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Junior mining companies struggled once again to raise capital in 2018 with
the lowest level of equity issuance in the North American metals and mining
sector in 13 years. To fill the void, many have turned to more expensive
methods of raising capital, including royalty agreements and streaming deals.
Barrick Gold Corp.’s “no-premium” US$6-billion acquisition of Randgold Resources Ltd. is expected to trigger more deal making in the struggling Canadian gold sector in 2019.
During the great commodities boom of the mid-2000s, Barrick and others unveiled splashy multibillion-dollar-premium takeovers only eventually to take massive writedowns. But in September, Barrick broke away from the old model by announcing it will pay merely the market price for Randgold. The deal was warmly greeted by shareholders on both sides as a sensible solution in a difficult market.
“M&A has slowly been re-entering investor consciousness, and we suspect this trend will gain momentum in 2019, especially since there have now been a few successful transactions,” BMO Nesbitt Burns Inc. analyst Andrew Kaip wrote in a note to clients, including the Barrick-Randgold deal as an example.
Far from being a one-off, the zero-premium template is one the entire gold industry should learn from and possibly enact, said Jon Case, precious metals portfolio manager with Sentry Investments.
“The precedent set by this Randgold no-premium [deal] I hope will be able to change the perception of value from an acquisition standpoint,” he said. Smaller and riskier gold companies, particularly those with a single mine as opposed to a large portfolio, would benefit the most from a zero-premium deal, he said.
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