OceanaGold expands with $553M Ausgold buy

Canadian gold and copper producer OceanaGold (TSX, NYSE: OGC) is buying Australia’s Ausgold (ASX: AUC) for A$776 million (almost US$553 million), giving the miner its first acquisition in Australia and control of the Katanning gold project in Western Australia.

The offer values Ausgold at A$1.36 per share, a 28% premium to its Friday close. Ausgold shareholders will receive 0.03365 OceanaGold common shares for each share held, with an option to elect cash consideration.

Analysts at Jefferies said the transaction isn’t inexpensive, but Katanning would help OceanaGold maintain annual production of about 500,000 oz. until its Waihi North project in New Zealand begins making a meaningful contribution in 2033. The bank expects Katanning to start production in 2029 and ramp up to more than 100,000 oz. a year, backed by 1.25 million oz. of reserves.

“This marks our first acquisition in Australia, and we are excited to build on the great work done by the Ausgold team to further optimize the development of the Katanning project for the benefit of both OceanaGold and Ausgold shareholders,” OceanaGold CEO Gerard Bond said.

Growth opportunity

Shares in OceanaGold gained 3.3% to C$41.03 apiece on Monday morning in Toronto, valuing the company at $C9.12 billion (US$6.58 billion).

The acquisition adds another development project to OceanaGold’s pipeline as the company searches for external growth opportunities alongside its existing mines in the U.S., New Zealand and the Philippines. 

Ausgold shareholders are expected to own about 6% to 8% of OceanaGold after the transaction closes.

Ausgold’s board has unanimously recommended shareholders approve the transaction. Major shareholder Dundee (TSX: DC.A), which holds a 7.7% stake, has confirmed it intends to vote in favour of the deal.

The transaction is scheduled to close in December, subject to shareholder approval and other customary conditions.

Katanning lies about 275 km southeast of Perth in Western Australia, a major global mining jurisdiction with established infrastructure and access to skilled labour. Ausgold holds granted mining leases covering the planned development footprint and has advanced the project through the permitting process. The project requires A$355 million in initial capital, according to Jefferies.

Growth hunt

OceanaGold has been canvassing opportunities to acquire producers and existing operations while pursuing organic growth through two new mines under development.

Bond said earlier this year that OceanaGold had plenty of opportunities to invest within its existing portfolio but, like its peers, was also scanning for assets outside the company.

Its main near-term growth project is a new underground mine at Haile in South Carolina, which is expected to eventually account for about 45% of OceanaGold’s gold production. The miner is also developing a large-scale underground operation at Waihi North.

The Ausgold bid comes amid heightened consolidation in the gold sector as record bullion prices strengthen producers’ balance sheets and increase their ability to pursue acquisitions. Gold has nearly doubled over the past two years and traded near $4,399 an ounce on Monday.

OceanaGold also began trading on the New York Stock Exchange in June, a move intended to improve liquidity and broaden its access to larger institutional investors.