Why miners need to grow
With years of under-investment in the exploration space, the chair and founder of Oxygen Capital, Mark O'Dea, told Kitco on Monday that pressure is building on miners to buy because there is no room to grow.
Oxygen Capital is an integrated merchant bank and mining house behind the companies such as Pure Gold and Discovery Metals. O'Dea sold his previous company, Fronteer Gold, to Newmont for C$2.3 billion in 2011.
"Exploration has been under-invested in for the past seven years," said O'Dea. "With less discoveries, that means less projects in the development pipeline for growth. [Gold] producers are minting money right now. There's probably not a lot of preparedness...to allocate all this cash flow. It'll either be through a dividend, share buybacks or ultimately through acquisitions. My personal guess is that the acquisition wave is coming."
Oxygen Capital has four companies in its stable: Pure Gold Mining, Liberty Gold, Sun Metals and Discovery Metals.
"Our four companies all have independent CEOs and a C-suite of independent boards of directors, and today they collectively stand at a market cap of $2.2 billion. So there's a lot of value that's being created from a very small concentrated group of companies," said O'Dea.
O'Dea touts his Pure Gold Mining (TSX-V: PGM, LSE: PUR) on its development schedule. The Ontario mine is located in Red Lake and expected to produce 80,000 gold ounces a year. Mine life is estimated at 12 years at an all-in-sustaining cost of US$787.
"Pure Gold Mining is the only new mine scheduled to come on stream in North America in 2020. I'd wager that North America is not going to see another new gold mine come online until about 2022," said O'Dea.
Oxygen focuses on project previously drilled or mined, data-rich projects where opportunities are "overlooked, ignored or abandoned by others." The company said it is not in the business of grass roots exploration.
"You sort of believe in the sort of intrinsic benefits of having this ecosystem all within our office and sharing. Not only the tangible assets, but also the collective brain trust of the group, which is sort of hard to quantify. But it comes with real advantages," said O'Dea.