The gold industry made up 70 per cent of total M&A activity in the global mining sector in 2021, so why are gold companies so hungry for inorganic growth?
Notable 2021 deals included the $US10 billion ($14.47 billion) Agnico Eagle and Kirkland Lake Gold ‘merger of equals’ and Newcrest Mining’s $US2.8 billion ($4.05 billion) acquisition of Canada’s Pretium Resources.
In 2022, we’ve seen St Barbara purchase Bardoc Gold, Gold Road Resources buy DGO Gold, and Genesis Minerals acquire Dacian Gold, with varying objectives driving each move.
PricewaterhouseCoopers (PwC) Australia partner Marc Upcroft believes the fact establishing a gold company is relatively easier than with other commodities means there are more of them.
“Gold is one of those commodities where it’s still relatively easy to develop a small gold mine,” he told Australian Resources & Investment.
“In the scheme of things, it’s much easier being a small gold company than it is being a small lithium company, a small coal company or a small copper company. So … there’s lots of gold mining companies and many of them have got one maybe two projects.”
Upcroft said small gold companies have less influence in the broader scheme of things, and being smaller means they have less cost control.
“When you’re a small gold mining company, you don’t have any scale across the broader needs from a corporate governance and control perspective,” he said.
“The larger you are as a company, the more capability you have to meet today’s expectations around all of those things that come at a much higher cost than ever before.
“That’s why, for smaller gold companies, even without any synergistic benefits at the mine sites directly, there is a benefit of getting more mine cash flow to support that broader corporate function.”
Upcroft expects the gold industry to remain a prominent M&A player going forward as the pursuit of consolidation continues, with activity at both the large and small end of the sector.
But companies need not be greedy.
“When you look at the number of companies focused on gold (deals), it’s an ongoing cycle in terms of the sizing of those groups,” he said.
“There’s power in becoming a larger gold company – you’re in a little bit more control of what you do – but then there can also be a lot of extra value that can come from being narrowly focused on a couple of assets.
“So it is (about) getting that balance right across the gold industry.”