RIU Explorers: Gold consolidation picks up pace as juniors get in on the act

Horizon Minerals and Greenstone Resources have become the latest gold plays to merge as the sector undergoes a wave of consolidation
Kalgoorlie business czar Ashok Parekh, the Horizon chairman, says more will come as gold re-emerges over lithium and nickel as the town’s lifeblood
The junior tie-up follows Red 5 and Silver Lake’s merger announcement last week

He’s known as the King of Kalgoorlie, and now Goldfields publican Ashok Parekh says the time is ripe to pool together the regions stranded gold deposits and bring them back to life.

Northern Star Resources (ASX:NST) is far and away the biggest player in one of the world’s most prominent gold locales, where more than 60Moz has been mined from its vaunted Golden Mile — over 20Moz since the Super Pit was consolidated by Alan Bond in the 1980s.

As other miners have been bought out or gone out of business, only a handful of miners have a genuine foothold in the gold rush town — Northern Star, Evolution Mining (ASX:EVN), Zijin’s Norton Goldfields and Silver Lake Resources (ASX:SLR) among them.

While lithium and nickel have emerged to fill the gap, the collapse of prices in those battery metals mean gold will be more important than ever for one of Australia’s economic powerhouse regions, Parekh says after the gold explorer he chairs Horizon Minerals (ASX:HRZ) announced a merger with Greenstone Resources (ASX:GSR) yesterday.

Combined the company will hold 30Mt at 1.86g/t for 1.8Moz across its Kalgoorlie and Coolgardie gold deposits.

“The last 12 months has been a game changer. Nickel has gone down, lithium has gone down and gold is the Steven Bradbury coming out here,” he said.

“For that you really need consolidation in the market, where companies come together — a one and one becomes three, not two. And I think that in the future will happen in Kalgoorlie.

“I think at the moment now with the merger with Greenstone we’ve got we’ve got the third largest land holding land holding in Kalgoorlie.”

Two core assets

Key to the merger is the marriage of two deposits round 40km apart containing around half of the combined company’s 1.8Moz resource base.

That includes the Boorara project held by HRZ, which contains 11.03Mt at 1.26g/t for 448,240oz, and Greenstone’s Burbanks mine, which contains 6.05Mt at 2.4g/t for 466,570oz.

It comes more than two years after GSR MD Chris Hansen entered the company, placing the focus squarely onto gold exploration.

While its Mt Thirsty nickel and cobalt project adjacent to Galileo Mining’s (ASX:GAL) Callisto PGE discovery drew some of its attention, Hansen said gold was the key focus.

“At that point in time it only had a very small resource of 140,000oz, but it was supported by a very, very long track record of historic high grade production,” he said.

“We’re talking in excess of 420,000oz at over 10 grams per tonne and at that point in time, nobody had even thought drill hole a below 250 metres.

“And this isn’t a gold asset that’s in the middle of nowhere, this is a 30 minute drive away from Kalgoorlie.

“We’ve now drilled that gold asset down to 300m below surface. And we certainly see potential for that gold asset to continue to grow at depth and be a real cornerstone asset within the portfolio.

“There’s true complimentary reasons behind this merger and one is the fact that Greenstone brings that high grade resource endowment and Horizon brings that lower grade bulk feed.

“But you put those two assets bases together and there’s real synergies there and potential to be that next emerging mid tier gold producer.”

Access to capital

The scheme would see each Greenstone investor claim 0.2868 Horizon shares for each GSR share they hold, an 89% premium to its last traded price on February 9 and 40% premium to the explorer’s 30-day VWAP.

That would give HRZ holders 63.1% of the merged entity, with Greenstone backers to hold 36.9%.

But to realise whatever synergies may emerge a processing solution will be key.

The plan will be to toll treat initially to generate cashflow ahead of the development of a larger operation potentially supported by a standalone plant.

It has a right to 200,000t of allocated capacity at the Greenfields mill owned by Peter Bartlett’s FMR Investments.

Long term, Horizon MD Grant Haywood said the company was targeting a project that can deliver a run rate of 60,000-80,000ozpa when it gets into full scale production.

“Access to capital is pretty tight,” he said.

“So we’re going to position ourselves through our dual-track strategy of producing some near term cash flow through toll treatment, to build a war chest to then be able to go and either buy or build the mill that we want in our longer term future.”

It’s the latest example of consolidation in the gold space, coming around a week after the announcement of a $2.2b merger between Silver Lake and King of the Hills gold mine owner Red 5 (ASX:RED), which will create a 445,000ozpa gold producer with three mining hubs across WA.

At Stockhead, we tell it like it is. While Greenstone Resources was an advertiser at the time of writing, it did not sponsor this article.