Barrick Gold’s merger with gold miner Randgold Resources has kindled hopes for further deals in the gold sector, boosting shares of rival miners on Tuesday.
The gold mining sector has been one of the least loved among investors this year due to a lacklustre gold price and a dearth of new mining projects. Overall, gold mining shares are down by 23 per cent year-to-date.
But Barrick’s move to create the world’s largest gold miner, which was announced at the industry’s annual conference in Colorado on Monday, has jolted some investors out of their apathy.
The deal could “could spur a pick-up in M&A, which in our view could result in a turnround in mining equity performance,” analysts at RBC said.
Shares in South African gold miners were some of the biggest gainers on Tuesday with Gold Fields up by 5 per cent, Sibanye up by 3 per cent and AngloGold Ashanti up by 3 per cent. In Canada mid-tier producer Iamgold rose by 2.4 per cent and Kirkland Lake Gold by 3 per cent.
Mergers and acquisitions have become cheaper than expanding reserves of gold through exploration, according to Coast Capital, a New York-based hedge fund. The cost of discovering an ounce of gold has risen eight-fold since 2007, according to their research.
“Nobody talks about consolidation but it needs to happen,” James Rasteh, a partner at Coast Capital, said.
Smaller miners could also benefit by buying assets Barrick wants to sell, according to analysts. Randgold chief executive Mark Bristow, who will become CEO of the combined company, called Barrick, said the miner will focus on the largest lowest cost mines and sell non-core assets.
“The mid-caps will be thrilled to see any non-core crumbs fall off the table,” analysts at Numis Securities in London said.
The deal has also boosted shares of Acacia Mining, the Tanzania-focused miner in which Barrick holds a 64 per cent stake. Barrick is currently negotiations with Tanzania’s president to lift an export ban on the company and resolve a tax dispute. Shares in Acacia rose 4.5 per cent on Tuesday to 134.7p.
Source: FT.com
