Gold’s M&A wave to roll on as bullion falls to five-year low

Melbourne: Gold’s tumble to the lowest since 2010 promises to prolong a mergers and acquisitions boom that’s seen transactions at a three-year high as weaker prices slash asset valuations.

Deals valued at $9.6 billion were proposed or completed in the six months to 30 June, up 7% on the previous half, as producers including OceanaGold Corp. agreed acquisitions, according to data complied by Bloomberg. They totalled $22.3 billion last year, the highest since 2011, the data show.

“I’d expect that thematic to continue and the next wave of activity from an M&A point of view might be more mergers,” Reg Spencer, a Sydney-based analyst at Canaccord Genuity Group Inc., said by phone. “Unless the smaller guys get together and get bigger quickly, they’ll find they are less able to compete when assets do become available.”

Gold producers in Australia gathering Monday for the sector’s three-day annual conference in outback Kalgoorlie, a key centre of output since the 1880s, proposed or completed deals worth $4.5 billion in the past 12 months, according to the data. The nation is the largest producer after China.

OceanaGold agreed on Thursday to buy Romarco Minerals Inc. in a deal worth C$856 million ($654 million) to add a South Carolina project, the producer’s second mine deal this year.

‘Seismic shifts’

Zijin Mining Group Co., which has agreed about $1 billion worth of acquisitions in the past year, and Evolution Mining Ltd. are among attendees in Kalgoorlie seeking further deals.

“It’s at times like these where there are significant, seismic shifts in asset ownership,” evolution executive chairman Jake Klein said in an interview on Monday with Bloomberg Television in Kalgoorlie. “That’s what has been occurring in the gold space.” Asset valuations have tumbled as much as 70% since 2011, according to Klein.

Prices will drop to $984 before January, according to the average estimate in a Bloomberg News survey of 16 analysts and traders. Bullion declined 0.2% to $1,093.95 an ounce at 11:28am in Sydney, according to Bloomberg generic pricing. The metal fell to $1,077.40 on 24 July, the lowest level in five years, and has dropped for six weeks in the longest stretch since 2004.

Barrick, Newmont

Barrick Gold Corp. could consider selling its half-share in Kalgoorlie’s Superpit mine, according to Macquarie Capital Markets. Newmont Mining Corp. holds the remaining stake in Australia’s largest open-pit mine. Barrick spokesman Andy Lloyd declined to comment on a possible sale of the Superpit stake.

Newcrest Mining Ltd, Australia’s largest producer, has flagged the potential sale of its Telfer mine in Western Australia and is seeking to complete a review of the asset’s future by October.

If the gold price does drop further, “I’m sure that will create some fantastic opportunities,” Bill Beament, managing director of Northern Star Resources Ltd, Australia’s second- largest producer by market value, said on a 27 July conference call.

As North American producers grapple with declining prices, miners in Australia are being supported by a falling local currency that’s protecting margins.

“Given we’re still seeing a massive rebasing of resources currencies around the world relative to the US, I think there will be significantly more deals,” Sydney-based UBS analyst Jo Battershill said by phone. Bloomberg