Mid tier intermediate’s get light shown on them A new report from Bank of America Securities puts the total deal value of global gold mergers and acquisitions last year at US$20.2 billion — the highest in nine years — with the senior producers mainly active as sellers and the mid-tiers as buyers, and the bank says it sees potential for further consolidation in the sector this year.
Years of underinvestment and rising pressure on production profiles are two key factors, but are not the only ones, the report states. Not only do the global gold producers “face the daunting task of replenishing reserves mined,” the bank’s analysts reason, but “an unintended consequence of the non-core asset sales was to create larger more liquid mid-tier gold producers coming to the attention of global gold investors …. Mid-tier producers not involved in M&A risk being ‘left behind’ by their rapidly growing peers.”
In addition, B of A points out that there are “too many mid-size (US$0.5-$4 billion) gold vehicles with undifferentiated investment cases.”
According to the bank, acquisition prices last year, on average, relative to prevailing gold prices, “were at the lowest levels since 2013,” making it a good year to be a buyer.
“The average reserve price in 2019 for companies was US$1,132 per oz., a steep 19% discount to the prevailing spot gold price at the time of the transactions,” the report states. “This was well below the historical median of -2.6% for company transactions over the prior 1998-2018 period.”
Of the 33 deals in 2019, 15 involved gold companies, six involved mines and 12 development projects. By contrast, of the 31 transactions in 2018, 16 involved companies, nine mines and six development projects.