Not just chatter now - private equity deal-making picks up

QKR is to buy AngloGold Ashanti's Navachab gold mine in Namibia, one of the few signs of private equity money starting to flow into the mining sector.

SEATTLE, WA (MINEWEB) -

Finally some concrete evidence of the reported billions of dollars jockeying on the sidelines to snap up mining assets: AngloGold Ashanti agreed to sell its Navachab gold mine in Namibia to QKR for about $110 million.

For many, the name QKR will ring few bells. But perhaps it will come to ring a few more in the coming year or so. It stands as one of the more high profile private equity groups that have amassed funding to buy up mining assets on the premise the sector is undervalued and due for a turnaround.

Like Mick Davis' X2 - the private firm headed up by the ex-Xstrata CEO - QKR has arranged about a billion dollars in fund commitments to make acquisitions, according to a report last year by FT.com's James Wilson and Anne-Sylvaine Chassany.

If so, that makes it one of the more sizeable pools of cash angling for mining assets

How much money is out there is up for debate. But Mineweb's Geoff Candy recently reported on estimates in the $10 billion range after speaking with bankers at the Investing in African Mining Indaba conference in South Africa.

QKR's deal with AngloGold means all the more for a sector battered down by successive years of investor dissatisfaction and weakening metal prices, especially as regards gold and gold miners. The striking of a deal like this is important in that it suggests the so-called smart money is beginning to move. QKR is headed up by a former mining banker at JP Morgan, Lloyd Pengilly, and his language in a prepared statement is worth noting: He described the Navachab acquisition as a first.

The acquisition is also significant in that it comes on the back of a series of hostile takeover bids in early 2014, first with Goldcorp's move on Osisko, and then over this past weekend, with Hudbay on Augusta Resources. It points to a marked pickup in the flow of potential acquisitions (i.e. with two largish hostile takeovers out there and now QKR's $100-million-plus deal under a binding agreement.)

It also pairs with an increase in financing among juniors and a noticeable pickup in both the price of some metals like gold and junior equities in early 2014. In this context calls of bottom, or nearly-so, have multiplied.

In this respect it also bears considering Navachab's cash costs in gauging QKR's outlook on the gold sector. Navchab is not a low cost gold mine, obviously, or AngloGold Ashanti would be more likely to hang on to it. In the last nine months AngloGold said it produced about 46,000 ounces at $755 in cash costs, likely putting it somewhere in the middle of the pack in terms of operating cash costs.

You have to think, with costs like those, QKR is pretty comfortable with current gold prices - given margins are already slim at Navchab. In this QKR could be betting on better days ahead for the yellow metal.

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About Kip Keen

Based in Halifax, Nova Scotia, Kip is Mineweb's North American junior mining specialist. Before joining Mineweb he worked for Canada's top mining publication, the Northern Miner covering the junior sector out of Vancouver.

Email: Kip@mineweb.com