Gold industry M&A set to continue in 2022 despite racking up $21.3bn in value last year

Gold industry M&A set to continue in 2022 despite racking up $21.3bn in value last year

GOLD industry merger and acquisition activity last year totalled $21.3bn, the second highest ever in which an estimated 38 million ounces were acquired in 44 deals, according to research by Bank of America.

It added that more M&A was on the cards in the sector this year.

“Can it continue in 2022? It needs to, in our view. companies that don’t replace reserves risk (severe) derating and are likely to be consolidated(on the cheap) in our view,” said the bank’s analyst Michael Jalonen.

Cost inflation which could move into double digits for gold producers this year would also contribute towards M&A activity, Jalonen said.

“We think that gold majors may seek to replace older, higher cost (and hence most exposed to inflationary pressure) assets, effectively ‘bolting on’ mid-tiers with a single quality, lower cost asset,” he said.

Increasing dealmaking partly turned on the impact of a higher gold price, Jalonen said. The cost of acquisition last year was an all-time high of $1,358 per ounce. This was as the net present value to share price of gold seniors increased 100% versus a 40% increase in the ten year average gold price the bank used for net asset value and reserve replacement.

Most of the dealmaking would favour North America, however. This was owing to its perceived low political risk, experienced workforce and favourable geology, said Jalonen. About 35% of total deals last year were in Canada.

Deals last year included Newmont Mining’s $2.8bn acquisition of Pretium Resources whilst earlier in the year Agnico-Eagle and Kirkland Lake Gold sealed a $13.5bn merger.

In Africa, Sibanye-Stillwater sounded out AngloGold Ashanti and Gold Fields regarding a combination of the three to create an ‘African mining champion’. But the deal didn’t take off and Sibanye-Stillwater did not have the appetite for a hostile takeover.

In addition, shares in AngloGold Ashanti, which had been labouring at the time of Sibanye-Stillwater’s interest, began to recover.