund a transaction, and any buyer would need billions of dollars for the capital spending required.

Suitors are likely to step up after it completes its pre-feasibility study on its Hemi Mineral Resource, due in September, which would make the target less risky for a buyer.

De Grey’s share price has rallied since last month after falling since April, and on Friday closed more than 3 per cent higher to 96c – probably fuelled by takeover speculation at Diggers and Dealers.

Capricorn Metals, which is close to broker Argonaut, has made it known that it needs more assets, although some believe that it would be a large bite for the De Grey, which is close to advisory firm Azure Capital.

But Capricorn is trading at a share price premium.

Some suggest that Capricorn may also look at putting in a rival bid for gold miner Dacian, which has recently agreed to merge with the Raleigh Finlayson-led Genesis Minerals.

Gold Fields is experienced at building green field mines after Gruyere.