Norton Gold Fields: Zijin Acuisition Ushers In New Era

Norton Gold Fields (NGF.AX) the Western Australian-based gold miner is set to embark on a new era following the successful cash takeover offer in August 2012 by Zijin Mining Group Co. Ltd (2899.HK), China’s largest gold producer. With a market capitalisation of c A$12.5bn, Zijin provides NGF with a significant level of financial and technical support to continue developing the current gold resources and expand its greenfield operations on a +10 year operational plan.

Paddington – the centrepiece
NGF’s operations are based around the Paddington Mill in the world class Kalgoorlie goldfields. Key deposits in the area are the Navajo Chief open pit, the Homestead underground mine, and Enterprise, Janet Ivy and Federal deposits. With processing of 3.7Mt of ore for 150,696oz Au in FY12, NGF achieved its operational targets. The FY12 C1 cash cost was A$1,013/oz versus guidance of A$970/oz, primarily due to lower than targeted ore mined and higher costs resulting from dilution at the Homestead operations. NGF has committed A$38m investment for implementation of owner mining fleet at Paddington to drive down C1 cash costs and will also commission the higher grade Enterprise mine in H213 which will significantly increase gold production and further drive down C1 cash costs.

NGF – China’s first buyout and US$105m credit facility
Zijin’s deal for NGF was valued at A$0.25/share with a special dividend valued at A$0.02/share and was the first ever buyout of an overseas gold mine by a Chinese company. Zijin today controls six mines in Russia, Mongolia, Tajikistan, Kyrgyzstan and Australia. The buyout came on top of the A$37m exploration programme introduced by NGF in December 2011, targeting resource expansion by 300Koz and aims to convert 700Koz of resources to reserves. In November 2012 NGF also announced it had secured a US$105m credit facility from the Industrial and Commercial Bank of China (ICBC). The facility is intended to be drawn down completely by Q213 to repay the A$37m Zijin loan and to fund the exploration programme. The facility is guaranteed via US$115m letter of credit issued by Zijin.

Small measured resource and exploration drives premium
NGF’s current market capitalisation of A$176m implies an average value of US$26.67/oz. We believe this premium is primarily due to the exploration upside and the lack of resources in the measured category for an ASX listed producer. For producers on the Australian market, a measured ounce is worth US$727.97/oz.

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