‘Dance partner’ hunt heats up in gold, fueled by megamerger push
A push by the world’s biggest gold miners to get even bigger will likely have a knock-on effect among their competitors, adding new vigor to an industry that failed to inspire investor support in 2018.
The megamerger mania now underway for Newmont Mining Corp., Barrick Gold Corp. and Goldcorp Inc. is likely to result in some of their assets being sold, helping to diversify portfolios for other miners and boosting the interest of investors. More importantly, it could force mid-tier companies to team up in order to successfully compete.
“This is a competitive marketplace in terms of attracting capital, and you have to make a decision at some point,” Michael Siperco, an analyst at Macquarie Capital Markets, said in a telephone interview. “Yamana, Kinross, Iamgold — what’s the strategy here in terms of not getting absolutely left behind?”
In a recent report, Siperco said that megamergers among the largest miners could give them access to capital that will let them out-bid everyone else for junior explorers and developers that are essential to replenishing pipelines. Meanwhile, in comparing the market capitalization with the valuations Australian companies including Newcrest Mining Ltd., Evolution Mining Ltd. and Northern Star Resources Ltd., “the question has to be, what’s next?” Siperco said.
A January note by Credit Suisse Group analysts Fahad Tariq and Mark Llanes also speculates that Iamgold Corp. and Yamana Gold Inc. could pursue mergers for critical mass, as well as B2Gold Corp. Spokespeople for the three mining companies didn’t immediately respond to phone calls and emailed requests for comment.
A gauge of 14 big gold producers tracked by Bloomberg Intelligence tumbled 10 percent last year, the first decline since 2015, as bullion prices languished below $1,300 an ounce, crimping margins. Since Jan. 1, however, the shares have gained 5.2 percent, making them more attractive to investors and potentially spurring a new emphasis on growth.
“Concentration risk is an issue,” Chris Gratias, a managing director and head of mining at CIBC Capital Markets, said at a conference in Toronto this week. “A diversified portfolio in this environment is more attractive to investors than single assets.”
As the giants make plans to streamline their post-deal portfolios, megamergers are creating a once in a cycle opportunity to acquire “company-making assets,” some of which will likely be funded by private equity, said Ryan Latinovich, global head of mining and metals at RBC Capital Markets.
“A number of private equity funds are in the process of raising large amounts of billions and billions of dollars capital to do that type of work,” Latinovich said. “I can just tell you right now, everybody is looking for a dance partner.”
Here’s a breakdown of some companies that may be on the move:
Evolution may be among the most likely to go on a shopping spree, according to the Credit Suisse analysts. The reason: A ratio used to determine valuation has improved 29 percent over the last year in a strong operating environment, the analysts wrote.
Evolution would “certainly be interested” in Australian assets that may be sold by Barrick or Newmont, Executive Chairman Jake Klein said in an interview in Florida last week.
Newcrest Mining Ltd.:
Geography is key for this Melbourne-based miner. Newcrest may be looking to stretch beyond the Asia Pacific region in order to deepen its pool of potential investors, according to the Credit Suisse note.
Agnico Eagle Mines Ltd.:
This company has long been “a favorite among institutional investors because of its safe and predictable operations,” according to Tariq and Llanes. To broaden its footprint, the company may be looking to diversify into other regions. In an interview last month, Chief Executive Officer Sean Boyd said he isn’t interested in large acquisitions.
While buying a small, single-asset miner isn’t off the table, he said there’s “nothing out there” right now he’s circling. “At this point, there is no change in our strategy,” Dale Coffin, a spokesman for Agnico, said by email.
Endeavour Mining Corp.:
Location is key for Endeavour, with it’s extensive experience in operating in higher-risk jurisdictions. Credit Suisse notes that it may be looking for opportunities in Africa, where it currently specializes in the French-speaking regions. The company’s profile also makes it an unlikely target for larger gold producers that may not want to increase their risk profile. The company didn’t respond to
Kinross Gold Corp.:
Kinross Gold Corp. has struggled in the past year as the company was caught up in a tide of resource nationalism in parts of Africa. It has also come under fire from a shareholders’ gold council for executives not owning enough shares — a criticism it’s flatly refuted.
In January, Kinross Chief Financial Officer Tony Giardini said the company will look at acquisition opportunities that come out of Barrick-Randgold and Newmont-Goldcorp mega-mergers. A spokesman for Kinross, Louie Diaz, said the company looks at opportunities continuously while being disciplined in its approach to M&A.
“As always, we need to see value for the company and our shareholders,” Diaz said by email.