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Australia's strong gold sector attracting majors' attention, analysts say

Australia's strong gold exploration and the improving broader sector confidence has triggered a spate of IPOs, which are whetting the appetite of Chinese and other large global miners looking to replenish reserves, analysts said.

Rox Resources Ltd. is the latest ASX company to announce an IPO by spinning out its Mount Fisher gold assets, which Managing Director Ian Mulholland said was later than he would have liked as the market was hotter at the start of the year, and which has been "a bit flat" since then with concerns over U.S. protectionism.

"That's not going to stop a good IPO," he said, adding that the overall positive investment sentiment remains.

"While gold prices are sitting above A$1,700 [per ounce], any gold project with some decent grades — and we've got 2.75 g/t in our resources — is going to be of interest."

Mount Fisher, in Western Australia's northeastern Goldfields, is about 150 kilometers north of the Darlot asset which Red 5 Ltd. recently bought and is now looking for additional sources of feed. Northern Star Resources Ltd. recently took a position in Echo Resources Ltd. which has the Bronzewing asset, also about 120 kilometers from Mount Fisher, and is on the way to being restarted.

Exploration gathering momentum

The Mount Fisher IPO was capitalizing on what has already been a high number of IPOs on the ASX, with eight so far this year, three of which were gold-focused companies.

In fact, analysis by S&P Global Market Intelligence's metals and mining research unit shows gold has been driving the global exploration rebound, with Toronto-based Gold & Mining Studies Research Analyst Chris Galbraith noting the ASX is "by far the most active exchange" for new IPOs as IPO prices are much lower than those of the Toronto, New York and London ones.

"Compare this to 2017 when we logged 45 IPOs (18 of which were gold focused)," Galbraith said in an interview, referring specifically to the global mining sector only.

"The ASX made up the lion's share of this total, with 28 of those 45 listing on the ASX, and 12 of those were focused on gold. Gold made up 41% of ASX [mining] IPOs in 2017 with the rest taken up by base metals explorers (copper, lead/zinc, and cobalt), iron ore and coal companies, and unsurprisingly still a few lithium players entering the fray.

"Of course, not all of them are focused on domestic exploration (i.e., in Australia). Some are focused on Africa, a handful in Indonesia/Papua New Guinea."

Among the recent Australia-focused gold IPOs on the ASX over the past year or so are Cygnus Gold Ltd., Riversgold Ltd., Siburan Resources Ltd., plus Burkina Faso-focused Mako Gold Ltd. with more on the way such as Awati Resources Pty Ltd, plus several others focused on other commodities.

Corporate advisory firm Argonaut's Hong Kong-based Metals & Mining Research Analyst Helen Lau said that trend could well continue given, as Galbraith said, the strong appetite for gold exploration was likely fueling the comeback for juniors in Australia.

"You also have major companies who are still showing their interest in the country — like Gold Fields Ltd. and AngloGold Ashanti Ltd.," Galbraith said. "The former has maintained their plans of growing organically through exploration investment in Australia, regularly investing A$100 million per year, while the latter has frequently mentioned that they are still looking at deals to grow the Australian portfolio.

"In both cases these are South African companies who have been operating in Australia for some time, and as they've found it harder to do business in South Africa they've found Australia an attractive place to do business."

Australian operations superior

Galbraith said many of Australia's gold deposits have been shallow oxide ore bodies that require lower investment; so a smaller amount of capital can go a longer way and getting a project to production may not take as long as it would in say, Canada or South America.

"Both of those two latter [countries] typically have longer lead times, require substantial underground components, and have greater demands on environmental impact studies due to the local physiography. It's also a by-product of the constant recycling in the junior sector," he said.

Lau told S&P Global Market Intelligence said Australian gold juniors' ability to "keep updating their resources, hit their milestones on time, manage costs well, maintain a very stable cash flow", and the fact that their valuations trade at a discount to their U.S. peers, were all being noticed by China's major private gold companies.

"In China, there's not much quality gold assets, with significant resource depletion; a lot of gold mines now are facing rising costs due to ore grade declines; they've been operating a long time and they can go to 1,000 meters deep," Lau said, which contrasted to Australia's relatively shallower operations.

"There's a strong need to replenish their reserves via inorganic growth — acquiring good quality assets, and so far they haven't found good ones in China so they're looking in Australia and elsewhere."