Megamerger Push Has Gold Miners Eyeing New Dance Partners

A push by the world’s biggest gold miners to get even bigger will likely have a knock-on effect among their competitors, adding new vigor to an industry that failed to inspire investor support in 2018.

The megamerger mania now under way for Newmont Mining Corp., Barrick Gold Corp. and Goldcorp Inc. is likely to result in some of their assets being sold, helping to diversify portfolios for other miners and boosting the interest of investors. More importantly, it could force mid-tier companies to team up in order to successfully compete.

“This is a competitive marketplace in terms of attracting capital, and you have to make a decision at some point,” Michael Siperco, an analyst at Macquarie Capital Markets, said in a telephone interview. “Yamana, Kinross, Iamgold -- what’s the strategy here in terms of not getting absolutely left behind?”

In a recent report, Siperco said that megamergers among the largest miners could give them access to capital that will let them out-bid everyone else for junior explorers and developers that are essential to replenishing pipelines. Meanwhile, in comparing the market capitalization with the valuations of Australian companies including Newcrest Mining Ltd., Evolution Mining Ltd. and Northern Star Resources Ltd., “the question has to be, what’s next?” Siperco said.

‘Concentration Risk’

A January note by Credit Suisse Group analysts Fahad Tariq and Mark Llanes also speculates that Iamgold Corp. and Yamana Gold Inc. could pursue mergers for critical mass, as well as B2Gold Corp. Spokespeople for the three mining companies didn’t immediately respond to phone calls and emailed requests for comment.

A gauge of 14 big gold producers tracked by Bloomberg Intelligence tumbled 10 percent last year, the first decline since 2015, as bullion prices languished below $1,300 an ounce, crimping margins. Since Jan. 1, however, the shares have gained 5 percent, making them more attractive to investors and potentially spurring a new emphasis on growth.

“Concentration risk is an issue,” Chris Gratias, a managing director and head of mining at CIBC Capital Markets, said at a conference in Toronto this week. “A diversified portfolio in this environment is more attractive to investors than single assets.”

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