When the market was hot from 2010 through 2012, mid-tier Alamos Gold (TSX: AGI; NYSE: AGI) stayed on the sidelines of an otherwise active M&A scene because valuations for companies were “through the roof,” says the company’s president and CEO, John McCluskey.
“The only way you could step into that market and feel at all comfortable is if you felt gold was going to US$3,000 an oz. or something – which we did not.”
More recently, as the gold price started to cool, Alamos found valuations were at last coming down to more reasonable levels. Last year, the debt-free company, which produced 190,000 oz. of gold at its Mulatos gold mine in Mexico in 2013, was involved in three takeover bids.
However, despite the decline in valuations since 2012, McCluskey says it’s still difficult to find compelling transactions.
“Generally we’re trying to acquire public companies and there’s a sufficient amount of information in the public realm for us to do a desktop analysis,” he says. “After we finish that analysis, very few companies actually prove to be worth approaching. So the list of potential targets is remarkably short.”
Even when Alamos has found worthy targets, it has been disciplined about the price it’s willing to pay for them.
Last year it bought Esperanza Resources for its advanced-stage Esperanza gold project in Mexico for net cash of $45 million, and paid only $3.5-million for Orsa Ventures, a junior with an early-stage project in Oregon.
And it declined to get into a bidding war when its biggest offer of the year, a $780-million hostile bid for producer Aurizon Mines, was bested by a friendly $796-million offer by Hecla Mining (NYSE: HL).
Instead, Alamos abandoned the bid, in part, because of a $27.2-million break fee Aurizon had agreed to pay Hecla.
“In pursuing our growth objectives, we will not deviate from the fiscal discipline that has made us one of the world’s most successful gold companies…” McCluskey said in March in a press release.
Another year of disciplined M&A
The discipline that Alamos has displayed through both rising and cooling markets has spread to the entire gold sector.
A report released in late February by PwC confirms that discipline returned to the market in 2013, a year that saw gold tumble by nearly 30%.
The report, which focused on global mining M&A, reveals that deal volume fell 20% last year (to 1,437 deals) compared with 2012 — which was already the worst year for deal volume since 2005.
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