Sean Boyd, the head of Agnico Eagle Mines Ltd., predicts there will be more deal-making among the world’s biggest gold companies over the next few years, given the recent rapid-fire increase in the price of bullion.
The price of gold recently hit new all-time highs of more than US$1,960 an ounce after the COVID-19 pandemic caused extraordinary dislocation in financial markets. Historically, investors have sought out gold as a safe haven investment during times of extreme uncertainty.
During the last great bull run in gold that ran from the early 2000s to late 2011, some of the world’s biggest gold miners, including Canada’s Barrick Gold Corp. Goldcorp Inc. and Kinross Gold Corp., struck blockbuster acquisitions – many of which ended up destroying billions in shareholder value.
The latest round of M&A, which kicked off in 2018 with Barrick buying Randgold Resources Ltd. for US$6-billion, has generally been welcomed by investors. Acquirers, which have also included Newmont Corp. and Kirkland Lake Gold Ltd., have been paying much lower takeover premiums, and using equity rather than cash – thus not putting their balance sheets under extreme duress.
“Given where the gold price is, where it’s likely going to go, and given history,” Mr. Boyd says more of these kinds of deals could be coming.
“The list of players and their relative rankings is probably going to be different two years from now,” he added.
As to whether Agnico itself could be part of any new consolidation at the top, Mr. Boyd would not speculate.
At US$17.7-billion, Agnico is the world’s third-biggest gold company by stock market value, trailing Colorado-based Newmont and Toronto-based Barrick, with valuations of US$54.5-billion and US$51-billion, respectively.
Barrick last year attempted a hostile takeover of Newmont. The gambit failed, but the two agreed to a joint venture in Nevada to run North America’s largest gold mine complex. As part of the transaction, Newmont and Barrick came to a standstill agreement that temporarily prohibits either company from acquiring the other. But that agreement expires next year.
“Who knows what’s going to happen there,” Mr. Boyd said.
“They’re both of similar size. They have both been eyeing each other for years. They have a history of taking each other on.”
John Ing, analyst with Maison Placements in Toronto, believes Barrick will indeed take another run at Newmont. “The compelling reason why Barrick would want Newmont is it’s a cash machine. It’s a huge cash machine,” he said.
In an e-mail to The Globe and Mail, Barrick CEO Mark Bristow declined to comment.
Aside from Barrick and Newmont, Mr. Ing says more M&A at the top of the gold market is necessary because of depleting gold reserves.
“The industry’s problem is reserves, or lack thereof,” he said.
However, Mr. Ing doesn’t think Agnico will participate in the deal-making in a major way as it doesn’t have a history of huge deals and it currently has its hands full.
While Agnico’s shares are trading at an all-time high, the company is emerging from one of the most difficult periods in its more than 60-year history.
At one point during the last quarter, seven of its eight gold mines were idled owing to COVID-19 restrictions, including sites in Quebec, Nunavut and Mexico.
While all of its mines have since gone back into operation, the company is closely monitoring the COVID-19 situation, particularly in Mexico, which has been hard hit with more than 400,000 cases. Thirty seven of Agnico’s Mexican employees have tested positive for the virus so far, 18 have recovered and there have been no fatalities.
Shares in Agnico rose by 3.8 per cent on Thursday on the Toronto Stock Exchange to close at $101.46 a share.