NA Mid-Tier gold mining sector shrinking
By: Dorothy Kosich
Posted: '29-NOV-06 08:00' GMT © Mineweb 1997-2006
RENO, NV (Mineweb.com) --Precious Metals Research Analysts from Merill Lynch, Michael Jalonen and Anita Soni, noted two North American M&A trends during the second half of this year. “Firstly, the vast majority of targets being acquired have assets in politically stable jurisdictions (with respect to both title to property and timely permitting),” they wrote. “Secondly, there has been a movement towards transaction for companies with assets already in production.”
“These latter transactions have the dual benefit of not having the technical and permitting risks inherent to development projects and having experienced operating teams,” Merrill Lynch suggested. “The end result of this move towards ‘safer’ acquisitions is a gradual decimation of the North American mid-tier producer sector,” referring to the purchases of Glamis Gold, Cambior and Bema Gold.
One consequence of the shrinking number of North American mid-tier gold producers “is a potential expansion of valuation multiples for the remaining mid-tier producers (which is already occurring). Particularly those with growth and/or relatively lower cash costs,” said the analysts. As mid-tier producers shrink, Merrill Lynch suggested that “we believe companies with multi-million ounce development projects will be next on the M&A hit list.” And, they noted, “We would expect intermediate producers to band together to create the next generation of mid-tier companies.”
The analysts suggested that IAMGOLD, Agnico-Eagle, Eldorado Gold, Centerra Gold, and Yamana Gold “would likely be viewed as prime targets” for takeover by senior producers.”
“If reducing cash costs is the prime focus for the acquirer, then Agnico-Eagle, Yamana Gold and Meridian Gold would all be viewed as intriguing targets,” they suggested, noting that Agnico, Centerra, Meridian and Golden Star “offer intriguing exploration potential which could lead to reserve increases reducing the acquisition cost.”
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