'Too cheap': ASX gold miners on takeover watch

Gold stocks trading on single-digit free cashflow multiples are being labelled "too cheap" by investors who expect the attractive valuations to spark a new round of merger and acquisition activity across the sector. 

On Tuesday, shares in ASX-listed African gold miner Predictive Discovery (ASX: PDI) surged 13 per cent after China's Zijin Mining took a 3.5 per cent stake for $24.1 million and Canada's billionaire Lundin family took 6.5 per cent for $45.1 million. 

The strategic investments come hot on the heels of ASX-listed gold miner Perseus Resources (ASX: PRU) building its own 19.9 per cent stake in Predictive Discovery in 2024.     

"Predictive has a big 5.4 million ounce gold resource in Guinea [Africa]," said one capital markets source. 

"There's been a lot of Chinese activity in the African gold space, and the Chinese have shown they're happy to pay overs, or higher multiples for gold projects. 

"Spartan Resources is another one to watch. It has almost 3 million ounces at five-and-a-half grams. It's the recapitalised Gascoynce Resources and they've discovered two new zones at Dalgaranga called Pepper and Never Never. They've got infrastructure in place, a cracking, high-grade discovery and Ramelius own 19.9 per cent."

Ramelius's presence on Spartan's share register has some in the market believing a full takeover down the line is a logical conclusion. 

The larger miner took its stake close to 20 per cent when it contributed to the $220 million capital raising Spartan completed to finance the development of its Dalgaranga gold projects.

Gold price surges

The spot gold price added 0.5 per cent to a record high of $US2824 on Tuesday. This took its advance to 39 per cent over a past 12-month period punctuated by rising worries over government debt and fiscal deficits in the US and Europe. 

The cheap valuations of the gold miners versus the gold price could drive more merger and acquisition activity, according to Romano Sala Tenna, a fund manager at Katana Asset Management.

"[ASX-listed] West African Resources is a stand out in the gold space," said Mr Sala Tenna. "I reckon we would've seen a takeover already, except for the general fallout from what happened in Mali [with Resolute Mining], but that might settle down. 

"To us West African Resources stands out as an absolute prime opportunity capped at $2 billion, with 400,000 ounces of production coming on stream and 20 years' initial reserves. It has exceptionally low strip ratios, exceptionally low all-in sustaining costs, so it's going to be an absolute cash cow and comes on stream this year. 

"A lot of Australian investors won't look at a West African miner, but there's some big boys in Canada that will. Barrick or someone like Perseus might decide it's just too cheap, so it either re-rates or gets taken over."

Mr Sala Tenna correctly called last year's $475 million takeover of ASX-listed gold miner Tietto  and the $5 billion offer from Northern Star to buy De Grey Mining. One more local gold miner he said to watch is Regis Resources.

"Regis stock was sub $2 when we highlighted it a year ago, but has re-rated back to $3 today, so with the re-rating it's still probably an opportunity, but not as striking as others."

In the junior gold space, an explorer tipped to catch a bid is West Australian player Antipa Minerals. 

Its Minyari Dome Project is located just 28 kilometres North of Newmont-Greatland’s Havieron gold-copper development project.

According to Luke Laretive, a fund manager at Seneca Financial Solutions, initial public offer candidate Greatland Gold is a potential bidder for Antipa.

"Greatland's planned ASX listing by mid-2025 serves as a key catalyst for potential acquisition," said Mr Laretive. 

Last September, Greatland Gold, backed by Fortescue Metals founder Andrew Forrest, acquired Telfer and the remaining 70 per cent of Havieron for US$475 million, according to Mr Laretive. 

Gold stocks closed mainly higher on Tuesday as investors continued to worry about the potential of a damaging trade war between the US and China.