This year will be remembered for many things and if you are an investor one of those will be the record gold activity.
Starting the year on steady footing (US$1,552.30 per ounce), prices fell in mid-March (US$1,471.40) and have rocketed back to 2012 levels.
Now firmly planted above US$1,700 and poised to move higher a resurgence in mergers and acquisition activity has emerged.
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As prices for the yellow metal steadily climbed in January and February, a steady flow of M&A news was released. By early March, gold hit its quarterly high US$1,679.60, just days before markets would tailspin and resource prices tumble.
By March 19, the yellow metal shed its 2020 gains to trade for US$1,471.40. The volatility brought on by COVID-19 containment closures hindered M&A activity from the middle of March to mid-April.
A steady ascent in spot price from March 31 until the end of May has laid the ground for an M&A revival with more than a half a dozen deals announced in the last 30 days.
Below is a list of M&A activity broken down by month.
January
Resolute (ASX:RSG,LSE:RSG) sells Ravenswood gold mine
One of 2020’s earliest deals was Australian listed Resolute’s decision to sell the Ravenswood gold mine. The sale — announced January 15 — totaling AU$300 million passed ownership of the Queensland gold mine over to a consortium including EMR Capital and Golden Energy Resources (SGX:AUE).
In operation since 1987, Ravenswood has produced 1.9 million ounces of gold since 2004.
Auteco Minerals (ASX:AUT) acquires stake in Pickle Crow project
Announced January 28, Auteco Minerals will acquire up to 80 percent of the Pickle Crow gold project. Described as one of Canada’s oldest historical mines, the Ontario site has produced 1.5 million ounces of gold to date.
The deal sees Auteco pay First Mining (TSX:FF) two cash payments of C$50,000, and outlines several earn-in requirements and tiers.
The first month of 2020 also several pending deals finalized. Most notably Barrick Gold (TSX:ABX,NYSE:GOLD) and the Tanzanian government’s joint venture.
Caledonia Mining (TSX:CAL,NYSEAMERICAN:CMCL) also increased its stake in the Blanket gold mine by 15 percent. Now controlling a 64 percent interest in the project, the increase in ownership is part of a larger agreement first penned in 2018.
February
ECR Minerals (LSE:ECR) offloads SLM gold project
During the first week of February, ECR Minerals reported its intention to sell its SLM gold project to private Chinese company Hanaq.
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The decision will allow ECR to focus on its Australian project, while giving Hanaq another project located in Argentina.
ECR will retain a net smelter return (NSR) royalty of as much as 2 percent on the project situated in La Roja, Argentina.
Shanta Gold (LSE:SHG) Buys Barrick’s Kenyan Assets
On February 10, east African gold producer Shanta entered into an agreement with gold major Barrick to acquire Acacia Exploration.
Totalling US$7 million in cash and an additional US$7.5 million in shares, the deal makes Barrick Shanta’s largest shareholder with a 6.4 percent stake.
The key asset is the West Kenya project, which Barrick took control of when it acquired Acacia in 2019.
The Shanta agreement also sees Barrick retain a 2 percent life of mine NSR royalty over the life of mine.
AngloGold Ashanti (NYSE:AU,ASX:AGG,JSE:ANG) sells rest of South African assets
In May 2019 AngloGold announced plans to offload its portfolio of South African asset and steadily worked towards that goal.
Wrapping up the liquidation, in mid-February the gold producer entered into a deal with Harmony Gold (NYSE:HMY,JSE:HAR) to sell the Mponeng mine for US$300 million.
The South African project is world’s deepest mine; extending 4 kilometres below ground.
A recent spike in COVID-19 cases in and around Mponeng has prompted AngloGold to report the Harmony acquisition won’t be finalized until the end of July.
The purchase of individual projects is a trend we continue to see in the gold sector before and after the coronavirus was declared a pandemic.
Market turmoil induced by the global outbreak has been compared to the economic meltdown of 2008, however as s Exploration Insight’s Joe Mazumdar explained this time around is markedly different in terms of M&A.
“During the Global Financial Crisis, gold was one of the commodities that rebounded the quickest, but the companies were reluctant due to capital allocation risk,” said Mazumdar.
Noting that, that is no longer the case as companies in the space have more confidence in today’s gold price.
He continued: “The gold mining sector as a group is in a healthier state than a few years ago and the gold market sentiment is buoyant therefore M&A transactions that make sense with no significant premiums, which have less chance of leading to a future impairment, are viewed more favorably by investors.”
NQ Minerals (OTCQB:NQMLF) buys Tasmanian gold mine
The last deal of February was NQ Minerals acquisition of the Beaconfield gold mine. The Tasmanian project is in close proximity to the miner’s flagship Hellyer gold mine.
The deal is worth AU$2 million.
March
Asset acquisition continued in the first half of March, however the first deal of the month was the finalization of Newcrest Mining’s (ASX:NCM,OTC Pink:NCMGF) AU$90 million Gosowong mine sale.
A day later the gold producer announced it had earned a 40 percent stake in the Haverion project after reaching stage 2 of a 4 stage, 6-year farm-in agreement.
A week later widespread uncertainty descended on markets resulting in a massive sell off and significant drop in gold prices.
While most deals were moved to the sideline as companies struggled to keep employees safe and comply with various country led initiatives one last merger occurred during the month.
On the final day of March, news broke that Alio Gold (TSX:ALO,NYSE:ALO) and Argonaut (TSX:AR) planned to merge. The union will create a portfolio of assets throughout North America.
April
By mid-April some normalcy had returned to the gold space and deals were once again on the table.
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Barrick Acquires 70 percent interest in Pueblo Grande
On April 14, mega miner Barrick reported acquiring a 70 percent stake in the Dominican Republic mine Pueblo Grande. The agreement will see Barrick pay C$1.39 million through a share subscription.
May
The fifth month of the year brought more stability to the gold price and led to a number of transactions.
Magna Gold (TSXV:MGR,OTCQB:MGLQF) buys Mexican mine
Junior gold company Magna Gold recorded one of the May’s earliest deals when it acquired the San Francisco mine. Located in Mexico, Magna paid C$2 million to Timmins Gold Corp, a subsidiary of Alio Gold (TSX:ALO) for the project.
Shandong Gold (SHA:600547) purchases TMAC Resources (TSX:TMR)
One of the first post-COVID-19 takeovers came when SD Gold moved to acquire Canada’s TMAC Resources. The deal that is estimated to cost US$149 million moves control of the Hope Bay property in Nunavut into Shandong’s control.
SSR Mining (TSX:SSRM,NASDAQ:SSRM) and Alacer Gold (TSX:ASR,ASX:ASR) pen friendly merger
In a deal that has been described as a merger of equals, SSR Mining and Alacer announced plans to unite under the SSR Mining moniker.
“The rationale for the combination appears to be a combination of like minds that are focused on free cash flow generation,” said Mazumdar. “In addition, both score well on the ESG rankings suggesting that they may be more attractive to larger funds.
The editor of Exploration Insights went on to add that if the newly formed alliance can generate steady free cash flow, it may lead to the issuance of dividends, which would attract another tier of investors.
The newly formed entity, will will hold a portfolio of projects in Canada, the US, Argentina and Turkey, and have a combined equity value of US$4 billion. The company’s focus will be the production of 780,000 gold equivalent ounces over the next three years at an average all-in sustaining cost of US$900 an ounce.
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Adriatic Metals (ASX:ADT,LSE:ADT1) acquires Tethyan Resource (TSXV:TETH)
Mid-month came the announcement that Adriatic Metals would purchase Tethyan in an effort to bolster its portfolio.
“(The deal) appears to be a move by Adriatic to increase its presence in the Balkan Peninsula. Adriatic has the low tonnage, high grade polymetallic Rupice project in Bosnia, which is at the scoping study level,” Mazumdar pointed out.
The market analyst went on to note that some of Adriatic’s investors may not have gotten what they hoped for with the deal.
“Tethyan’s previous focus was on the Rudnica porphyry copper-gold project but it recently added a silver-lead-zinc project (Kizevak), which will be the merged company’s near-term focus in Serbia,” he said. “Those Adriatic shareholders that were hoping for an M&A bid may be disappointed that it acquired another asset.”
A three way merger between Gran Colombia Gold (TSX:GCM,OTCQX:TPRFF), Gold X Mining (TSXV:GLDX,OTCQX:SSPXF) and Guyana Goldfields (TSX:GUY,OTC Pink:GUYFF, that was described as part merger (Gold X), part hostile takeover (Goldfields) was also announced in May.
“Guyana already has a bid from Silvercorp Metals (TSX:SVM,NYSE:SVM) which comes with a small break fee of C$3-4 M,” Mazumdar said of the May 11 announcement.
He added: “It will be up to Guyana to decide whether this is a superior proposal. At current prices, Gran Colombia is offering about C$0.80-85 per share (100% shares of GCM) whereas Silvercorp is offering C$0.60-0.65, but with a third in cash”
The ambitious “3G” deal which was contingent on Gran Colombia finalizing each deal separately fell apart in late May, when Gran Colombia decided to no longer pursue the acquisition of Guyana Goldfields.
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Securities Disclosure: I, Georgia Williams, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.
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