Gold Mining M&A: Expect Much More in 2020

Bank of America Securities says mid-tier gold mining companies could benefit most as senior producers unwind noncore assets

Kitco | January 17, 2020 | SmallCapPower: The ongoing decline in gold reserves will continue to fuel merger and acquisition (M&A) activity in the gold mining sector in 2020, adding to the substantial trend that started in 2019, according to analysts at Bank of America Securities.

(Originally published on on January 13, 2020)

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In a report published last week, the bank said that they see gold production from senior global producers falling by about 5% in the next four years. The declining production is also coupled with lower ore grades and shorter mine life.

“After years of underinvestment, we see production profiles under pressure and believe that it is inevitable there will be further M&A. We see too many mid-size ($0.5-$4.0 billion) gold vehicles with undifferentiated investment cases,” the analysts said. “Thus, we see the potential for further consolidation in the global gold sector in 2020.”

The expected increase in M&A activity comes after the gold mining sector saw total deals valued at $20.2 billion in 2019, a nine-year high, the analysts said. Nearly half of the deal value last year came from the $10 billion mega-merger between Newmont and Goldcorp.

However, BoA also noted 33 deals were made in the gold sector last year, a 6% increase from 2018. The analyst added that the gold price and company valuations played a major factor in the number of deals.

“2019 was one of the best years to be a buyer. Acquisition prices, on average, were at the lowest levels since 2013,” they said.

Looking ahead, the analysts said that senior producers unwinding noncore assets will be a dominant factor in deals in 2020, which will benefit mid-tier miners.

“Mid-tier producers not involved in M&A risk being “left behind” by their rapidly growing peers,” the analysts said.

Looking at some potential targets, at the start of the year, BoA updated its list of “Intriguing assets.” The analyst placed Victoria Gold Corp. (TSXV:VIT) in the second spot among mid-tier producers; at the same time, it added Orla Mining Ltd. (TSX:OLA) to the fifth spot among exploration companies.

Victoria Gold saw its Eagle Gold Mine reach commercial production in September. Orla is moving forward with the development of its Camino Rojo project in Zacatecas, Mexico.

At the top of BoA’s producers’ list is Pretium Resources Inc. (TSX:PVG), and Torex Gold Resources Inc. (TSX:TXG) rounds out the Top 3.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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