Global Gold M&A Heats Up In Q2’20
BofA Global Research | Merger and acquisition (M&A) activity in the global gold sector “heated” up in Q2’20 with twelve transactions announced (highest quarterly total since Q4’12) with a total transaction value of $2.86 billion, nearly double that in Q1’20. Historically global gold sector M&A activity heats up during times of buoyant gold prices. The “elephant-in-the-room” was SSR Mining’s friendly $1.71 billion all share merger with Alacer Gold on May 11 2020. The remaining eleven transactions ranged in size from $27mn to $238mn.
Trends in global gold M&A: A buyer’s market in Q2’20
1) Chinese companies becoming aggressive for global gold assets. Shandong Gold and Zijin Mining were buyers for three companies (with assets in Canada, Guyana and Ghana) in Q2’20, two involving bidding wars; 2) Senior gold producers not active (unless one counts buying debt on a gold mine). The global senior gold producers were absent from the M&A circus in Q2’20. Newcrest Mining did purchase the gold prepay and stream facilities and an offtake agreement on the Fruta Del Norte (FDN) mine for $460mn. 3) Rise of the mid-tier producers continued. Two new mid-tier gold producers were created through the merger of SSR Mining and Alacer Gold and Kopy Goldfields acquiring Amur Gold; 4) Bias to in (or near) production assets. Six of the twelve transactions in Q2’20 were for assets currently in production. Within a year or two, this total could rise to nine as Perseus, Polymetal and West African Resources develop newly acquired satellite orebodies; 5) It’s a buyer’s market for companies. The five company transactions with reserves in Q2’20 were priced at a 23% discount to the prevailing gold price, below the historical range of -20% to +10%; and 6) Mega projects back in vogue. The acquisition of the Blackwater project has added over $200mn of new market value to buyer Artemis Gold. This may put the spotlight back on companies sitting on multi-million ounce low grade gold megaprojects.
M&A in H2’20: The race to replace gold reserves mined
After years of underinvestment, we see production profiles under pressure and reserves in decline. The evidence is too obvious to ignore. (…) At year-end 2019 total gold reserves for the global gold producers amounted to 612 Moz, down 30% from the peak 875 Moz at year end 2012, equating to declining reserve life indexes. For H2’20, we see the surging gold price and further consolidation creating new mid-tier producers as catalysts/drivers for global gold M&A. Bullion’s recent surge over $1,750/oz is forecast to lead to windfall free cash flows and expanding valuation multiples for our coverage universe, mirroring the 2010-13 period marked by record breaking M&A activity (…). Mid-tier producers not involved in M&A risk being “left behind” by their rapidly growing peers. A potential headwind could be reduced due diligence site visits due to cutbacks on business travel due to COVID-19. Acquirers excelling at “desktop” analysis of assets could find an “edge” over their competitors.