With Australia’s Newcrest Mining Ltd. set to acquire Canada’s Pretium Resources Ltd. , attention is now turning to which gold miner will be next to get scooped up, even as money managers caution that acquirers are likely to tread warily.
The Canadian gold industry is highly fragmented, with many companies chasing a limited pool of capital. Money managers have been pushing single-asset miners – companies that have only one mine or development project – to seek acquirers that are better capitalized than themselves. Inside major producers with large portfolios of mines, single-asset miners are seen as far less risky for investors.
Melbourne-based Newcrest’s pending $3.5-billion acquisition of Vancouver-based Pretium, a single-asset miner, is being pitched as exactly the kind of deal the industry has wished for. Pretium’s Brucejack gold project, its only property, has been a beast to mine, with the company on occasion encountering large swings in grade because of erratic geology. Newcrest, by comparison, is a well-diversified company with mines in Australia, Canada and Papua New Guinea. With a market value of US$15.4-billion, it is much better positioned to roll with the punches at Brucejack.
While the field of single-asset merger-and-acquisition candidates in Canada has shrunk considerably over the past few years with the purchases of Detour Lake Gold Corp., TMAC Resources Inc. and Battle North Gold Corp., there are still a handful of companies that stand out as potential takeover targets.
Jon Case, a portfolio manager with CI Global Asset Management in Toronto, thinks Victoria Gold Corp. could attract interest. Victoria is a new producer, operating the Dublin Gulch mine in the Yukon. While nowhere near as big as Pretium, Victoria aims to grow its annual production to 250,000 ounces by 2023.
Artemis Gold Inc. , Skeena Resources Ltd. and Marathon Gold Corp. are also potential targets, Mr. Case said. But, he added, all three are less desirable than Victoria, because they are still years away from production.
“It’s a totally different conversation when you’re talking about a development asset,” Mr. Case said.
Great Bear Resources Ltd. is at an even earlier development stage than Artemis, Skeena and Marathon, but it has arguably generated more hype than all three combined. The Vancouver-based exploration company has reached a market value of $1.15-billion based almost entirely on exciting drill results at its Dixie property in Red Lake, Ont.
Mr. Case thinks there’s an outside chance that Great Bear could be acquired by Barrick Gold Corp. , the world’s second-biggest gold miner, despite the fact that there is no 43101 report on the property yet. A 43101 is a rigorous study carried out by independent geologists that estimates the grade and quantity of gold in the ground.
In a recent interview, Mark Bristow, the chief executive officer of Barrick, swatted away questions about his interest in Great Bear. He also talked down the prospect of Barrick pouncing on any company in the current environment. In his opinion, many of the best deals were done about three years ago, before the big run-up in the price of gold. Bullion last year hit an all-time high of US$2,050 an ounce.
“Now you’re getting the Johnny-come-latelies,” making “deals of necessity,” he said. When asked for examples, he cited China’s Chifeng Jilong Gold, which recently announced its acquisition of Golden Star Resources Ltd. He also mentioned Agnico Eagle Mines Ltd.’s pending purchase of Kirkland Lake Gold Ltd. . Mr. Bristow said those deals were motivated by the need to replace depleted reserves, rather than real value.
For his part, Mr. Bristow signalled that he prefers to invest in Barrick’s existing portfolio of gold mines, and look for the next great gold discovery.
“We don’t want to end up at the end of the bull market where we haven’t added value,” he said.
Gold companies need to be cautious before paying top dollar to acquire early-stage exploration companies. In 2008, Vancouver-based Goldcorp Inc. bought Gold Eagle Mines Ltd. for $1.5-billion. Like Great Bear, Gold Eagle had very promising drill results in Red Lake, but had not conducted a 43101. The Gold Eagle purchase was a disaster. No sizable mine was ever built, and the failure was part of the reason Goldcorp itself was sold at a deep discount to Newmont Corp. more than a decade later.
Joe Foster, a veteran gold portfolio manager with New York-based Van Eck, remembers the Gold Eagle debacle well, and that is one of the reasons he thinks it’s probably too early for anyone to buy Great Bear.
The major gold miners “are reluctant to buy a company where they see any type of risk,” Mr. Foster said, be it geological, management-related or geopolitical.
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