Australia’s crush on Canada

Newcrest Mining, Australia’s largest gold producer, will soon become the biggest gold producer in the Canadian province of British Columbia once its $3.5 billion (US$2.8 billion) acquisition of Pretium Resources is completed over the next three or four months. The Aussie gold major already held a 4.85% stake in the Canadian miner before announcing the deal this week, and it’s the second time Newcrest has planted its corporate flag in Canadian soil. In 2019 the company acquired a 70% stake in the Red Chris mine from Imperial Metals for US$806 million. Red Chris, in northwestern B.C.’s Golden Triangle, is about 140 km from Pretium Resources’ Brucejack mine, which since it began commercial production in mid-2017 has become one of the highest grade operating gold mines in the world.

“As one of the world’s largest gold companies, Newcrest’s presence in the region will ensure that Canada continues to have a meaningful and growing role in global gold production,” Sandeep Biswas, Newcrest’s managing director and CEO, said on a conference call. While that statement might make some of the more patriotic Canadians amongst us wince — Newcrest does bring with it technical expertise on the sometimes nuggety nature of epithermal gold deposits and has a strong balance sheet to boot.

If nothing else, its move on Pretium reinforces the view that northwestern B.C. is a much sought-after and world-class mining jurisdiction. The Pretium acquisition is actually the fourth transaction of significance this year in B.C.’s Golden Triangle. (Earlier this year Newmont acquired GT Gold for $456 million; Yamana Gold took a 6% stake ($21 million) in Ascot Resources; and Hoschschild exercised its option to spend $115 million to earn a 60% stake in Skeena’s Snip project.)

Newcrest’s Canadian operations by the end of this decade will produce a combined 500,000 ounces of gold a year in addition to copper production from Red Chris and silver production from Brucejack. Upon acquisition, around 65% of Newcrest’s proforma gold production will be derived from Canada and Australia. (Of that, Australia will constitute about 49% and Canada 16% on a fiscal 21 production profiles.)

Newcrest isn’t the only Australian miner with a crush on Canada. In 2020 Evolution Mining acquired Newmont’s Red Lake mine in Ontario for up to US$475 million ($597 million) and earlier this year snapped up Battle North Gold and its Bateman gold project, in the same province, for $343 million (US$273 million). And don’t forget St. Barbara’s $722 million (US$575 million) purchase in 2019 of Atlantic Gold, giving it a gold mine in Nova Scotia.

In terms of pushing the transaction across the finish line, Biswas said he foresees no difficulty in getting government approval under the Investment Canada Act or the Canadian Competition Act. “We’ve already gone through that process with Red Chris before, and obviously were very successful on that, hence we don’t see any issues on both of those fronts.”

On the conference call, Biswas noted that the acquisition provides “immediate operational and financial diversification” in a Tier 1 jurisdiction and is “accretive to us on an EBITDA and cashflow basis.”

The mine adds over 300,000 ounces of gold production annually to the company’s portfolio — or about 15% to 16% of its current production. (In the last calendar year, Brucejack produced 348,000 oz. gold at an all-in sustaining cost of US$981 per ounce and according to Pretium’s latest technical report, the mine is estimated to deliver 311,000 oz. gold at AISCs of US$743 per oz. over its 13-year mine life.)

“Brucejack is an asset we’ve been watching and evaluating for many years now, and I’m delighted that an ore body of this grade and quality, with so much potential, could be a part of our already exceptional asset portfolio,” Biswas said. “We believe this is a world-class mine that is right in our wheelhouse and will be a great addition to our portfolio of Tier One assets.”

“One of the most exciting aspects of the transaction is our expansion in one of the premier gold districts in the world,” he continued. “The region is already home to a number of mines, as well as a number of undeveloped gold and copper-gold resources, which have been discovered over the last ten years or so.”

Biswas emphasized Brucejack’s near-mine and district-scale potential, including a recent discovery at the Golden Marmot zone, about 3.5 km north of the Valley of the Kings’ deposit, where one hole returned 72.5 grams gold per tonne over 53.5 metres, including 6,700 grams gold and 3,990 grams silver over half a metre. “With everything that we know, this will be a much longer mine life than ten years or whatever the number is, right,” Biswas told the analysts peppering him with questions. “This is the whole point. We see a lot of upside growth both in the Valley of the Kings but also north along strike and the other targets, this is why we’re setting up shop there, because we see this as a district, and also near-mine expansion potential, which will underpin much longer life and future discoveries.”

Biswas also pointed out that the exploration upside has been demonstrated in the drill data. “This isn’t surface geology and coloured charts. The holes are there and they point to a widespread mineralization over almost a four km of strike, with quite a few high potential targets in the middle of it.”

On the resource geology, Biswas said Newcrest had done extensive due diligence, constructed its own models and “our confidence in the geology is very high.” Not only that, he said, but “we understand this ore body like Pretium does because of our experience at Cracow and Gosowong, so we had a very high degree of correlation between our model and what was actually happening with production.”

He also pointed out that Pretium had done over 200,000 metres of drilling last year and were very focused on grade control measures. By pooling the knowledge of both companies, Biswas said,“we will find a way of de-bottlenecking and simplifying some of the underground and be able to get higher extraction rates and to utilize the capacity of the mill, which is very well designed, and it’s got more in it than what is being currently treated, and that will add value, and it will bring the unit cost down.”