FT Gets (Semi) Sweet on Miners

Gold Miners Turn to Shares and Cost Savings in Takeover Deals

Authored by GoldFix

Rising gold prices are drawing miners back into acquisitions. Last year, the sector struck 32 deals worth $21 billion, the highest total value in 15 years, according to S&P Global. Last week, Northern Star Resources rejected a $27 billion cash-and-share offer from Gold Fields.

In “Gold miner M&A is finally producing something that glitters,” the Financial Times argues that this takeover cycle shows more capital discipline than earlier mining booms. Buyers are using more shares to finance acquisitions and pursuing combinations with specific operating savings, reducing some of the risks associated with paying large sums for project pipelines.

Buyers Commit Less Cash

Gold Fields proposed paying roughly three-quarters of the Northern Star purchase price in shares, providing some protection against a subsequent decline in gold prices. Excluding China, approximately a tenth of gold-mining deals over the past five years were paid entirely in cash, compared with almost a quarter during the previous decade, according to S&P Capital IQ.

Earlier acquisition booms saw executives write oversized checks to secure their peers’ projects, driven by concerns about replacing resources. The increased use of shares limits the cash committed at elevated commodity prices.

Neighboring Assets Offer Cost Savings

The article identifies a practical basis for combining mining operations:

“Mining acquisitions generally make more sense to investors when there’s a chance to cut costs as well as grab land.”

Gold Fields and Northern Star have neighboring assets in Western Australia. Predictive Discovery and Robex Resources, which united in April, plan to combine some of their projects in Guinea. Genesis Minerals and Vault Minerals expect their merger, announced in July, to eliminate the need to build a new processing mill.

Junior Exploration Creates Takeover Targets

After their acquisition binge during the 2010s, major producers cut exploration spending while junior miners continued investing in discoveries. That investment helped create a generation of mid-cap gold producers, giving larger companies a broader selection of takeover targets.

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FT Gets (Semi) Sweet on Miners

Gold Miners Turn to Shares and Cost Savings in Takeover Deals

Buyers Commit Less Cash

Neighboring Assets Offer Cost Savings

Junior Exploration Creates Takeover Targets

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