A remote mine in northern Brazil is set to produce gold so cheaply that its Australian owner, Beadell Resources, could prove irresistible to a buyer.
Three months after pouring its first gold bar at the Tucano mine in Amapa, Beadell predicts the mine will become Brazil's third-largest producer of the metal. With the benefits of low taxes and labour costs, Beadell plans to produce bullion for 32 per cent less than the average cost among peers worldwide.
The low costs are so appealing that Beadell could fetch 20 per cent more than its $623 million market value in a sale, said stockbroker Hartleys.
The mine, expected to produce about 200,000 ounces of gold in 2013, may attract bids for Beadell from AngloGold Ashanti and Kinross Gold, which both have operations in Brazil, according to Ord Minnett.
Beadell's production target "attracts the attention of some very, very serious players", said James Wilson, an analyst at RBS Morgans. "It's a very good target."
Beadell's stock surged 19 per cent on March 8 amid speculation a takeover bid was imminent. The company said later the same day it was not aware of such an offer.
"We haven't had any specific approaches," chief financial officer Gregory Barrett said. "But we're a pragmatic board. If companies approach us and put an offer on the table that we think is reasonable to take to shareholders, we'll take it to them."
Beadell also owns the Tropicana East deposit in Western Australia, where an exploration campaign is planned for the second quarter. Beadell's biggest asset is Tucano, which covers 2500 square kilometres in a Brazilian state mostly comprising unexplored Amazon rainforest.
Business conditions are also working in Beadell's favour. The corporate tax rate of 15.75 per cent in Brazil is almost half the rate in Australia, and labour costs are about six times lower. About 40 per cent of the gold industry's costs are tied to labour.
Beadell expects to produce gold at Tucano for a cash cost of as little as $US450 an ounce, well below the $US657 average in 2012 at 17 peers including Newmont Mining, the world's second-biggest producer.