Your primer on the mergers and acquisitions that have happened in the gold space so far this year.
This year will be remembered for many things, and if you’re an investor one of those things will likely be gold’s exciting price activity.
Starting the year on steady footing at US$1,552.30 per ounce, the yellow fell as low as US$1,471.40 in mid-March, but has since rocketed back to 2012 levels.
With gold now firmly planted above US$1,700 and poised to move higher, a resurgence in merger and acquisition (M&A) activity has emerged.
M&A activity in the gold space has been in the spotlight since late 2018, and January and February brought a steady flow of news; however, volatility brought on by COVID-19 containment measures hindered activity from the middle of March to mid-April. A lower gold price also created headwinds.
But gold’s steady price ascent from March 31 until the end of May has laid the ground for an M&A revival, with more than half a dozen deals announced in the last 30 days.
Below is a list of M&A activity in 2020 broken down by month.
Resolute Mining (ASX:RSG,LSE:RSG) sells Ravenswood gold mine
One of 2020’s earliest deals was Australia-listed Resolute Mining’s decision to sell the Ravenswood gold mine. The sale — announced on January 15 and totaling AU$300 million — passed ownership of the Queensland gold mine to a consortium including EMR Capital and Golden Energy Resources (SGX:AUE).
In operation since 1987, Ravenswood has produced 1.9 million ounces of gold since 2004.
Auteco Minerals (ASX:AUT) acquires stake in Pickle Crow project
On January 28, Auteco Minerals announced plans to acquire up to 80 percent of the Pickle Crow gold project. Described as one of Canada’s oldest historical mines, the Ontario site has produced 1.5 million ounces of gold to date.
The deal required Auteco to pay First Mining Gold (TSX:FF) two cash payments of C$50,000 and outlined several earn-in requirements and tiers.
Caledonia Mining (TSX:CAL,NYSEAMERICAN:CMCL) also increased its stake in the Blanket gold mine by 15 percent. It now controls a 64 percent interest in the project; the increase in ownership was part of a larger agreement first penned in 2018.
ECR Minerals (LSE:ECR) offloads SLM gold project
During the first week of February, ECR Minerals reported its intention to sell its SLM gold project to private Chinese company Hanaq.
The decision will allow ECR to focus on its Australian project, while giving Hanaq another asset located in Argentina. ECR will retain a net smelter return (NSR) royalty of as much as 2 percent on the project.
Shanta Gold (LSE:SHG) buys Barrick’s Kenyan assets
On February 10, East African gold producer Shanta Gold entered into an agreement with gold major Barrick to acquire Acacia Exploration.
Totaling US$7 million in cash and an additional US$7.5 million in shares, the deal made Barrick Shanta’s largest shareholder with a 6.4 percent stake.
The key asset for Acacia is the West Kenya project, which Barrick took control of when it acquired Acacia in 2019. Under the Shanta agreement, Barrick will retain a 2 percent life-of-mine NSR royalty.
AngloGold Ashanti (NYSE:AU,ASX:AGG,JSE:ANG) sells rest of South African assets
In May 2019, AngloGold Ashanti announced plans to offload its portfolio of South African assets, and it has steadily worked towards that goal.
Wrapping up the liquidation in mid-February, the gold producer entered into a deal with Harmony Gold Mining Company (NYSE:HMY,JSE:HAR) to sell the Mponeng mine for US$300 million. The South African project is world’s deepest mine, extending 4 kilometers below ground.
A recent spike in COVID-19 cases in and around Mponeng has prompted AngloGold to report that the Harmony acquisition won’t be finalized until the end of July.
The purchase of individual projects is a trend that has been seen in the gold sector both before and after the coronavirus was declared a pandemic.
Market turmoil induced by the global outbreak has been compared to the economic meltdown of 2008; however, as Exploration Insights’ Joe Mazumdar explained recently, this time around is markedly different in terms of M&A.
“During the global financial crisis, gold was one of the commodities that rebounded the quickest, but the companies were reluctant due to capital allocation risk,” said Mazumdar.
He said that is no longer the case as companies in the space have more confidence in gold.
“The gold-mining sector as a group is in a healthier state than a few years ago, and the gold market sentiment is buoyant. Therefore M&A transactions that make sense — with no significant premiums, which have less chance of leading to a future impairment — are viewed more favorably by investors,” Mazumdar added.
NQ Minerals (OTCQB:NQMLF) buys Tasmanian gold mine
The last deal of February was NQ Minerals’ acquisition of the Beaconsfield gold mine. The Tasmanian project is in close proximity to the miner’s flagship Hellyer gold mine.
The deal is worth AU$2 million.
A day later, the gold producer announced it had earned a 40 percent stake in the Haverion project after reaching Stage 2 of a four stage, six year farm-in agreement. The next week, widespread uncertainty descended on markets, resulting in a massive selloff and significant drop in gold prices.
While most deals were moved to the sidelines as companies struggled to keep employees safe and to comply with various country-led initiatives, one last merger occurred during the month.
By mid-April, some normalcy had returned to the gold space and deals were once again on the table.
Barrick acquires 70 percent interest in Pueblo Grande
On April 14, major miner Barrick reported plans to buy a 70 percent stake in the Dominican Republic mine Pueblo Grande. The agreement will see Barrick pay C$1.39 million through a share subscription.
The fifth month of the year brought more stability to the gold price, as well as a number of transactions.
Magna Gold (TSXV:MGR,OTCQB:MGLQF) buys Mexican mine
Junior gold company Magna Gold recorded one of the May’s earliest deals when it acquired the San Francisco mine. Located in Mexico, Magna paid C$2 million to Timmins Gold, a subsidiary of Alio Gold (TSX:ALO), for the project.
One of the first post-COVID-19 takeovers came when Shandong Gold moved to acquire Canada’s TMAC Resources. The deal, which is estimated to cost US$149 million, will move the Hope Bay property in Nunavut into Shandong’s control.
In a deal that has been described as a merger of equals, SSR Mining and Alacer Gold announced plans to unite under the SSR Mining moniker.
“The rationale for the combination appears to be a combination of like minds that are focused on free cash flow generation,” said Mazumdar. “In addition, both score well on the ESG rankings suggesting that they may be more attractive to larger funds.
The editor of Exploration Insights went on to add that if the newly formed alliance can generate steady free cash flow, it may lead to the issuance of dividends, which would attract another tier of investors.
The newly formed entity will hold a portfolio of projects in Canada, the US, Argentina and Turkey, and will have a combined equity value of US$4 billion. The company’s focus will be on producing 780,000 gold equivalent ounces over the next three years at an average all-in sustaining cost of US$900 an ounce.
Next came the news that Adriatic Metals aims to purchase Tethyan Resource to bolster its portfolio.
“(The deal) appears to be a move by Adriatic to increase its presence in the Balkan Peninsula. Adriatic has the low-tonnage, high-grade polymetallic Rupice project in Bosnia, which is at the scoping study level,” Mazumdar pointed out. He went on to note that some of Adriatic’s investors may not have gotten what they hoped for with the deal.
“Tethyan’s previous focus was on the Rudnica porphyry copper-gold project, but it recently added a silver–lead–zinc project (Kizevak), which will be the merged company’s near-term focus in Serbia,” Mazumdar said. “Those Adriatic shareholders that were hoping for an M&A bid may be disappointed that it acquired another asset.”
Three way merger falls through
A three way merger between Gran Colombia Gold (TSX:GCM,OTCQX:TPRFF), Gold X Mining (TSXV:GLDX,OTCQX:SSPXF) and Guyana Goldfields (TSX:GUY,OTC Pink:GUYFF, which was described as part merger (Gold X), part hostile takeover (Goldfields), was also announced in May.
“Guyana already has a bid from Silvercorp Metals (TSX:SVM,NYSE:SVM), which comes with a small break fee of C$3 million to C$4 million,” Mazumdar said of the May 11 announcement.
“It will be up to Guyana to decide whether this is a superior proposal. At current prices, Gran Colombia is offering about C$0.80 to C$0.85 per share (100 percent shares of GCM), whereas Silvercorp is offering C$0.60 to C$0.65, but with a third in cash.”
The ambitious “3G” deal, which was contingent on Gran Colombia finalizing each deal separately, fell apart in late May, when Gran Colombia decided not to pursue the acquisition of Guyana Goldfields.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.