At the start of 2020, the stars seemed to align for Christian Milau, chief executive of Vancouver-based Equinox Gold Corp. His company’s stock was trading up 58 per cent as high as $12.89, a sharp rise in the aftermath of its announcement in December that it would merge with fellow intermediate gold miner Leagold Mining Corp., which rose a similar amount to $4.20.
The nil-premium, merger of equals appeared to be exactly what investors had been clamouring for. Together, the two companies had more assets, and that increased the geographical diversification of their portfolio, which translated into a lower cost of capital, a higher trading multiple and a market capitalization large enough to attract attention from several index funds.
“It really was a case where the sum of the parts are worth more,” said Milau. But as the fallout from the spread of coronavirus rocks the equity markets, all those benefits appear to have flown out the window.
On Thursday, two days after the merger actually closed, both companies were trading at, or at many times, below their pre-merger share prices, with Equinox at $7.92 and Leagold at $2.70. Milau said it will take a few more days for the shares to consolidate fully under Equinox.
It’s one example of how narratives around gold are being reset, if only temporarily, by the worst crisis in more than a decade. Bullion, which had been steadily rising since last May, and has long been considered a safe haven asset during moments of panic, tumbled four per cent on Thursday to US$1,592. Gold prices are up nearly 4 per cent year-to-date, compared to double-digit declines in equity markets.