Gold deal of the decade

In December 2024, Greatland Gold (GGP-L) completed the acquisition of 100% of the Telfer Gold mine and the Havieron Project from Newmont (ASX: NEM). Not since Evolution acquired Cowal from Barrick in 2015 have we seen such a compelling opportunity for investors.

The art of the deal

Good deals don’t come along often, particularly in resources. More often, pro-cyclical M&A results in value destruction as peak-cycle commodity prices revert. Cyclicality is an absolute certainty in commodity pricing, and acquired assets are often the subject of massive impairments as soon as the cycle turns – for example Rio Tinto and Alcan.

General exceptions to the rule have been:

• The purchase of Tier-1 assets from motivated sellers requiring urgent balance sheet repair - for example Evolution’s purchase of Ernest Henry from Glencore. To quote Evolution’s Jake Klein, “if you are looking to be successful in M&A don’t find assets, find sellers.”
• The opportunistic purchase of unwanted smaller assets from major producers. Particularly those who have recently completed a major acquisition (e.g. Newmont / Newcrest). Historically, buying assets off major mining companies has been a great strategy for juniors, particularly when assets shake loose as part of a broader consolidation.

The lay of the land

The Telfer gold mine was discovered in 1972 and first mined 47 years ago. Today the installed Telfer surface infrastructure represents the third largest gold plant in Australia, capable of processing ~20 million tonnes of ore annually. We estimate a replacement value of ~A$2bn. Meanwhile, the undeveloped ~8.4Moz Havieron orebody, less than 50km from Telfer, is the best undeveloped resources project in Australia.

Despite both a head office and an asset portfolio located in Western Australia, GGP is currently listed on the AIM sub-segment of the London Stock Exchange. We believe that this unconventional platform has constrained recognition of a uniquely high-quality gold production and development opportunity domiciled in Australia. GGP-L has committed to list on the ASX in mid-2025, which will increase price discovery in a sophisticated resources market, that is currently limited by a lack of quality mid-cap gold opportunities.

Figure 1: Telfer is the third largest gold plant in Australia with an estimated replacement value of ~A$2bn

Figure 2: Havieron is the second largest undeveloped gold project and the best undeveloped resources project in Australia

Why is it such a good deal?

A forced seller…

Post its merger with Newcrest in late 2023, Newmont committed to selling 6 non-core assets for proceeds of at least U$2.5bn. Fortunately for Greatland Gold, Telfer was one such asset. Despite the scale, infrastructure and large gold endowment, the management-intensive combined open pit and underground operation sits outside of Newmont’s core competency.

…with one buyer…

Unfortunately for Newmont, without Havieron, the Telfer asset had a limited value when including rehabilitation liabilities. Adding the Havieron project to Telfer changes the game. It then follows that the only logical buyer of Telfer must own Havieron as well! This is where is gets interesting. Not only did GGP already own 30% of the Havieron project but it also had a pre-emptive right over Newcrest’s 70% stake. Put simply, there was only one logical buyer, and this put GGP in a great negotiating position.

...timed to perfection…

It is no secret that the gold price has been on a tear and recently crashed through all-time highs to U$2,900/oz. Given the deal was announced in August 2023, we speculate based on the value paid that the price for the asset would have been struck at least 5 months prior when the gold price was ~U$1,900. It seems that Greatland timed the acquisition fortuitously. In short, this represented a counter-cyclical acquisition, perfectly timed for the subsequent increase in gold prices.

Figure 3: GGP timed the acquisition fortuitously

…with upside to market forecasts.

We invest on a 3-year view, however the market is increasingly focused on short-term beats, near term valuation metrics and cash flows. We believe that GGP will outperform market expectations on both a short and medium-term view. In 27 days of Greatland ownership to the end of December the company produced 30koz of gold, over 30% above planned rates and a run rate of ~406koz pa. On a medium term view we see significant scope for additional mine life and reserves to be added from open pit cutbacks that were no doubt in Newmont’s mine plan but not explicitly communicated to the market, nor updated to reflect the recent gold price move.

Figure 4: GGP’s enterprise value versus its annual production puts it in an attractive position

Making Telfer great again

A tier one asset, a forced seller, one buyer, a cheap valuation in the context of a rising gold price and upside to market numbers. It appears that once again a junior mining company looks set to capitalise on the reimagining of a great gold asset discarded by a major. We look forward to the ASX-listing of Greatland Gold in mid-2025.