May 26, 2015 / 2:11 AM / 2 years ago

Australia's gold miners drive M&A revival

4 Min Read

SYDNEY, May 26 (Reuters) - Gold miners are spearheading a wave of merger and acquisition activity in Australia, riding a rebound in local gold prices to pounce on projects promising quick growth.

In the first signs of life since the country's mining boom went bust three years ago, companies are buying assets from international rivals tightening their belts, and partnering with fellow Australian miners.

"Everyone is looking for assets that enable them to grow. We've seen more M&A in Australia in 2015 than in the past five years," Ian Murray, chairman of Perth-based Gold Road Resources Ltd told Reuters, referring broadly to the level of interest in the sector.

Progressive central bank interest rate cuts aimed at knocking down the Australian dollar and falling labour and mining costs are adding fuel to the frenzy.

Gold output in the world's second-biggest producing country after China reached a decade high last year and is tipped to rise further in 2015.

Evolution Mining, snapped up Barrick Gold's Cowal mine on Monday for $550 million, giving it a large low-cost mine and putting it ahead of Northern Star Resources to be the no. 2 Australia-listed gold miner.

A bidding war for the mine attracted 17 different parties, two sources familiar with the process said.

U.S-dollar gold prices are down 37 percent since a late 2011 peak, but Australian dollar gold hit a two-year high in February and is still up 10 percent since early October.

"The confluence of big overseas miners looking to repatriate to their home bases and strong indicators such as a weaker Aussie dollar is driving the market further into M&A activity," said Gavin Wendt, an analyst with MineLife consultants.

"Add in cheap labor post the boom and a vibrant mid-tier gold sector and it's not hard to see why things are accelerating."

Northern Star remains in a position to make "value accretive acquisitions" after buying four mines from Barrick and Newmont Mining Corp, according to Chief Executive Bill Beament.

Deals Pick Up

Over the lean years, when a strong local currency and high costs trimmed margins, miners skimped on exploration, leaving sparse opportunity to grow organically.

So far this year there have been some 26 announced deals in gold mining worth more than $1.7 billion, compared with about $2.2 billion over the previous two years, according to Reuters data.

Newcrest Mining Ltd's half-million-ounces-per-year Telfer mine could also go on the block this year, after managing director Sandeep Biswas said in February it was time to time to consider "alternative ownership options".

Evolution tipped it was looking for more mines after paying $230 million in April to acquire two lodes from Luxembourg-based La Mancha Group International BV, which will contribute A$112 million ($88 million) to the Cowal deal.

"The lens we are looking through at every opportunity that comes across our desk is whether it will improve the quality of our portfolio," Evolution Executive Chairman Jake Klein told Reuters.

Evolution will also pay A$9 million for 19.9 percent of Phoenix Gold, which is accelerating exploration in the Western Australia Goldfields district, where the majority of Australia's 284 tonnes of gold was mined last year.

"Assets are being sold at a low point in the cycle and if you position yourself to accumulate them, you are going to do very well," Klein said.

Still, warns Northern Star's Beament, as more more buyers show their hands, M&A costs can only go up.

"We are in the business of generating superior shareholder returns. Paying some of the premiums being asked for gold assets in today's market is not consistent with that objective," he said.

$1 = 1.2789 Australian dollars Editing by Richard Pullin

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