By James Regan
SYDNEY, Aug 31 (Reuters) - Newcrest Mining Ltd's $8
billion-plus acquisition of Lihir Gold is creating a new
top-tier of Australian gold producers, which are already being
sized up for takeovers.
These include Thailand-focused Kingsgate Consolidated,
Perseus Mining, with ground in West Africa, and Andean
Resources, exploring in South America.
Takeovers have denuded the top end of the Australian gold
sector, leaving only a few vehicles with which institutions can
ride the gold bull market outside of Newcrest, according to
Warwick Grigor, who heads BGF Capital Group.
Sino Gold fell into the hands of Eldorado Gold, Kinross
Gold is offering about $7 billion for Red Back Mining Inc and
Lihir, now Newcrest, bought Africa-focused Equigold.
"Perseus will get taken over at some point, but management
is raising the bar through a very aggressive drilling program
designed to disclose riches in the ground sooner rather than
later, ensuring that a bidder pays a maximum price," Grigor
said. Most big miners are basing the economic viability of
their reserves on a minimum gold price of $800 an ounce -- $750
in the case of Newcrest -- meaning they could comfortably
generate sufficient cash flow to spend on M&A given gold is
trading near its record $1,264.90 an ounce.
"I certainly see a sector that over time will be generating
a fair bit of cash," said Newcrest Managing Director Ian Smith.
"If that is the case, you're going to see a sector which
will be ripe with cash -- that will spur along M&A activity
going forward," Smith said. For its part, Newcrest would be
comfortable with gearing between 15 and 25 percent, but would
be willing to step that up to pursue acquisitions.
Newcrest said assuming the final split of cash and shares
in the payment to Lihir shareholders comes out close to around
$450 million in cash, it would have no net debt.
"If something came along which was a compelling acquisition
or some other reason to go to a higher gearing point over a
short period, then we'd certainly pursuit it," Smith said.
Those comments could signal the first warning shot that
Newcrest is again on the prowl.
With the Lihir buyout, Newcrest will have 77 million ounces
of gold reserves and 136 ounces of resources, making it a top
five global gold miner on each measure.
Kingsgate, which mined 132,628 ounces of gold last year
from Thailand's only gold mine, Chatree, and reported a 125
percent leap in profit to A$73 million, could turn predator or
Kingsgate's dividend yield rate of about 3.5 percent is
among the best in the gold sector and the required 51 percent
sell down of Chatree required under Thai law means Kingsgate is
hunting for new ground.
Kingsgate Chief Executive Gavin Thomas, who found the Lihir
gold mine in Papua New Guinea, is keen to keep Kingsgate
focused on Southeast Asia and the South West Pacific.
Deposits in Australia hold little appeal, with greater
focus put on Australian-listed companies active overseas.
The last major find in Australia -- the world's second
biggest gold producer after China -- was made five years ago at
the Tropicana lode. It is majority-owned by South Africa's
Anglogold Ashanti, which has yet to give board approval for its
"Ghana has developed 15 mines in the past five years and I
can see 15 more in the next five years," said Mark Calderwood,
managing director of Perseus Mining, who predicts M&As in the
sector will only intensify.
He describes West Africa as "elephant country" for gold
miners looking to expand.
"In Australia, it's pretty hard to find the low-hanging
fruit," Calderwood said.
Newcrest's Smith agrees: "West Africa is a play within the
gold industry. It's one of those areas that most people are
pursuing at the moment."
Ghana is West Africa's largest gold producer and the
African continent's second-largest producer after South Africa.
It yielded 2.8 million ounces in 2009, government data shows.
Underlining international interest in the region is the
decision by Kinross' offer to take full control of Red Back,
which owns mines in Mauritania and Ghana.
(Additional reporting by Michael Smith and Sonali Paul;
Editing by Anshuman Daga)