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Joining the Global Gold Rush - Small Asian Miners Think Big

In small town of Raub, north of the Malaysian capital Kuala Lumpur, a historical gold mine is being revived. The mine, which was first opened in 1889, produced more than a million ounces of gold. Its operator Peninsular Gold has returned to the site and is actively mining after a 40-year hiatus.

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Record gold prices have brought many small mining companies like Peninsular out of the woodworks. Once edged out by bigger competitors and hindered by high mining costs, these firms are back in the business, lured by the potential fortune in the yellow metal.

Peninsular Gold recently raised GBP 5.6 million ($8.9 million) through AIM - London stock exchange’s market for small growing companies. The funds are being used to finance 6 new mining shafts at the Raub mine, which has approximately 202,000 ounces of proven reserves. Most of the gold is made up of tailings - small residues left by earlier miners who used traditional gravity methods of extraction. Tailings are more expensive to extract than bigger deposits, but with gold prices at records it’s become a very good business to be in.

"We’re looking for strategic partners to increase our asset base." -on prospects for future M&A, Andrew Kam, CEO of Peninsular Group

The company is also looking to strike more gold in the neighboring area through its exploration activities. “Our objective is to discover a minimum of 5 million ounces of gold in our projects,” Andrew Kam, CEO of Peninsular Gold told CNBC.

With gold pushing $1,380 per ounce, it’s not surprising that small miners are beginning to think big. “We’re looking for strategic partners to increase our asset base. Mergers would be the best choice, as there are other gold players within the region who may want to expand their resource base,” said Kam.

Peninsular Gold is not the only junior miner looking to expand through M&A. Australian listed gold producer Kingsgate Consolidated has put its ambition into action by making a series of aggressive steps to become a mid-tier mining company.

Last week, it launched two scrip takeovers. The first was a $376 million bid for Dominion Mining, which owns a goldmine in South Australia. The second, a $22 million bid for Laguna Resources, which has a gold and silver project in Chile.

Together with its existing Chatree mine in South Thailand, Kingsgate hopes to push its annual gold production to 300,000 ounces a year, the minimum amount needed for the company to get on the FT gold index and attract a new class of investors.

“It’s very clear what we want at Kingsgate. We want to grow organically and through acquisitions, to get into the big league,” says Gavin Thomas, CEO of the company.

Kingsgate is now the second largest gold miner listed on the Australian Securities Exchange with a market cap of just over $1 billion. But it’s still some way behind Newcrest, which has a $30 billion market cap after taking over Lihir Gold.

“When you’re around that $1 billion market cap range, a lot of investors won’t look at you. You’ll need to be in the $3 to $5 billion market cap to have the liquidity.”

At present, both Kingsgate and Peninsular Gold are in the enviable position of mining gold in Asia, where costs of production are fairly low. Peninsular spends about $550 to extract an ounce of gold in Malaysia. Kingsgate’s cost in Thailand is even cheaper at just $335 an ounce.

And Thomas said its structure won’t change much even with the acquisition of Dominion, which runs a higher-cost underground mine in Australia. “Among the Australian miners, Dominion’s cost is still one of the lowest. At current gold prices, Dominion enjoys more than 100 percent cash cost margins, something that many industries could only dream about.”