“Q1 free cash flow could be catalyst for vigorous M&A activity” – Mining Weekly interview with Newstrike CEO Richard Whittall

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The following article was written by Henry Lazenby for MiningWeekly.com, published January 24th, 2014. 

Following a tumultuous period of volatile commodity price declines that caused many miners to cut costs, shutter operations and halt projects, those actions are expected to result in significant free cash flows when companies report their first-quarter results of 2014, which could, in turn spark a period of vigorous mergers and acquisitions activity, Newstrike CEO  Richard Whittall  said.

As a flicker of life is potentially starting to shine in the minerals and mining sector, he told Mining weekly Online on the sidelines of the 2014 Vancouver Resource and Investment Conference that there were visible signs that the markets were starting to recover.
“Money always goes to where there is a rate of return. Last year, everybody in the sector were cutting costs, delaying schemes, closing projects etcetera owing to the falling gold price, however the other markets and international markets – except the emerging markets – were doing very well.
“Free cash flow is about to recover. I am expecting some amazing free cash flows reports during the first quarter from the majors. They are going to use the money to buy smaller companies, kicking off a ‘M&A season’, which was indeed already started by Goldcorp’s C$2.6-billion offer for Osisko Mining,” he said.Whittall believes the gold market could stabilise this year as a lot of production is cut back, which in turn, would provide added support for the price, on top of continued strong demand. He sees the price potentially touching $1 300/oz to $1 400/oz later in the year.
“People want to buy stocks in companies that have done what was necessary to expand margins, and that would produce free cash flow. I expect to see tremendous activity, but not extreme values,” he predicted. Further, he noted that there had in recent times not been many new ‘Ana Paula’s’ being developed, referring to Newstrike’s flagship gold exploration project in Mexico’s Guerrero gold belt, which it bought from Goldcorp about four years ago. He said the project could attract the interest from several potential buyers.
“That is why we are racing to complete our preliminary economic assessment (PEA) by the second quarter to further de-risk the project. The PEA-level metallurgy is already complete, allowing us to know what kind of mill we should get. It’s a big milestone behind us,” he said. In a wide-ranging interview, Whittall also said that the new tax regime in Mexico was of lesser consequence than the impact of lower commodity prices. “Last year the corporate tax rate was 30%. This year, if you enter into no additional deals, it would be 35.25%. With the additional taxes, our tax rate went up by 5.25%,” he said.
Since May, and all through 2013, Newstrike was busy undertaking about 36 000 m of infill drilling on the project. The latest work covered a transition from the initial 100 holes, which formed the basis of the project’s 2.2-million ounce maiden resource, including the global resource of about 5.4-million gold-equivalent ounces.
Ana Paula consists of a high-grade core that outcrops, surrounded by a large continuous halo of lower-grade ore. The deposit measures 350 m from surface to bottom. “If we can determine that the deposit extends and is open at depth, we can design the pit larger. But the kicker is, we would be dropping the pit into an extremely high-grade zone,” Whittall said.
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