Merger and acquisition deals in gold sector set record in 2019

December 5, 2019

A pair of mergers in the gold sector in December were the latest in a year that set a record of transactions worth a record $30.5 billion. It is the largest merger and acquisition binge in the gold sector since 2010, when deals worth $25.7 billion were made.

The year began with mega deals by Barrick Gold Corp., which acquired Randgold Resources and Newmont Mining’s acquisition of Goldcorp to form Newmont Goldcorp. In December, Canada’s Endeavour Mining Corp. made a $1.9 billion all-stock takeover proposal for Africa-focused Centamin Plc. A day earlier, China’s Zijin Mining Group Co. Ltd. struck a deal to buy Continental Gold Inc. for $1.3 billion in cash.

Reuters reported that miners are bulking up to replace dwindling reserves and win back investors who in recent years shunned the sector because of disappointing returns.

This year has seen 348 deals worth more than $30.5 billion, including net debt, according to Refinitiv Eikon data.

That is up from $10.8 billion last year and surpasses a previous high of $25.7 billion set in 2010, the data show. Gold topped $1,900 per ounce in 2011 and currently trades around $1,484, after hitting a six-year high in September.

The 2011 gold boom prompted buyers to overspend on acquisitions, leading to billions in impairments when prices crashed in subsequent years. This time, investors say acquirers are being more cautious.

The premiums linked to recent gold transactions are far below those paid in the previous price boom, when 40 to 50 percent premiums were not uncommon.

Barrick paid no premium when it bought Africa’s Randgold last year while Newmont offered an 18 percent premium when it snapped up Goldcorp to create the world’s largest gold miner.

Reuters reported that more deals are likely among mid-tier miners, who face pressure from activist investors to lower costs and financing constraints, said Peter Grosskopf, chief executive officer of precious metals-focused fund manager Sprott Inc..

In November, Kirkland Lake Gold Ltd. bid C$4.3 billion for Detour Gold while Australia’s Saracen Mineral Holdings Ltd. snapped up Barrick’s stake in Super Pit gold mine in Australia.

“That pendulum just started swinging and it’s got a lot further to go,” Grosskopf said, referring to more deals.

Pretium Resources Inc., Pure Gold Mining Inc., Roxgold Inc. and Silvercrest Metals Inc. are among possible targets, according to industry sources.

Canadian miner Iamgold Corp. has drawn interest from state-backed China Gold International Resources Corp Ltd.

Gold miners have also boosted returns to shareholders, with Barrick, Kirkland Lake Gold and Yamana Gold hiking payouts on the back of revenues boosted by higher gold prices.

 

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