Recent deal metrics on average value reserves at ~US$260/oz and production at ~US$3,900/oz. For takeovers the average bid premium is 24%, with Barrick+Randgold's zero percent premium model not lasting.
Most of the M&A activity in the last six months has been focussed on individual asset divestments from the majors
From GMR:
One thing that strikes GMR about the flurry of recent M&A in the gold sector is it highlights a disparity between the market (gold equities are drifting lower) and acquisitive company boards encouraged by a robust gold price. The risk is some boards/management may feel they have missed out or have been leapfrogged by peers, further driving M&A activity into 2020. GMR feels a bad sense of déjà vu.... or is it just us?
The Gold M&A Disparity
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In the last 18 months there has been some +US$25B of M&A activity in the gold sector. While the large mergers of Newmont+Goldcorp and Barrick+Randgold occurred early in this cycle, the number of deals has dramatically picked up over the last month. Recent activity includes Evolution's acquisition of Red Lake, Saracen's acquisition of 50% of KCGM, Zijin's bid for Continental and Kirkland's bid for Detour.
Notably, recent deal metrics on average value reserves at ~US$260/oz and production at ~US$3,900/oz. For takeovers the average bid premium is 24%, with Barrick+Randgold's zero percent premium model not lasting.
Most of the M&A activity in the last six months has been focussed on individual asset divestments from the majors (e.g. Red Lake and 50% of KCGM) or single asset businesses. The following table ranks the top gold equities by market capitalisation, 2019 production guidance, reserves and notional mine life on 2019 production. Stocks marked in blue have been involved in M&A in 2019.
Significantly, three of the relatively small number of single asset companies have received bids/approaches in the last month highlighting where corporate interest is currently focused.
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| Leading Gold Stocks - Key Metrics (Blue Denotes Recent M&A Activity) |
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| Source: Global Mining Research |
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| What Happens Post Deal |
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Although the value-add of any transaction can take years to come through, the immediate response of the market is an indicator of market perceptions. The performance of recent M&A is also a soft metric many boards likely consider. Significantly, of the major deals of 2018/19 over the initial month after announcement it has only been the Barrick acquisition of Randgold and Northern Star acquisition of Pogo which truly inspired the market (e.g. for Barrick management was strengthened removing an overhang).
If we look to the three companies currently in this initial month period being Kirkland Lake, Evolution and Saracen, then the market response is not too dissimilar. Evolution has had a reasonably flat share price performance with the market prepared to give management a "pass" but that's it. Conversely, both Kirkland Lake and Saracen are down over 10% since the deals were announced. In Kirkland's case a long-awaited exploration update from Fosterville hasn't inspired and helped. |
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| 30 Day Performance Post M&A - 2018/2019 Transactions |
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| Source: Global Mining Research, Bloomberg |
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| It's never a "dull" moment in the gold sector with 2019 not disappointing so far. The tick up in M&A activity does increase a sense of déjà vu (or is that trepidation) as we look forward to 2020. We have seen few acquisitions add value initially, but if the current environment is maintained the sector is well funded to snap up further divestments from the majors. Meanwhile, investors are trying to avoid any boards/management teams with a case of M&A FOMO |
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