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Wednesday, September 27, 2023

After Last Year's Mega Deals, What to Watch for Gold M&A in 2022

The gold sector saw an impressive US$21.3 billion spent on mergers and acquisitions (M&A) in 2021, a sharp uptick from 2020’s total, which was heavily impacted by COVID-19 restrictions.

The year of multibillion-dollar deals was the second highest level on record and highest in the last decade, with roughly 44 separate deals made, accounting for 38 million ounces.

“M&A in the gold sector peaked in 2010 at US$32 billion, so last year’s activity was still around US$10 billion lower than record annual levels,” Adam Webb of Metals Focus told the Investing News Network (INN). “However, it was still a relatively strong year for M&A in the gold-mining sector, and we expect this to continue into 2022.”

Gold’s steady price ascent in 2020 helped set the stage for 2021’s M&A activity. Over the first eight months of 2020, the value of the yellow metal rose 32 percent, from US$1,552.30 per ounce in January to US$2,060 in August.

The positive performance amid economic upheaval also ended a trend of instability in company valuations, with the yellow metal’s price remaining securely above US$1,800 for 16 of the last 26 months.

“M&A is likely to remain strong as gold miners have reduced debt levels to record lows and are achieving strong cash flow on the back of the high gold price,” said Webb, who is director of mine supply at Metals Focus.

“This cash flow is being returned to shareholders as dividends, but it is also likely to be used to grow these businesses, either through project development or through M&A activity.”

2021 brought gold mega deals, will the trend continue?

A crucial factor that contributed to last year’s US$21.3 billion gold M&A total was mega deals in the industry, which accounted for just over US$14 billion altogether.

These mega deals include the early November news that international miner Newcrest Mining (TSX:NCM,ASX:NCM) would be buying Pretium Resources. Prior to acquiring the Canadian company and its Brucejack mine, Newcrest was listed as the eighth largest gold producer globally, operating six mines.

Another mega deal was Kinross Gold’s (TSX:K,NYSE:KGC) much-discussed US$1.44 billion acquisition of Canadian junior Great Bear Resources, announced in December.

But the largest deal of 2021 by far was the late September news that Agnico Eagle Mines (TSX:AEM,NYSE:AEM) and Kirkland Lake Gold (TSX:KL) planned to merge in a deal worth a whopping US$10.62 billion. The combination of the companies and their assets makes the amalgamated firm the third largest gold producer globally.

There have already been a handful of gold deals in 2022, but this year is unlikely to birth another round of mega deals. As Michelle Grant of PwC Canada pointed out, there can only be so many multibillion-dollar mega mergers.

“I’m not sure that you’re going to see a lot more mega mergers happening over the next couple years, just because there has been a significant number of them. And there’s only so many more that could actually happen.”

Watch for mid-tier consolidation and diversification in 2022

Looking forward, Grant, who is a partner at PwC Canada, expects continued asset targeting by companies looking to expand their portfolios and production potential.

“In 2022, we expect to see continued consolidation in the gold sector,” she said.

She went on to explain that the focus on acquisition is aimed at addressing several factors, including security of supply, portfolio optimization, cost effectiveness, cost offsets and general value creation.

“The days of single-asset mining companies are definitely numbered,” she said. “They’re just not able to attract capital in the same way that mid-tier or larger-tier companies are; that’s why we’re seeing the drive to consolidate.”

But the partner and national deal leader for the energy utilities, mining and industrial product sectors at PwC Canada expects to see some deal making on the mid-tier and junior side.

“We’ve seen quite a bit of consolidation at the high end. I think you’re going to see a lot more mid-tier consolidations creating the next sort of tier of companies,” she said. “Some of the smaller (firms will) merge into bigger mid-tiers, (and) you’re going to see some of the mid-tiers merge, then becoming larger tiers.”

Diversification is another trend to watch as miners look to maximize deposits and shareholder value.

“One of the main drivers is diversification, and it’s twofold,” Grant explained. “It’s geography diversification, which is obviously driving a bunch of it, but it is also commodity types.”

As the number of single-asset companies declines, experts anticipate that miners will increase the types of metals and minerals they recover, which has become a growing theme in recent years.

“So where you had your pure-play silver companies previously, quite a few of them have branched out into gold, where you wouldn’t have seen that previously,” added Grant.

Metals used in electric vehicles and battery manufacturing are especially popular now, and are helping to reshape the way miners look at their assets. As Grant pointed out, many battery metals companies are targeting a wide variety of plays, including nickel, copper, lithium and zinc.

“Some of the major diversified companies that are more focused on base metals as an example, but do have precious metals as well, you’re seeing them branch into commodities that they weren’t previously interested in,” she explained to INN in the interview.

Don’t forget to follow us @INN_Resource for real-time updates!

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.

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