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Metals X’s gold spinoff likely to be the hunter, not the hunted

Metals X Ltd. CEO Peter Cook believes the separation of the ASX-listed miner’s gold assets into a new company will likely set it up for a rerating rather than make it a takeover target.

Cook told SNL Metals & Mining Oct. 10 on the sidelines of the Precious Metals Investment Symposium in Sydney, Australia that if the newly demerged Westgold Resources Ltd. did not rerate, it could go from being "one of the hunters to being the hunted."

However, according to the executive, who will head up the new gold play, one of the key reasons for the spinoff was the appetite of exchange traded funds for pure gold stocks.

"Ourselves and in fact [Independence Group NL] as well with its 30% of Tropicana has lagged all the other gold producers despite similar gold production levels and similar performances because they weren't pure play and you did not get the weight of the gold ETF flow into those equities, but in six weeks’ time they don't own any and it can reweight on that basis alone," Cook said.

Another reason for the spinoff was to accelerate the development of the company’s four gold projects in the Central Murchison region of Western Australia.

"One of the key reasons for the demerger and the capital raising prior was to up the ante on the pace at which we can develop our gold assets," Cook said.

"Whilst we're sharing our capital pool across gold and all these base metals, we’re taking quite a conservative approach."

The four underground mines at the Central Murchison project were due to be brought online one after the other over a five-year period, but they will now come into operation simultaneously.

The first of the mines is Big Bell, which will provide the base load ore for the Central Murchison operation.

Metals X has been dewatering the mine for 11 months and is about three or four months from refurbishment.

The company currently produces around 250,000 ounces each year and is working to increase that to 450,000 ounces each year. The Central Murchison operation, which came into production in October 2015, is currently producing at an annual run rate of 100,000 ounces.

The company plans to grow its production profile from within its own portfolio of projects.

Cook said the Big Bell mine will add 100,000 ounces to Metals X's production.

"We look at every deal, but the prices people are asking now have gone up significantly in the market," he said. "We're struggling to find value that’s better than reinvesting in our own land positions and our own exploration and of course the upgrade from resources into reserves."

The spinoff will be put to a shareholder vote on Nov. 17 and is expected to be completed by the first week of December.