Gold Producers Hunt for Assets as Takeover Pipeline Shrinks

Derek Macpherson (0:00)

Welcome back to The Compass. My name is Derek MacPherson. I'm the Executive Chairman of Olive Resource Capital. And with me as always is Sam Pelaez, President, CEO and CIO.

Been a couple of weeks since we've spoken to you. We've had a busy couple of weeks. The industry's had a busy couple of weeks. It's been two of the major conferences in the fall here, the Precious Metal Summit in Beaver Creek, and then also the Mining Forum Americas in Colorado Springs. We were fortunate enough to attend both.

Basically, I want to give you some of our impressions, some of the major news that happened during those two weeks. There was. It feels like forever ago. But before the Beaver Creek Conference kicked off, there was the announcement that Artemis was buying was potentially adding a second mine with the acquisition of Vista Gold, which I had almost forgotten about when I started to put together my notes to record this episode.

Samuel Pelaez (1:02)

Yeah. To be honest, Vista was never a name in our universe. To say, it was never a name that we included in our M&A takeover list, blind spot, sort of, I imagine.

But I think what's more important for the sector is the Artemis being the buyer. There was rumors that Artemis was a potential takeover target. I struggle with that because Artemis has a really nice valuation, well-deserved, they're executed well, but the market is certainly pricing in the next stages of growth organically at the project.

Just for reference, they're acquiring Vista for effectively 5% of the cap structure. The combined entity will be 95% Artemis, 5% Vista. But I think beyond taking Artemis, I suppose off the acquisition list, I think this just revalidates our point that there are fewer and fewer potential takeout candidates in the gold space of size and of quality for the majors or down to the mid caps like Artemis to take over.

Derek Macpherson (2:16)

I mean, the one thing I would say on this though is that, I mean, Artemis did get a good deal. I mean, they paid $427 million US for what is effectively 10 million ounces. Down is 10 million low-grade hard ounces. I think that there's, and not hard both of the physical sense and the challenging to mine sense. It is a relatively low-grade deposit.

So, paying somewhere in the neighborhood of 40 bucks an ounce US on a straight kind of calculation or in that neighborhood. When you think about it, the last big takeout was G2, that was $400 an ounce. So, they got a good deal. I think that if you look at, if Artemis' skill set is building an execution on, which they've now demonstrated, I mean, that's the same team that did well at Atlantic Gold, and now they're doing well at Artemis. If that's that same team, then maybe this is down the middle of the play with them, and as you said, they're not putting a lot of the capital structure at risk. This isn't a, well, it could be a transformational acquisition by adding a second production area. They're not putting out capital. They're not risking the whole corporation on it. So I think that's a really interesting, I think it's interesting, but I think you're right. I think the big piece here is that, you know, Artemis, it effectively, to some extent, takes Artemis off the board. As far as, you know, being something that had the potential to be acquired. It doesn't really, I mean, Artemis, there still could be a deal for Artemis, but I think, you know, this shows that the board of Artemis isn't looking to be acquired. They're looking to build a mining company. And so, certainly something that's positive. So that was the news leading into Beaver Creek. So, you know, you look around and go, okay, well, where are all the, if that's the, if Artemis is off the board, what else is getting taken out?

And so we arrived, you know, everyone arrived at Beaver Creek on Tuesday.

I had a slightly, you know, you and I had very different conferences just because of the nature of our roles. You know, I was at Beaver Creek representing West Point. So I did, you know, almost 50 meetings for West Point. And we could talk a little bit about that sentiment. You sat in a lot of the presentations, sat through it. So I guess, what was your view on sentiment?

Samuel Pelaez (4:52)

What did you have?

Derek Macpherson (4:53)

What did you see at the conference?

Samuel Pelaez (4:56)

So I think for a start, number one, it was very well attended. I don't remember hearing any specific figures, but it certainly was equal or more people than the previous year. Which in and of itself is, you know, there were meeting rooms, they actually put meeting rooms outside in tents. So they exhausted the available space. So I think that's a good testament for the level of interest in the sector in general.