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Exploration the vision for 2020:

Macquarie

xploration will be the theme of the years into a positive trend. within juniors are going to have to pay for
Ecoming year, with the window open While activity doesn’t guarantee dis- it, so I suspect the style of M&A will move
for companies to potentially leverage covery success, the current hype in re- more strongly toward premium pricing
from the huge piles of cash generated gions such as the Paterson province, and hostile deals. The recent Ramel-
by the majors, according to Macquar- Northern Molong porphyry project area ius Resources Ltd/Spectrum Metals Ltd
ie Group division director, resources in central west New South Wales, where deal is a good example [$220 million, al-
Hayden Bairstow. Alkane Resources Ltd could be onto though yet to play out] and may well turn
“It is hard to define [exploration] hot- something resembling Cadia, and now out to be a great acquisition for Rame-
spots without discovery, but what you will the Mallina gold province in Western lius. We’ve seen the last of the nil pre-
find is the cash flow coming out of the Australia, could deliver on early promise. mium offers for some time I’d say.”
haves means that BHP [Ltd], Rio Tinto Past exploration rallies in places such Discovery costs continue to rise in
[Ltd] down to the mid-tier producers all as the Doolgunna region (copper-gold), gold, a situation also faced in other com-
have the same problem; they don’t have Fraser Range (nickel-copper), and the modities given much of the low-hanging
a huge portfolio of projects to develop in Pilbara (conglomerate gold) did not over- fruit has already been plucked, with PCF
the next 10 years,” Bairstow told Paydirt lap and eventually fizzled for myriad rea- Capital managing director Liam Twigger
on the sidelines of the WA Mining Club sons. backing Ramelius’ move on Spectrum.
luncheon in February. With “nearology” plays not stacking up, Analysis from Twigger’s MinesOnline,
“They are all desperately trying to fill rebuilding the confidence within the ex- based on a 355,000oz gold resource and
the front end of the development pipeline ploration sector and investment commu- total offer consideration of $US155 mil-
with exploration projects, whether it is in nity has not been easy. The emergence lion, shows Ramelius paying $US436/
their own stuff or talking with JVs. That is of battery minerals has added another oz for Spectrum, a 2,080% premium to
what I think the whole year will be about. dynamic to the market for investors to MinesOnline.com’s one and three-year
There is this huge amount of cash these consider. normalised average transaction multi-
companies are generating and trying to Nevertheless, Lion Selection Group ples of $US20/oz gold equivalent, and
find the next phase of growth because executive director Hedley Widdup feels a 1,882% premium to the five-year aver-
they certainly don’t have it in their own positive vibes returning to the exploration age of $US22/oz gold equivalent.
portfolio.” sector. Twigger said Ramelius had offered
Bairstow urged small companies to “The 2020 market is probably also far a big price for Spectrum, but with
remember that capital is precious and if more ready for some exploration plays 100,000oz gold discoveries coming at
the opportunity presents to partner with a to look at. There are profits around from an average cost of $234 million over the
deep-pocketed partner at an early stage multi-year returns generated by recover- last decade, it appears to have picked a
of exploration then it must be considered. ies of majors like BHP and Rio, growth of winner.
“You might luck onto something that mid-tier golds [Northern Star Resources “Not everyone spends $234 million,
is pretty interesting, and we have seen Ltd, Evolution Mining Ltd, Saracen Min- but there are a lot of losers for the win-
a few of these in the Paterson province,” erals Holding Ltd] and even a fair few ners. If you look at the actual number of
he said. juniors that have gone reasonably well Tier 1 discoveries it is something like 75
“Newcrest [Mining Ltd] is drilling into that can be recycled. All of this says that [worldwide] costing $2.7 billion per Tier
targets that it joint ventured into and the the risk appetite of the market has got to 1 discovery. Who is going to back those
hole starts at 800m below surface. It is the point where it will bet on exploration,” odds? You get a better return at the ca-
just not something for a small company Widdup told Paydirt. sino and something has to happen to
to do, even if it comes off it is going to be “There is a flow on from this in my change that value proposition,” Twigger
multi-billions of dollars’ worth of capital mind, too. For several years, producers said.
[to develop]. If you get lucky in discov- with an interest in growth had the oppor- “I dare say that [Spectrum] will be com-
eries, don’t wipe your balance sheet out tunity to get into juniors through either ing out with a big resource and you’ll find
trying to drill it to the ultimate peak, re- equity or JV at prices they were probably that the price per resource ounce comes
alise that you’re never going to be able very happy to take a risk at. This has pro- down. We found that the 2,000% pre-
to do that. Get someone in at an early vided a number of future growth avenues mium to the average is a big price that
enough stage and get enough competi- to many medium-to-large producers al- has been paid, but when the [resource]
tion at JV stage and get value for your beit perhaps not exclusive access. numbers come out I think the numbers
shareholders rather than looking to dilute “The reason they could place bets will fall back into line.”
by desperately trying to raise money and cheaply was because there was very While the likes of Spectrum are com-
drill out deep targets.” little or no competition from the equity manding premiums in times of high gold
Industry has lamented the lack of mod- market. The market responses to these prices, the lack of discovery success
ern-day exploration success, despite exploration stories says to me that this had Twigger urging the next potential ten
ABS statistics indicating that explora- competition has returned. Producers baggers to innovate.
tion spend and activity in Australia is 3-4 wanting to take control of growth options “In the 1990s, for every dollar you

Page 18 MaRCH 2020 aUSTRaLIa’S PaYDIRT