Gold M&A Shifts to Safer Jurisdictions as Gold Developers' Pool Shrinks

Derek Macpherson (0:00)

Welcome back to the Compass. My name is Derek Macpherson. I'm Executive Chairman of Olive Resource Capital, and with me as always is Sam Pelaez, present CEO and CIO of Olive. We're coming to you, it's about 10 a.m. Eastern, Tuesday, October 13th.

So, just timestamp that for whatever is happening in the world and on the macro side. But I think today will be a little more company specific. We kind of, you know, our last episode, we talked about, you know, coming back from Denver and all these junior producers were big tiers and seniors were cashed up. And lo and behold, this morning, we saw a transaction with SSR Mining taking out Roxmore Resources.

Samuel Pelaez (0:50)

Yeah, the entire subject of the second half of last week's episode was talking about your experience with the producers and their renewed interest in the sector and in the juniors and developers. And we have one of the companies that was called to transact, which was SSR Mining. They have substantial amount of cash on the balance sheet and they've put it to good use.

I mean, the headline is, talk in a nearby resource, adjacent resource to one of their operations and benefit from their existing infrastructure. So, you know, one of those headline numbers, no brainer.

Derek Macpherson (1:32)

Yeah, yeah, absolutely. I mean, I think this is usually a common theme in M&A is you get the, you know, your neighbor buys you, right? It's the obvious one. These are two land packages that are, I mean, it is checkerboard in the US, but they are effectively contiguous, you know, with, so, you know, I guess probably what is now, you know, one of SSR's flagship operations, Marigold is literally right next to SSR's Converse project. It is an interesting transaction. You know, premium isn't that high. If you are on a metrics basis, it's only $95 an ounce, which, I mean, tells me a couple of things.

And actually, SSR alluded to it in their statement. So the, and sorry, maybe back up before I go into this. For reference, you know, the last two sort of big transactions in the market were Rupert and G2. And, you know, adjusting both of those were down around $400 an ounce US. If you take, yeah, so with the SSR, there's a SpinCo that comes out of this. So we take in the value of the SpinCo, it's about $95 an ounce, roughly. It's a little bit less if you take out the value of the SpinCo. SpinCos are always hard to value. This one's got resources, but they're small, and so it'll be interesting.

But I think, you know, that the lower EV per ounce metric, I think, is driven by a couple of things. So if you look at SSR, or Roxmore's resource at Converse, it's about, you know, eye-to-eye, it's about 5.2 million ounces. If you average out the grade, it's gonna come in around half a gram. So, you know, pretty typical big scale, but pretty typical Nevada, right? 5 million ounces at, you know, half a gram. It's kind of right down the middle of the plate. Now, I think the fact that it's adjacent to Marigold makes us attractive to SSR. I mean, they're paying cash for it, other than the SpinCo. And so the cash balance is, you know, and they have, you know, almost $2 billion in cash, I think, at the end of Q2 US. They're only paying $600 million Canadian for this thing, $675. So great, solid deal for them.

But SSR's released, I think this was important. What they said is, yeah, they've got 5.2 million ounces on the $300 pit shells, but we're going to run our pit shells in our resource model at the $2,000 or $2,500 an ounce that they've been running Marigold at. I suspect what is going to result from that is that there's going to actually be a decrease in the, they're not really buying 5.2 million ounces. It'll be interesting to see what they're made in resources when this comes out. That was one of the things when I saw the price, the lower price, that's one of the things that jumped out at me. I was like, well, why are they paying $9,500 versus what a lot of people pay? I've been paying substantially more or $95 an ounce versus other people paying substantially more.

Samuel Pelaez (4:34)

To your point, I would also add the fact that the other comparables that we're talking about are strong standalone assets, whereas this transaction clearly is sort of like a tuck into a more, to a broader complex that they're developing in there.

I would say the likely list of potential buyers for this asset was short. SSR being the operator that holds land adjacent to the project, obviously the more natural buyer, you know the area better than I do. But there are other developers in the area, but perhaps not in that producer or revenue generating stage that gives them the ability to compete with SSR or with a producer, for that matter, for the asset. So perhaps also a shorter list of potential buyers and the fact that this would be an unlikely standalone. I mean, it could work as a standalone, it has substantial tonnage, but unlikely to be a standalone opportunity that would be pursued as that as a standalone, right?