Mid-tier gold producers to provide M&A impetus after deal flow at eight-year high in 2020

THE world’s mid-tier gold producers would provide the impetus for renewed merger and acquisition activity this year as they sought to hive off non-core assets, said analysts for Bank of America Global Research (BofA).

Senior mid-tier gold producers, defined by BofA as having gold or gold equivalent ounces production of between one to two million ounces annually “… will be reviewing their now enlarged asset bases for non-core assets to hive off. This process could lead to the creation of new producers and developers in 2021. Just like in 2020,” the report said.

M&A activity among senior gold producers, defined as having annual gold production of more than two million ounces, was unlikely, it said.

Instead, companies such as Barrick Gold, Newmont, Gold Fields and AngloGold Ashanti would seek organic growth projects or pursue exploration in order to replace reserves. A proposal by Barrick Gold CEO, Mark Bristow, to buy Grasberg – a gold/copper deposit in Papua New Guinea – was unlikely to materialise, the report said.

Smaller mid-tier producers not involved in M&A risked being left behind by their rapidly growing peers, said BofA.

“We see too many mid-size ($1bn-$5bn) gold vehicles with undifferentiated investment cases. Along with replacing reserves mined in 2020, staying ‘relevant’ may lead to the mid-tier producers being key drivers of gold M&A into 2021,” the bank said.

Among a group of eight of mid-tier gold producers that had “intriguing” assets – in other words, worthy of potential M&A – only Perseus Mining, the Australian-listed company that operates in Ghana and Côte d’Ivoire – was identified among Africa’s gold producers.

Transaction flow in the global gold sector last year, totalling $13.3bn, was the highest since a peak of deals between 2009 and 2012.

During the year, 44 deals were conducted involving 16 companies, eight mines and 20 development projects. Compared to 2019, this was a 33% increase in deals and was put down to the improvement in the gold price.

Last year was also the second best year to be a buyer of gold companies during the period 1998 to 2020, said BofA in its report. “The average acquisition price for companies was $1,283/oz in 2020, a steep 29.4% discount to the prevailing spot gold price at the time of transactions,” it said.

“This was the second-largest discount for company transactions with only an average discount of -38.0% in 2011 being more attractive. This was also well below the historical median of -2.6% for company transactions over the prior 1998-2019 period. We surmise that in rising gold price markets, acquisition prices lag behind.”

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