We’re the right size, says Evolution, as Northern Star merges
Northern Star and Evolution have been the two golden children of Australia’s gold renaissance over the past decade.
Northern Star’s historic $16bn union with fellow gold producer Saracen Mineral Holdings is likely to mark a permanent point of difference between it and long-term gold rival Evolution Mining, with Evolution boss Jake Klein making it clear that he had no intention of pursuing a similar transaction.
Northern Star and Evolution have been the two golden children of Australia’s gold renaissance over the past decade, with each company mirroring the spectacular successes of the other through numerous cannily timed acquisitions.
But the Bill Beament-led Northern Star leapfrogged Evolution last week when it announced its big zero-premium merger with Saracen, consolidating ownership of the pair’s historic Super Pit mine in Kalgoorlie.
The deal prompted immediate speculation that Evolution could look for a mega-merger to continue its own ascent up the ranks of the international gold sector.
But appearing at the Diggers and Dealers Mining Forum over video link — WA’s border restrictions prevented him from being there in person — Mr Klein said large-scale mergers had been attempted in the gold sector before with little success.
While he congratulated Northern Star and Saracen on their deal, he said he believed Evolution’s current size was the optimum one at which to create meaningful value for shareholders.
“We haven’t had a shareholder who has said to us, ‘if you were bigger we would buy more of your stock’,” Mr Klein said.
Rather than focus on growing production, he said gold miners should concentrate on delivering better returns for their shareholders.
“The sector needs to shrink to greatness by producing less gold at a higher margin and being a better investment opportunity,” he said.
“Generalists rarely talk to us about size being the problem. They talk to us about wanting to maintain the capital discipline and that’s what we plan to do.”
The enlarged Northern Star plans to lift its total gold output from about 1.6 million ounces a year to 2 million ounces once the deal with Saracen is complete.
While the enlarged company will have a host of underground and open pit mines in Western Australia as well as Northern Star’s Pogo mine in Alaska, Mr Beament said running the various assets under three separate mining hubs would ensure the enlarged portfolio was properly managed.
“We think the optimum size of a gold company is around the size of what we’ve just created,” Mr Beament said.
Despite widespread expectation that the enlarged Northern Star would look to jettison some of its lower-quality gold assets in the wake of the deal amid a rampant market for gold deals, Mr Beament and his Saracen counterpart Raleigh Finlayson said they had no immediate intention to move on any of the portfolio.
Instead, Mr Finlayson said he expected there would be 12 months of “heavy lifting” as the enlarged company looked to reassess the best way to tackle its combined asset base. It was unlikely any assets would be sold during that process.
“What we don’t want to do is call something now that we think may not be a key asset in the portfolio, and then work out in six months’ time when we re-optimise the plant that in actual fact this becomes a really viable option for us,” he said.
Mr Beament and Mr Finlayson said they fully supported WA’s contentious approach to the state border, noting that very few of their workers were based interstate and the inconvenience of the closure was minor compared with the downside of another outbreak.
Mr Beament said that while the 14 days of isolation required for anyone entering the state was “not fun”, it was better than a full-scale lockdown.
“If something does break out, we are talking about a lot more issues in mental health with people getting locked down,” he said.
Mr Klein, however, called for the restrictions to be lifted as soon as possible.
“Australia has done really well but the border restrictions are an impediment to business and the sooner they can be lifted the better,” he said.
The two leaders agreed the gold price outlook was good.
