1. MAY 2011
Gresham Group 150
May 2011
Darren Martin
Gresham Advisory Partners
dmartin@gresham.com.au
+61 8 9486 7077
+61 412 144 719
ASX RESOURCES - GROUP 150
We are pleased to present the May edition of ‘Group 150’, a ranking of the top 150 ASX listed resources companies (excluding
oil and gas), by market capitalisation.
The final week of trading saw the resource companies give back advances made in the first three weeks of the month. The
cumulative market value of Group 150 decreased 2.0% from $603.84 billion to 591.5 billion at the end of April, mainly driven
by falls in the top 50, with two-thirds recording a fall in market value. The entry point into the Group 150 increased to $130.6
million, up from $123.9 million for the previous month. The ASX/S&P 200 Resources Index decreased 2.0% for the month,
underperforming both the ASX All Ordinaries and ASX/S&P 200 Index which decreased 0.6% and 0.3% respectively.
April recorded a rebound in M&A with nine transactions announced, focussed predominantly on copper and gold. The major
deal for month was the A$7.4b overbid by Barrick Gold for Equinox, which immediately forced the under bidder in Minmetals
Resources Group to raise the white flag.
Gold Road lead the “Winners” for April (in terms of growth in market capitalisation), entering the Group 150 in position 117, after
recording a 78.7% increase in value. Other included: Alcyone (+64.9%), Northern Minerals (+49.9%), Independence (+45.8%),
and Resource & Investment (+41.3%).
Revisiting our “WA 2010 : Gresham Year in Review” report released last August, our crystal ball view on the gold sector provides
for an interesting read:
Gold’s fresh all-time high of over US$1,260 an ounce in June of this year was conclusive evidence of what everybody already
knows – gold is firmly back in vogue. The last decade has seen gold “return from the dead” as the world’s turmoils shine the
spotlight on its credentials as an investment. Relative to other asset classes, returns to holders of physical gold since 2000
– when the industry was being told to adjust to US$250 an ounce – have been stellar.
Gold’s performance in Australian dollar terms has been somewhat diluted by an appreciating currency in recent months,
but is nonetheless sufficiently impressive to bring Australian gold equities sharply back into focus.
Since that time, the gold price has advanced further and is currently trading around US$1,550 an ounce. Despite the increase,
the continuing appreciation of the Australian dollar provides a comparable outcome in Australian dollar terms.
Interestingly this impact does not appear to be reflecting on the value of gold equities.
Gresham Advisory Partners Limited
Gresham Advisory Partners is a leading Australian mergers and acquisitions/corporate advisory
Edition 14 business and one of Australia’s largest and highest ranking independent corporate advisors.
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5. MAY 2011
aussie doLLar GoLd and The “consoLidaTion corridor”
Revisiting our “WA 2010 : Gresham Year in Review” report released last August, our crystal ball view on the gold sector
provides for an interesting read:
Gold’s fresh all-time high of over US$1,260 an ounce in June of this year was conclusive evidence of what
everybody already knows – gold is firmly back in vogue. The last decade has seen gold “return from the
dead” as the world’s turmoils shine the spotlight on its credentials as an investment. Relative to other
asset classes, returns to holders of physical gold since 2000 – when the industry was being told to adjust
to US$250 an ounce – have been stellar.
Gold’s performance in Australian dollar terms has been somewhat diluted by an appreciating currency
in recent months, but is nonetheless sufficiently impressive to bring Australian gold equities sharply back
into focus.
Since that time, the gold price has advanced further and is currently trading around US$1,550 an ounce. Despite the
increase, the continuing appreciation of the Australian dollar provides a comparable outcome in Australian dollar terms.
June 2010 April 2011
Gold Price US$/oz $1,250 $1,550
Exchange Rate AUD:USD 0.85 1.09
Gold Price A$/oz $1,470 $1,422
Gold Price – US$ vs A$ per ounce
Gold Price (per ounce)
Interestingly this impact does not appear to be reflecting on the value of gold equities. In spite of a producers facing a
margin squeeze from flat A$ revenues and increasing cost pressures, valuations have increased quite dramatically since
June 2010.
Source: Bloomberg, Capital IQ
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6. Group 150
aussie doLLar GoLd and The “consoLidaTion corridor”
Share Price Performance - Since 30 June 2010
Sentiment is King
The insatiable appetite for commodities from China and the recent emergence of India continues, and basic economic theory and current
industry dynamics would point towards a sustainable and long-term increase in prices.
Many producers argue that gold price increases are justifiable on supply pressures alone. However, with most of the gold ever mined
sitting in vaults (estimated at in excess of 40 years of current production rates), the source of secondary supply is potentially enormous.
While the greater portion of this stored gold is part of government reserves and “sticky”, sentiment towards gold as an investment and
store of value is critical to medium-term prices. Just as the gold price has benefited from the renewed market attraction to gold as an
investment class, if confidence in traditional financial investments recovered, any large move to lighten gold weighting could tip the
sensitive supply–demand balance and result in a large fall in price.
But for the long-term gold bulls, the game is just beginning, and many suggest there is strong potential to see a US$2,000 gold price
in the next 12 months and US$3,000 in the next 5 years. The gold bulls would have us believe that whether financial markets go into a
further meltdown (e.g. through systematic sovereign default) or gradually suffer the crippling impacts of inflation, gold is the place to be.
These arguments continue to garner support, and as they gain traction the gold sector promises to remain an interesting place.
M&A Activity – “Consolidation Corridor”
Given the fundamental changes in gold sentiment, and a recent appetite to supplement gold revenues with copper exposure, we expect
rationalisation in the sector to continue. Majors understand that M&A capability is critical. To replace reserve depletion and pursue
growth, the majors continue to target the more nimble juniors which demonstrate greater efficiency in exploration and also have the
advantage of commissioning new production while flying below the radar of NGOs and the lofty expectations that governments have of
global producers.
The gold sector remains prospective for renewed M&A activity. We continue to believe that a “consolidation corridor” exists in the ASX-listed
gold sector, encompassing late stage developers of gold mines and single project producers. Companies which successfully commission
a project are rewarded by the market with a higher rated share price that positions them well to look to acquire other developers on
the back of their proven track record. Yet these same companies also become attractive to larger producers seeking low risk growth and
reserve replenishment. The emerging producers become both targets and acquirers – hence the expression “consolidation corridor”.
Size still matters, with significantly greater market ratings attributed to larger companies with production diversification and operating
scale. This scale gives them a strong advantage to acquire the more lowly rated juniors. Notwithstanding this, and consistent with the past
10 years, we expect movement amongst the junior to bulk up to a size that justifies the M&A expense of the majors.
In recent years, West Africa has provided the foundation for a number of new companies which have enjoyed stellar runs in share price
on the back of both exploration success and potential “blue-sky”. A number of market commentators questioned the valuations against
underlying fundamentals but recent murmurs of unrest in a number of these countries has flowed through to the share price of late.
The gold sector continues to suffer a real investment void post the Lihir/Newcrest transaction and boards of companies in the
“consolidation corridor” could face the prospect of receiving an offer which provides significant short term value creation for shareholders
over the next 12 months.
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7. MAY 2011
Base meTaLs - secTor performance
Share Price Performance - April 2011
Copper Nickel Zinc
Share Price Performance
Share Price Performance - Since 31 December 2010
Share Price Performance
Share Price Performance - Since 30 June 2010
Share Price Performance
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8. Group 150
coaL - secTor performance
Share Price Performance - April 2011
Share Price Performance
Share Price Performance - Since 31 December 2010
Share Price Performance
Share Price Performance - Since 30 June 2010
Share Price Performance
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9. MAY 2011
diversified - secTor performance indusTriaL mineraLs - secTor performance
Share Price Performance - April 2011
Share Price Performance
Share Price Performance
Share Price Performance - Since 31 December 2010
Share Price Performance
Share Price Performance
Share Price Performance - Since 30 June 2010
Share Price Performance
Share Price Performance
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10. Group 150
GoLd - secTor performance
Share Price Performance - April 2011
Share Price Performance
Share Price Performance - Since 31 December 2010
Share Price Performance
Share Price Performance - Since 30 June 2010
Share Price Performance
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11. MAY 2011
iron ore - secTor performance
Share Price Performance - April 2011
Share Price Performance
Share Price Performance - Since 31 December 2010
Share Price Performance
Share Price Performance - Since 30 June 2010
Share Price Performance
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12. Group 150
uranium - secTor performance
Share Price Performance - April 2011
Share Price Performance
Share Price Performance - Since 31 December 2010
Share Price Performance
Share Price Performance - Since 30 June 2010
Share Price Performance
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14. recenT resources TransacTions
Group 150
Mergers and Acquisitions
Mergers and Acquisitions
2010 2009
GRAM
2009 2009 2008 2008 2006
Advised BHP Advised BG Advised Guandong Advised Allied Gold Advised Kalahari Advised Gem Advised IAMGOLD
Billiton on its Group on its $1bn Rising on its $216m on its $54m Minerals on its Diamonds on its Corporation on its
$204m offer for takeover offer for cornerstone acquisition of $140m proposed $300m acquisition $265m acquisition
United Minerals Pure Energy investment in Pan Australian merger with of Kimberley of Gallery Gold.
Corporation. Resources Aust. Solomons Gold. Extract Resources. Diamonds.
Limited.
TakeoverDefence
Takeover Defence
2010 2010 2010 2009 2009 2007 2007
Advised Polaris Advised Indophil Advised Advised Energy Advised Brandrill Advised Summit Advised Tethyan on
Metals NL on on $545m Centaurus Metals on its $86m Limited on its Resources on its its $220m
$178m takeover recommended Resources on its proportional takeover $45m takeover A$1.2bn takeover competing takeover
offer by Mineral offer from Zijin $20m merger offer by China offer by Ausdrill by Paladin Energy. offer by Crosby and
Resources with Glengarry Guangdong Nuclear Limited. Antogafasta/Barrick.
Limited. Resources. Power Group.
Strategic Advisory, JointJoint Ventures and Capital Markets
Strategic Advisory, Ventures and Capital Markets
2010 2010 2009 2008 2009/08 2008 2008
Advised BHP Introduced Advised BHP Advised Advised Iluka on its Advised Advised Iluka
Billiton on its Denham Capital to Billiton on the Bannerman $114m Murchison Metals Resources on its
US$116bn iron Trans Tasman disposal of the Resources on its institutional on its joint venture $54m Narama coal
ore production Resources resulting Yabulu Nickel financing with placement and with Mitsubishi. divestment to
joint venture with in NZ iron sands refinery. Resource Capital $353m accelerated Xstrata.
Rio Tinto. investment. Funds. right issue.
Gresham Advisory Partners Limited
A.B.N. 97 003 344 269
Level 17, 167 Macquarie Street, Level 10, 1 Collins Street, Level 3, 28 The Esplanade,
Sydney NSW 2000 Melbourne VIC 3000 Perth WA 6000
Telephone: 61 2 9221 5133 Telephone: 61 3 9664 0300 Telephone: 61 8 9486 7077
Facsimile: 61 2 9221 6814 Facsimile: 61 3 9650 7722 Facsimile: 61 8 9486 7024
Website: www.gresham.com.au
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