Mergers and acquisitions
While gold mining production could plateau or even decline going forward, that doesn’t have to be the case for individual gold miners. Consolidation in the gold industry could lead to players with a strong balance sheet and cash potential buying assets and thus raising their production profiles.
Let’s look at some of the companies that desperately need to raise production through mergers and acquisitions (or M&A). Let’s also look at the companies that have the potential to do so.
M&A in 2015
Many intermediate and senior gold producers have declining production profiles. Thus, M&A activity is expected to pick up in the coming months and quarters. The development pipeline is also weak since many producers are cutting their exploration budgets in an effort to cut costs.
This is an active year for M&A activity in the gold space. There have been six significant deals so far in 2015, which is higher than 2014 and 2013. The above table summarizes those acquisitions.
Miners interested in M&A
There are other non-core assets for sale. Barrick Gold’s (ABX) Zaldivar mine and AngloGold Ashanti’s (AU) Cripple Creek mine are both for sale. Many miners, including Newmont Mining (NEM), are interested in AngloGold’s asset.
Kinross Gold (KGC) has a strong balance sheet. Its net debt-to-EBITDA (earnings before interest, taxes, depreciation, and amortization) is 1.2x, and available liquidity is $2.5 billion as of March 31, 2015. Given the lack of organic growth going forward, Kinross is expected to use its balance sheet for M&A growth. Any focus on North American assets through M&A could be a rerating opportunity for Kinross. It has long been trading on an emerging markets discount, particularly Russia’s, compared to its senior gold peers.