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Consolidation In The Gold Mining Industry As Companies Overextend

There is consolidation taking place in the gold mining industry as the market volatility takes out companies at all levels of the industry, from coin dealers to miners.

Amid a 12-year bull run ending in 2014, $30 billion in debt was taken on by gold miners. The miners which minimized their borrowing are now in a position to buy mines from rivals with weaker balance sheets, according to executives at the Investing In African Mining Indaba Conference in South Africa, which is the biggest gathering of the sorts on the entire African continent.

$2.7 billion in deals have been announced or completed in 2015, including Monday’s $1.1 billion offer for Rio Alto Mining Ltd. by Tahoe Resources Inc.  In 2014 there were $10.5 billion in deals.

“Gold is one of the brighter spots out there in the commodities space today,” said Rajat Kohli, who heads metals and mining at Standard Bank Group Ltd., Africa’s largest lender. “I would expect corporate activity to be reasonably pronounced in gold, not just in Africa but globally. We will see a few transactions, definitely.”

Randgold Resources Ltd., the best performing gold-mining company in the past decade, has been “flat out” overrun with offers to buy assets, Chief Executive Officer Mark Bristow said in an interview.

“People are a bit more confident to move from the sidelines into a bidding process,” Srinivasan Venkatakrishnan, CEO of AngloGold Ashanti Ltd., told Bloomberg. The world’s third-largest gold miner is looking to sell assets or form joint ventures to reduce debt, according to him.

“As the clock ticks on with this gold environment, balance sheets, access to capital, those all sometimes become catalysts for M&A,” Kinross Gold Corp. CEO Paul Rollinson said Dec. 10. “Our strategy has positioned us well to perhaps be opportunistic in that regard.”

Tahoe Resources offered $1.1 billion in cash-and-stock on Monday for Rio Alto, the largest gold deal in almost 10 months.  Acacia Mining Plc wants to do a massive deal sometime this year.  B2Gold Corp recently paid $570 million for Papillon Resources Ltd. to gain control of a project in Mali last year.

“A lot of people in our sector are a little scared to do deals, to step up and do something that may be considered a risk,” he said. While some companies “are licking their wounds, we’re out doing acquisitions and growing the company very aggressively.”

The public markets are also interested in gold, as the 14-member Bloomberg Intelligence Global Senior Gold index is up 22 percent this year, outperforming the 42-member MSCI World Metals and Mining index, which is down .03 percent. Gold companies have raised $852 million through public offerings this year, including more than $900 million last month from Canadian producers Romarco Minerals Inc., Detour Gold Corp., Osisko Gold Royalties Ltd. and Yamana.

One Comment

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