The Gold Producers

Organic and Inorganic Growth

A matrix of contradictory market conditions, with high gold prices above US$1,700/oz and high cash flows, in counterpoint with weakened investment sentiment and under-valued assets, converge to both organic and inorganic growth opportunities for gold producers.

West Africa had a good second half of 2020 and a very good 2021. Gold Fields (JSE: GFI) posted a 2020 net cash flow of US$252 million from its two Ghanaian mines, a significant growth from US$174 million in 2019. This year, Perseus Mining (ASX: PRU) recorded a net profit 48% higher compared to the previous year and declared a maiden distribution of capital, which will eventually become a dividend. Gold Fields paid a US$250 million interim dividend for 2021, 10% of it going to Ghana’s national administration.

Though gold prices surely helped balance sheets, industrious optimization works and strategic investments in organic growth have also helped. Discipline is what producers have mastered during the bear market years and is what they profess to practice in a bull market too. Instead of relaxing at comfortable margins, gold producers insisted on increasing margins further. Jorge Ganoza, the CEO of Fortuna Silver Mines (TSX: FVI), calls himself ‘price agnostic,’ which reflects a universal position taken by gold executives who declare they prefer to focus on their assets’ fundamentals rather than on gold fundamentals. By paying attention to the variables within their control, producers can prepare to survive in any price environment. “Although I am an eternal bull on precious metals, gold is a cyclical commodity and some years will be better than others,” said Ganoza.

Indeed 2020 was an unusually good year, gold prices climbing 25.6% year-on-year to an annual average of US$1,858. But the World Bank expects a lower gold price average of US$1,775 for 2021, which it eventually projects to drop to US$1,400 by 2030. A scenario of ‘stagflation,’ or recession-inflation, characterized by concomitant negative or flat growth and higher costs, has been presented by the World Gold Council, in an article emphatically called ‘Stagflation Rears its Ugly Head.’ The World Bank theorizes that stagflationary conditions could hit equities hard, adding upward pressure on gold prices. Inflationary worries seem to have given a light push to gold prices in the autumn months. The US Federal Reserve reporting a 30-year high for inflation in October sent good gains bullion’s way.

“We are very aware of the cyclical nature of our business and must ensure we are a resilient business at any point in the cycle.”

Sébastien de Montessus, CEO, Endeavour Mining

Two contrasting economic scenarios are conceived - a rosy economic recovery and gold’s demise versus prevailing global uncertainty matched by currency fallouts – as well as a third middle-ground dialectic of protracted uncertainty and continued volatility. Using much more conservative price baselines, in the US$1,300-1,400/oz range, mining operators have worked hard to keep their AISC low and ensure sustainable margins in a worst-case scenario. In the more expensive price quartile, Australian mid-tier Resolute Mining (ASX: RSG), with mines in both Mali and Senegal, operates at an AISC of US$1,290-1,350/oz. Its CEO Stuart Gale told GBR that the company has taken different measures over the past 12 months to improve production metrics that he thinks will become visible soon. Other producers in the region mine at under US$1,000/oz.

“This is the best time for mining companies to invest in cost optimization solutions to sustain their business when the gold prices dip,” said George Arhin, partner at PwC Ghana, urging that the industry must invest now.

And investing they are. Before adventuring to exciting acquisitions, West African producers doggedly assess opportunities to improve productivity and expand the life of their existing mines through near-site exploration. In 2017, Gold Fields began a reinvestment plan at Damang and is on track to replace the depletion of mineral reserves at Tarkwa for a third time, after achieving this performance consecutively in the last two years. Resolute is also focused on expansion opportunities close to existing infrastructure, at both Syama, where it reported positive drilling results from the Tabakoroni prospect, and at Mako. Diversifying to a third jurisdiction, Resolute is carrying out early exploration in Guinea.

“We believe that discoveries and in-house developments generally yield the most value for shareholders, which is why we have focused primarily on organic growth, creating excellent opportunities within our portfolio.”

Jeffrey Quartermaine, CEO, Perseus Mining

Nevertheless, organic growth is limited. Many producers in the region have reached a flat production line. Perseus Mining has about five years to maintain a half a million oz gold yearly production. “We also want to put Perseus into a position where it can at least sustain this level of production and cashflow well into the future and to do this, not only do we need to replace the Resources that we consume, but hopefully, materially add to our inventory through organic or inorganic means,” said Jeffrey Quartermaine, the CEO.

Endeavour Mining (TSX: EDV) has built the largest greenfield exploration project portfolio across the Birimian Belt. In the last five years it discovered over 8.5 million oz of gold, but its next five years’ plan is even more ambitious, planning to discover another 15-20 million oz of indicated resources at the same low discovery cost of under US$25/oz. To achieve this grander target, land and project acquisitions will be necessary. Endeavour’s asset ‘recipe’ has these three ingredients: a production of over 200,000 oz/year; a LOM of more than 10 years; and an AISC under US$900 over LOM.


A few head-turning transactions took place in West Africa in the last two years. The region created its first supermajor when Endeavour acquired another West African producer, Teranga Gold. Also, the first Latin American-focused producer stepped into West Africa through the acquisition of Roxgold, with a mine in Burkina Faso and an advanced exploration play in Ivory Coast. Earlier this year, a potential merger between Anglo Gold (JSE: ANG) and Gold Fields sparked the imagination of the industry when the respective CEOs of the two majors said they would consider an operational JV between their Iduapriem and Tarkwa mines. The two mines sit 10 km apart from each other in Ghana. Combined, they would produce 800,000oz/year.

So, what is driving these consolidations and gestures of potential consolidation?

2021 was surely a popular year for high-end consolidation. The blockbuster Kirkland-Agnico Eagle US$24 billion merger created the world’s third-biggest gold miner. Following the Teranga acquisition, Endeavour became the world’s 10th biggest. Large-scale consolidation is driven, first of all, by the desire to create efficiencies, integrated assets proving that the sum can be greater than its parts, whether these parts are in synergic geographic position or a complementary financial position. This was the case for the merger between Teranga’s Sabodala asset with Barrick’s (NYSE: GOLD) Massawa. Conjoined, the two mines became a tier-one operation. When Endeavour bought Teranga, it came into the possession of not just two mines located close to each other, but the largest mine in Senegal – the Sabodala-Massawa complex.

“There is increasing interest in the M&A space, particularly from Chinese investors who are aggressively pursuing assets in Ghana. Large players have also announced big brownfield investments, and more are expected.”

Seth Asante, Managing Partner, Bentsi-Enchill, Letsa & Ankomah (BELA)

More than realizing economies of scale, Endeavour wanted to become a producer with a large enough market cap to appeal to generalist, large fund management companies. Graham Dallas, the head of business development for TSX and TSXV in charge of African listings, thinks there is a gap in the market for listed specialist mining companies with the scale and capital to appeal to such investors. Endeavour is tapping into this gap, announcing a secondary listing on the London Stock Exchange (LSE), where it will be the largest pure gold player on the premium segment: “With the removal of Randgold there were limited options on the LSE for investors seeking significant, diversified gold production exposure. Since listing, we have gained access to a new, wider base of globally-minded investors and a deeper pool of capital. This, in turn, has enabled us to attract UK generalist funds and we are starting to see some good daily trading volumes on the LSE,” said Sébastien de Montessus, Endeavour’s CEO.

Dallas also thinks ESG and ESG-assessed M&A is another motive for increased consolidation. The reasons are easy to grasp – bigger companies can run more comprehensive ESG agendas and sustainability plans and can afford to invest in carbon monitorization technologies, broader benevolence projects, the greenest equipment and services, and also the branding of sustainability. ESG is now a crux of the attractiveness profile of a company and a crucial due diligence criterion within M&A deal-making for financial institutions and general trading funds with an ESG mandate. That said, how ESG influences M&A is rather a mystery. Already a soundbite in investment talk, ESG is defined with different definitions, and these definitions are differently internalized by different companies, especially in an industry as diversified in terms of size, geography and product as mining is. “Much remains to be learned as many different stakeholders have their own measures of looking at sustainability. Standardizing the definition and evaluation of sustainability is what requires the most work,” said Jorge Ganoza, the CEO of Fortuna Silver Mines.

Fortuna Silver Mines has mines in Peru, Argentina, Mexico, and now also in Burkina Faso. Its acquisition of West African producer Roxgold shows another firm driver of industry consolidation – to expand into a new region, in this case, a new continent. The acquisition also illustrates West Africa’s growing appeal for miners from around the world: “A Latin American silver-focused producer going into the African gold space certainly created some noise, but from our perspective, we couldn’t have found a better place to be mining than West Africa,” said Ganoza.


In a divestment transaction, the non-core asset of one company can become the new business spine of another. This has been the case for standout divestments whereby large gold producers sold historical, non-producing mines, to juniors. Resolute sold the 100-years Bibiani mine to Asante Gold, while Barrick and AngloGold sold their joint interest in the Morila gold mine to Firefinch (ASX: FFX). B2Gold (TSX: BTO) also struck a deal with West African Resources (ASX: WAF) who will acquire the 1.1 million oz Toega gold project, and Centamin has announced it is ready to consider partnership or takeover options for its Batie West exploration project.

Rather than the typical big-buys-small asset takeovers, these deals go the opposite way, from producer to junior, and from large producer to mid-tier. These reflect a production sector that prefers to laser-focus on cash-generating assets and tier-one portfolio enhancements. They also reflect a junior market that can summon the equity to make these acquisitions. Thirdly, divestments as such are unique in a gold price environment where small production opportunities become large cash opportunities – and this is the key to giving those assets a new lease of life at a time when the market is hungry for gold.

Douglas MacQuarrie, the CEO of Ghana-focused junior Asante Gold (CNSX: ASE), calls Bibiani ‘a sleeping giant’: “It is incredibly rare to find an asset with both high upside potential and near-term production. It poured first gold 100 years ago, and I have no qualms saying that the mine will still be producing in another 50 years.”

Asante bought Bibiani from Resolute in a US$90 million deal and plans to bring the mine into production by July 2022. The mine had been on care and maintenance under Resolute since 2014, but Asante wants to refurbish the existing mill and build an underground mine. Commenting on the transaction, Stuart Gale, the CEO of Resolute said: “It was necessary that we made a commercial decision for the asset and we are very confident that the sale to Asante Gold creates win-win outcomes for Resolute and for Asante, but also for the country and the community.”

In Mali, another “sleeping giant” is being nurtured back into production. Morila is also an iconic mine for the region, having produced in its heyday head grades of 10 g/t, but which ran out of ore in 2009. Owned by Anglo Gold and Barrick 40% each, the mine was left to sit idle. But Firefinch, which completed the acquisition of the mine in November 2020 for US$28.8 million, plans to see Morila producing between 150,000-200,000 oz/y for 10 years in a staged approach involving mining from satellite pits and ramping up production from the main pit, and eventually going underground.

If the awakening of these two legacy mines proves successful, they may encourage further similar programs of rehabilitation, as well as shed light on the region’s underground potential. Anders Berglund, regional general manager West Africa for Epiroc, thinks the rise in gold prices will be making more underground operations feasible especially on the West African coastline countries: “There are many underground projects at feasibility or pre-feasibility development stage, and the dry-out of ore in surface operations will push more transformations of open-pit projects into underground projects. Some of these projects might have already been in operation had it been for a more sustainable cost and safety environment.”

Image courtesy of Gold Fields