WA’s skills crisis spurring mining consolidation as rivals fight over Gascoyne Resources’ future
The fight over the future of Gascoyne Resources is a sign of things to come as costs rise in the WA mining sector.
The deepening skills crisis in Western Australia is helping reshape the state’s junior mining sector, with the fight for control over struggling gold miner Gascoyne Resources a key sign of the value of infrastructure built before construction costs surged out of control.
A new wave of consolidation is under way in WA’s mining sector as its skills shortage pushes up the cost of building new mines and infrastructure, forcing would-be miners to reconsider plans to become producers in their own right.
Explorer Bardoc Gold put itself on the market in late September after feasibility studies showed it’s the capital costs at its 3 million ounce gold project in the Goldfields had blown out from a $177m estimate delivered in March to $232m by September – and likely substantially beyond that by the time construction began.
That puts a premium on companies with existing infrastructure, such as Gascoyne Resources.
Only a year after it returned trading on the ASX from administration, and after posting a $44.1m financial year loss on the production of only 77,278 ounces of gold, Gascoyne is now at the centre of a pitched battle involving a mystery German fund manager and some of Australia’s most experienced and colourful corporate identities.
At stake is not Gascoyne’s marginal gold mines but an operating mill that offers the opportunity to consolidate stranded exploration and development assets across a swath of WA’s Mid West region.
The cast of players includes Peter Cook-chaired Westgold Resources and Mark Rowsthorn’s Rivet Group – making its second tilt at Gascoyne, after the Federal Court in February rejected a debt-driven play to win control of the struggling miner.
Such are Gascoyne’s problems with its current mines, it is in the middle of a merger with neighbouring explorer Firefly Resources in the hope Firefly’s deposits can deliver a long-term future for its mill.
In exchange, Firefly holders – which include well known stock promoter Tolga Kumova – will emerge with about 33 per cent of Gascoyne’s register after the merger, an extraordinary deal for them given Firefly’s Yalgoo project only delivers an additional 196,000 ounces on to Gascoyne’s books.
Westgold launched a hostile $100m scrip bid for Gascoyne late last month, hoping to use Gascoyne’s infrastructure to launch a regional consolidation play. Similarly, Rivet wants Gascoyne to ditch its deal with Firefly and instead buy its nearby Snake Well gold project, arguing the resources on offer are ready to mine and present far better value than Firefly’s inventory.
Both have complained publicly that Gascoyne’s board has failed to meaningfully engage with their own bids. After an initial approach to Gascoyne in August was rebuffed, Mr Rowsthorn wrote directly to Gascoyne shareholders in mid-September to make the case they should call on their board to reconsider the Firefly merger in the face of an alternative offer.
Westgold made a similar complaint last week, saying it had received no meaningful engagement from the Gascoyne board over its all-scrip offer for the junior miner despite indication from a number of Gascoyne shareholders they would prefer a deal with Westgold than Firefly.
Both face the same problem – Gascoyne’s deal with Firefly includes no-shop, no-talk provisions.
Ultimately, however, the kingmaker in any deal is companies associated with German investor Wilhelm Zours, which have built up large positions in dozens of ASX-listed mining companies across the country.
Mr Zours’ Deutsche Balaton controls about 22.1 per cent of Gascoyne and other companies associated with Mr Zours have built up a 7.5 per cent stake in Firefly.
Gascoyne entered a trading halt on Monday, saying it would update the market by Wednesday. It last traded at 42c.