Saturday, 10 November 2012

Randall Oliphant - Virtues of Growth Mid-Tier and Junior Miners - New Gold Looking for M&A Targets

Interview with Barrick's former head now at New Gold with several other leading industry figures including Pierre Lassonde, Robert Gallagher, Raymond Threlkeld and Martin Konig.

New Gold with a $5bn market cap have recently looked to raise $500m and appear to be looking for acquisitions and a mine to build. Their last significant acquisition, of Richfield Venture's Blackwater project for $386m, will see capex at $1.8bn to produce 500oz pa but not until 2017 and puts the company on track for 1 million oz production. The speculation is that they will look to acquire something which at least bridges the gap to 2017, or more. If they stick to acquisitions in current operating jurisdictions then that should include Canada, US or Mexico.

New Gold plans to increase gold output from about 400,000 ounces this year to more than 1 million by 2017 as new mines in Canada and Chile start up, Oliphant said........“We don’t think that anybody in the gold space is going to be producing 2 1/2 times as much gold five years from now as they are this year,” Oliphant said........Oliphant said he’s going against the prevailing trends in the mining industry. While bigger producers are cautious about dealmaking following a series of unpopular transactions, New Gold is looking for acquisitions after metal exploration and development companies’ market values slumped in the past two years, said Oliphant, 53. And while the world’s largest mining companies, including BHP Billiton Ltd. (BHP) and Rio Tinto Group, curtail project spending, Oliphant said New Gold may benefit by moving against that trend.“There hasn’t been a better time to build a mine, we don’t think, over the next few years, as the whole rest of the world is running in the opposite direction,” Oliphant said.To be sure, New Gold’s rapid growth plans probably mean it will eventually start closing in on the larger producers. The end game may be to sell the company to a bigger miner, Oliphant said. New Gold has had “soft approaches” in the past, he said.For now, the company has “lots of runway” to grow, Oliphant said. “I think we can keep doing what we’ve been doing for quite a while.”......New Gold has “a very good management team,” John Stephenson, a portfolio manager at First Asset Investment Management Inc. in Toronto, said yesterday in a phone interview. “They haven’t done anything stupid,” said Stephenson, who helps manage about $2.7 billion, including New Gold shares. “They’re not likely to go out and blow themselves up by buying an enormous name that people have heard of at a ridiculously high multiple just to do a deal. Their discipline so far has been excellent.” New Gold paid about C$385.7 million ($385.6 million), a 47 percent premium, to acquire Richfield and its Blackwater project in British Columbia in June last year. The company said the project, which will be the company’s flagship, will produce more than 500,000 ounces of gold and 2 million ounces of silver annually in the first 15 years and will cost about $1.8 billion. The company is targeting first production in 2017, Oliphant said.The acquisition made sense because New Gold has just finished permitting and developing another gold project, New Afton, in British Columbia, he said.Oliphant said last week he was looking for acquisitions that met certain criteria. “If we can find something as compelling as Blackwater, where we are the logical owner and it’s something that we can fund internally that was in one of the jurisdictions that we operate in, then we are quite willing to step forward and do that.”New Gold said yesterday it issued $500 million of 10-year bonds to raise money for “general corporate purposes.” “There isn’t an obvious need for additional financing,” Steven Green, an analyst at TD Securities Inc. in Toronto, said in a note. “The market is likely to speculate that they are preparing for a potential bolt-on acquisition to add growth between now and 2017 when Blackwater is expected to come on line.” How big is too big? Oliphant said that once companies surpass annual gold output of about 2 million ounces, they begin to jeopardize the growth and returns that shareholders expect. Large companies lose “the magic that is behind some of these more entrepreneurial companies,” Oliphant said. “New Gold today is probably truer to the Barrick I joined than Barrick is today,” he said. “We don’t really want to be a big company.”

Full interview

Of course there will be smaller juniors more than doubling volumes !

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