Alacer Gold’s Copler gold mine in east-central Turkey. Alacer and SSR Mining announced an at-market merger of equals in May 2020. Credit: Alacer Gold.
The total transaction value of mergers and acquisitions in the second quarter of the year reached $2.86 billion in twelve deals, with Chinese buyers acquiring gold assets and smaller companies joining forces to become mid-tier producers, the Bank of America Securities says in a new report.
The investment bank noted that the 12 transactions represented the highest quarterly total since the fourth quarter of 2012, and the dollar value was nearly double that seen in M&A deals during the first quarter of 2020.
It also pointed out that one of the trends in the second quarter was the preference for assets already in production or nearly in production. “Six of the twelve transactions in Q2’20 were for assets currently in production,” the report states.
Describing the current investment climate as a “buyer’s market for companies,” Bank of America (BofA) noted that five of the transactions with reserves that took place in the second quarter of the year “were priced at a 23% discount to the prevailing gold price, below the historical range of -20% to +10%.”
“The data indicates that H1’20 was one of the best periods to be a buyer of gold companies, mines and projects,” the bank concluded.
“For gold company transactions, acquisition prices, relative to the prevailing gold price, were on average at the lowest level since 2011 and the second lowest since 1998.”
The bank also pointed out that “mega projects are back in vogue,” citing Artemis Gold’s C$190 million cash acquisition of New Gold’s Blackwater project in British Columbia, one of the largest open-pit gold deposits in Canada, which has “added over $200 million of new market value” to the buyer.
“This may put the spotlight back on companies sitting on multi-million oz. low grade gold megaprojects.”
In addition, of the 12 deals in the second quarter, seven had reserves and five had resources-only.
“The ‘elephant in the room’ was SSR Mining’s friendly $1.71 billion all-share merger with Alacer Gold on May 11 2020,” it states, which has created a +600,000 oz. gold producer.
“The remaining eleven transactions ranged in size from $27 million to $238 million. The global senior producers were absent from the M&A circus in Q2’20.”
Moreover, only half of the Q2 transactions were in mining-friendly jurisdictions (Canada, Australia and Ghana), illustrating that “political stability [was] less important in Q2’20.”
The M&A deal flow is unlikely to slow in the second half of the year, the bank forecasts, with higher…