In the gold sector, nothing gets the sharks circling like the combination of promising mines and a depressed stock price. The sector’s prolonged slump now has its biggest predators, Newmont Mining Corp. and Barrick Gold Corp., feeding on weaker rivals, creating expectation of further takeovers in an industry where many experts see consolidation as long overdue.
Denver-based Newmont snapped up former market darling Goldcorp Inc. for US$10-billion after a series of management miscues left the Vancouver-based owner of 13 properties with a valuation that trailed comparable companies.
Barrick took advantage of much the same dynamics last September, striking a US$6-billion deal with Randgold Resources Ltd. after investors got the jitters over the company’s mines in politically unstable African countries such as Mali and the Democratic Republic of Congo.
Who is the next potential target? That was a hot topic of conversation in investment banking circles on Monday, as analysts crunched the numbers on the takeover of Goldcorp, which was the world’s most valuable gold miner just three years ago.
For major mining companies, the ideal takeover candidate holds large mineral reserves that aren’t reflected in the current price of the shares. When analysts at CIBC World Markets Corp. looked at the senior gold producers in a report on Monday, they found Goldcorp traded at a discount to peers, but the valuation gap was even larger at Yamana Gold Inc. and Kinross Gold Corp.
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