Gold miners are chasing takeover targets again as bullion prices climb, but this wave of dealmaking looks more disciplined than past booms. Buyers are paying mostly in stock rather than cash, and many deals pair neighboring assets to cut costs rather than simply grab reserves.
Northern Star Resources last week rebuffed a $27 billion cash-and-share offer from South African miner Gold Fields. Energized by rising gold prices, miners across the sector are panning for potential takeover targets. Last year alone, gold miners struck 32 deals worth a combined $21 billion, according to S&P Global — the highest value in 15 years.
Buyers favor stock over cash
Mining M&A booms have historically rattled investors, as executives fearful of scarce reserves write oversized checks for rivals' project pipelines. This time, however, the structure of the deals suggests more caution.
Gold Fields' bid for Northern Star was roughly three-quarters denominated in shares, insulating the acquirer somewhat from the risk of a falling gold price. Excluding China, only about a tenth of gold-mining deals over the past five years were paid entirely in cash, according to S&P Capital IQ data, down from almost a quarter in the prior decade.
Neighboring assets drive cost savings
Deals that let companies cut costs as well as add land tend to make more sense to investors than ones built purely on reserve growth. Gold Fields and Northern Star, for instance, hold neighboring assets in Western Australia. Predictive Discovery and Robex Resources, which united in April, plan to combine some of their projects in Guinea. Genesis Minerals and Vault Minerals, whose merger was announced in July, expect the deal will mean they no longer need to build a new processing mill.
Mid-cap miners fill the target list
Larger gold producers are not short of potential targets either. After an M&A binge in the 2010s, major miners cut back on exploration while junior miners kept investing in new discoveries, creating a new generation of mid-cap gold companies. The ten largest gold producers — including Newmont, Barrick and Agnico Eagle — now account for just a quarter of global gold mine supply, down from roughly 45% at the turn of the century, according to Morgan Stanley estimates.
Discipline in the sector tends to be shortlived, and the willingness to overpay often returns once choice assets grow scarce. But executives can learn from past mistakes, much as US shale oil producers embraced capital discipline in more recent commodity booms. For gold miners, this merger rush still has a chance to pay off.
Source: Markets (Financial Times)
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