May Daze: Money-making Mergers in the Gold Space
After months of subdued merger and acquisition (M&A) activity in the gold sector, May is proving to be the month of M&A, with three deals reported this week.
The period started with the announcement that Gran Colombia Gold (TSX:GCM,OTCQX:TPRFF), Gold X Mining (TSXV:GLDX,OTCQX:SSPXF) and Guyana Goldfields (TSX:GUY,OTC Pink:GUYFF) plan to merge to create an intermediate gold producer focused on Latin America.
Also on Monday (May 11), news broke that SSR Mining (TSX:SSRM,NASDAQ:SSRM) and Alacer Gold (TSX:ASR,ASX:ASR) intend to combine under the SSR Mining moniker.
In a third sector deal, Adriatic Metals (ASX:ADT,LSE:ADT1) announced its aim to purchase Tethyan Resource (TSXV:TETH) to establish a polymetallic developer and explorer based in the Balkans.
The proposed transactions come at a time when gold company activity has been somewhat subdued due to coronavirus-related restrictions. With that in mind, the Investing News Network (INN) reached out to several gold experts to find out what the three deals mean for each company as well as the entire sector.
Experts weigh in on latest round of gold M&A
Starting with the “three G” deal between Gran Colombia, Gold X and Guyana Goldfields, Joe Mazumdar of Exploration Insights noted that it should not have come as a big surprise to those who have been tracking Gran Colombia.
“It appears Gran Colombia is looking for a lot of ounces and an operation it can improve upon,” he said.
He pointed out that the amalgamation will bring together the large-volume, low-grade Toroparu open-pit gold project and Aurora, a “problematic open-pit/underground asset.”
“Gran Colombia already had a 21 percent stake in Gold X and a board seat, therefore the acquisition should not be a complete surprise to the market. Gold X has the large (7 million ounces) and low-grade (<1 gram per tonne gold) Toroparu deposit, which provides leverage to the gold price,” said Mazumdar.
“Its previous feasibility study (2014) does not include its updated resource, therefore another feasibility study is planned for 2020,” he continued.
Staking its claim as a leading intermediate producer will be the primary outcome of the deal; however, as Derek Macpherson of Red Cloud stated, it is important to note that both deals involving Gran Colombia are contingent on the other being finalized.
“We view the Gold X/Guyana Goldfields with Gran Colombia potential merger as Gran Colombia using its balance sheet and scale to unlock significant development synergies between Gold X and Guyana Goldfields’ respective deposits,” he said.
In general, Gerardo Del Real of the Outsider Club sees the three-way deal boding well for the sector as it enters a period of sustained growth.
“I think the acquisition shows a desire for liquidity and visibility in anticipation of what many believe — including myself — is the beginning of a historic bull market in the gold space,” he said.
Del Real also sees these same motivators as catalysts behind the SSR Mining and Alacer merger.
“I believe liquidity and visibility to attract larger pools of capital was the motivator, but it also showed a willingness to take on jurisdiction risk in order to accomplish that,” he said.
During a joint conference call on Monday, the CEOs of SSR Mining and Alacer highlighted the goals of the combined entity, including the production of 780,000 gold equivalent ounces over the next three years at an average all-in sustaining cost of US$900 an ounce.
Once united with Alacer, SSR Mining will hold a portfolio of projects in Canada, the US, Argentina and Turkey, and will have a combined equity value of US$4 billion.
“Obviously when you see the words ‘billion-dollar deal’ and ‘Turkey,’ you take note,” said Del Real when asked about potential territorial issues with the deal.
“Jurisdictional risk is like real estate — very localized with different risk parameters that not only depend on the region and community, but on how operators have conducted themselves in those areas.”
Regardless, Del Real was adamant that the deal making and renewed focus on gold developers and explorers is both exciting and timely due to the decreasing number of feasible projects.
“This bodes well for current explorers and developers that can demonstrate gold projects with scale, healthy margins and an attractive production profile in a safe jurisdiction. The bottom line is there are fewer and fewer deposits like that around the world, and those become more valuable by the day,” the editor at the Outsider Club added.