- M&A activity in the gold sector will be fuelled by a decline in gold reserves
- Investment is coming back into the junior mining space as gold prices increase
- Orea’s target acquisition could average supplement potential for large-scale gold discoveries with near-term small-scale mining production
Although gold has come back a ways from the mid-summer highs above USD$2,000/oz it hit in 2020, it continues to trade at elevated levels above USD$1,800/oz.
Analysts and industry participants attribute the precious metal’s higher prices to the vast amounts of fiscal and monetary stimulus that governments have unleashed in response to COVID-19.
With a very low interest rate environment projected to last for some time, the environment looks supportive for higher gold prices, with gold an odds-on bet to re-test the $2,000 level by the end of 2021.
It’s an environment for which Orea Mining Corp. (TSX: OREA | OTCQX: OREAF | FRA: 3CG) appears well-suited.
The company owns a 45 per cent interest in Montagne d’Or, a multi-million-ounce gold deposit in French Guiana, an overseas department and region of France, and is earning a 70 per cent interest in the Maripa project in the region.
And, thanks to a recently announced acquisition in Colombia, Orea is poised to jump from gold explorer/developer to explorer/producer. It’s a move that could make the company an M&A target in a sector that has shown signs of consolidation in recent years.
“The Colombia project can become our news motor for 2021 with the gradual de-risking of the Montagne d’Or development potentially providing a valuation boost.”
— Rock Lefrançois, President and CEO, Orea Mining Corp.
Gold bull market heats up M&A environment
Higher gold prices have encouraged producers in the sector to look at increasing their economies of scale through mergers and acquisitions.
The most prominent recent example of that trend was 2019’s mega-merger between Newmont and Goldcorp. The combined company is now the largest gold-mining company in the world, capable of generating six or seven million oz of gold annually.
This deal followed on the USD$5.4 billion merger between Barrick Gold and Randgold Resources in 2018. More recent deals include Equinox Gold’s merger with Leagold Mining and the mergers between SSR Mining and Alacer Gold as well as Argonaut Gold and Alio Gold.
The impetus for these deals is to ramp up exposure to higher gold prices by growing the number of producing mines in these companies’ portfolios. It’s all part of a move by the major and mid-tier producers to minimize costs and maximize shareholder returns. And it’s a trend that’s showing signs of flowing down to the junior companies in the sector.
The movement will also likely see more “Mergers of equals, in which producers do not pay a premium to acquire another company, but in which mining firms instead partner up with another with the goal of creating a stronger company.”
Given this momentum, Orea’s recent binding letter of intent to acquire gold concessions in Colombia’s San Lucas mountains gives the company its own near-term production story to go with considerable exploration upside. The recent large-scale deals in the sector will likely increase investor interest in moves like this one.
The deal for these concessions gives Orea access to a processing plant that could generate near-term cash flow via toll milling of ore from nearby artisanal miners.
This cash flow would support exploration on the broader San Lucas concessions while the company awaits the French government’s permitting decision on Montagne d’Or. To give that project the best possible chance to clear its permitting hurdles, Orea and partner Nord Gold have put a lot of work into a new technical study on the project.
Orea’s President and CEO, Rock Lefrançois, notes, “Once our JV with Nord Gold has wrapped up our modification plan to meet the French government’s requirements, the JV intends, in the next few months, to submit an application to obtain authorizations and permits to construct a mine at Montagne d’Or.”
The delays the JV is experiencing with Montagne d’Or make Orea’s pick for these San Lucas concessions an important pivot for the company.
Exciting news flow with San Lucas concessions
Orea’s deal for its concessions on Colombia’s San Lucas mountains gives it the opportunity to make consistent news as Montagne d’Or inches its way through the permitting process.
Lefrançois comments, “We like this Colombia acquisition because it gives us the ability to leverage the area’s artisanal-scale mining with a centralized mill that could grow with time.”
To that end, once Orea has completed its due diligence on its Colombia acquisition and completed a definitive agreement for it, the company will go to work securing mining contracts with those local miners to feed the mill.
The plan is for this mill — rated at 150 tonnes-per-day (tpd) capacity but expandable to 300 tpd — is to provide cash flow to fund exploration on the rest of the property, which is prospective for large, disseminated gold-copper systems.
Those systems in South America’s Andes are typically contained within large geological formations called porphyries. Deposits of this type are responsible for much of the copper and gold that make Peru and Chile leading producers of these commodities.
In Colombia, Orea sees an opportunity to build a position in a hot mining jurisdiction that is underexplored and underdeveloped relative to its neighbors to the south.
“This area of Colombia hasn’t seen systematic exploration for porphyry-style and epithermal gold-silver mineralization. The porphyries in the northern Andes tend to be more gold-rich than copper rich,” explains Lefrançois.
Near-term production to support exploration
With the multi-million-ounce gold deposit at Montagne d’Or providing a valuation anchor, Orea is excited to see what exploration yields on this new Colombia acquisition.
Once the deal is officially signed, Orea is planning a twofold strategy of opening the mill and exploring the broader concessions.
With gold forecast to re-test its all-time highs, possibly later this year, the company’s property portfolio offers both near-term production and long-term potential.
“The Colombia project can become our news motor for 2021 with the gradual de-risking of the Montagne d’Or development potentially providing a valuation boost,” notes Lefrançois.
Between the developing story on these San Lucas concessions and the longer-term production potential of its interest in Montagne d’Or, Orea Mining has positioned itself for success in the current gold market and beyond.
To learn more about the company, visit their website www.oreamining.com.
Make sure to also follow Orea Mining on social media: