Brewer-turned-miner Allan Kelly used to quench drinkers’ thirsts with his own banana-scented wheat beer. Now that he pours gold bars, a bigger problem is corporate predators rather than barflys.
Like other gold company bosses, Kelly, managing director of Doray Minerals Ltd., is wary of being swept up by a surge of industry mergers and acquisitions. His stock is trading in Sydney at levels almost three-quarters below its high.
Gold producers completed acquisitions worth $18 billion last year, the highest annual total since 2011, and are continuing to chase deals in 2015.
“We are a bit nervous with the share price currently where it is,” Kelly, a geologist and geochemist who left brewing in 2008 to return to mining, said in an interview in Melbourne. “Someone could come and offer us a significant premium and it would still be cheap.”
The value of gold deals jumped more than 150 percent in the first quarter, compared with a year earlier, according to data compiled by Bloomberg. Producers are seizing on a wave of mine sales and tumbling asset valuations to expand output or secure growth projects.
Tahoe Resources Inc. has agreed to buy Rio Alto Mining Ltd. for about $1.09 billion so far this half, while Alamos Gold Inc. and AuRico Gold Inc. agreed to merge to create a company with a market value of about $1.5 billion.
“It’s a primed market,” according to Morgans Ltd. analyst James Wilson. “There are plenty more deals to come.”
Evolution Mining Ltd. agreed this week to pay $550 million for Barrick Gold Corp.’s Cowal mine in New South Wales.
With the Andy Well mine in production in Western Australia and a second project being developed in the state, Doray is in the sights of competitors, according to Morgans. The producer, with Kelly its second-biggest shareholder, had a market value of A$106 million ($83 million).
“Doray has a big red target marking on its back, and they are very attractive,” Wilson said.
Kelly had been a senior exploration geologist and geochemist for companies including WMC Resources Ltd., which was acquired for $7 billion by BHP Billiton Ltd. He left mining in 2005 after taking training courses in brewing and in 2006 opened a brewery and bar in Albany, on Western Australia’s southern coast.
Craft brewing “still hadn’t taken off much in Australia, so it all came together,” Kelly said Friday. While beers, including his Southern White Ale, won awards, Kelly left the sector about two years later.
A return to mining was sealed in 2009, with the acquisition of an option on exploration land that eventually yielded the Andy Well mine. “It’s was a deal done in the pub, beer is never far away,” said Kelly. His stake in Doray is worth about $4.1 million, according to Bloomberg data.
Doray is now seeking to finance and construct a second gold mine by mid-2016 after completing a $36 million acquisition in February.
“Making and selling beer should have been a lot less risky than trying to find a gold mine,” Kelly said. “It turns out it’s been the other way around.”