Investment bankers see gold-mining deals rebounding this year from a near-decade low as producers target assets at fire-sale prices after the metal plunged.
Gold-mining companies are close to their cheapest relative to book value in at least two decades, according to data compiled by Bloomberg. Meanwhile producers will be enticed to replace some of the output lost when they sold or curtailed less-profitable mines, said Barclays Plc’s Paul Knight.
“Majors who have done portfolio optimization will look at some of the juniors and say, ‘Here’s a chance for us to acquire a potentially better asset than we’ve sold and to mitigate the loss of production,’” Knight, a Barclays vice chairman and co-head of global metals and mining, said Jan. 6 by telephone. There were $10.1 billion of deals involving gold producers last year, according to data compiled by Bloomberg. That’s 4.4 percent less than in 2012 and the smallest since 2004.
While gold deals declined, there were signs of a resurgence of activity in December as the value of transactions reached the highest monthly level since February. Goldcorp Inc. (G) and Newmont Mining Corp. (NEM), the second- and third-largest producers by market value, said in September they were evaluating the potential for deals to add low-cost operations.
Single-project developers such as Pretium Resources Inc. (PVG) and Torex Gold Resources Inc. (TXG) may be attractive to larger companies, according to Adam Graf, a New York-based analyst at Cowen & Co.
Pretium’s project in British Columbia has high grades, which will probably make it attractive to larger miners, Joe Ovsenek, the company’s chief development officer, said by phone. The Vancouver-based company is focused on developing the mine, he said. A spokeswoman for Toronto-based Torex didn’t respond to e-mails or phone calls seeking comment.
The larger miners may be better positioned to consider acquisitions than in 2013 after cutting costs. The 10 biggest producers by sales, led by Barrick Gold Corp. (ABX), may generate combined free cash flow of $4.17 billion this year, compared with a negative $1.74 billion in 2013, according to analysts’ estimates compiled by Bloomberg. That would be the highest for the group in at least eight years, the data show.
At the same time, exploration and development companies, which generally rely on regular financings if their projects aren’t yet generating revenue, may have more incentive to sell themselves.
The Standard & Poor’s/TSX Global Gold Sector Index lost almost half its value last year as the metal fell the most in more than three decades. As investors pulled out of the industry, explorers and mine developers struggled to sell shares. The group’s reported cash balance has dropped about 30 percent since 2012, while share sales by gold companies fell to the lowest since 2005, according to data compiled by Bloomberg.
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