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Why Gold Miners’ Mergers and Acquisitions Are Heating Up

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Jan. 16 2019, Updated 3:31 p.m. ET

Consolidation in the gold sector

Many gold sector (GLD) veterans have long been expecting consolidation in the gold sector (GDX). The world’s economically accessible reserves are dwindling, and gold miners (NUGT) need to find more reserves to keep their production pipeline full. Therefore, when reserve discoveries slow down, M&As (mergers and acquisitions) may be miners’ next logical step to stay in business and grow.

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Recent M&A activity

Barrick Gold (GOLD) and Randgold Resources’ merger announcement in September set the stage for much-needed consolidation in the gold sector. Gold companies have been under tremendous pressure over the last few years.

Also, Pan American Silver (PAAS) announced its $1.07 billion cash-and-stock acquisition of Tahoe Resources (TAHO) in November. The purchase consideration represented a 34.9% premium to Tahoe’s share volume over the previous 20 days.

Increasing pressure on gold companies

Gold miners haven’t kept up with broader equities (SPY) (IVV) or gold, having lost favor with institutional investors after making M&A decisions at the peak of the commodity cycle, which resulted in high debt. Although some of these concerns have been resolved, gold miners are still under pressure to create value for stakeholders.

Newmont Mining (NEM) and Goldcorp’s (GG) deal, the gold space’s latest mega-merger, may suggest miners are getting serious about turning things around for stakeholders. On January 14, NEM and GG entered an agreement in which Newmont is to acquire all of Goldcorp’s outstanding shares in a $10 billion stock-for-stock transaction. This merger is set to create the world’s largest gold mining company in terms of production, reserves, and market capitalization. Before we delve into the merger’s details and outlook, let’s see which other gold miners could see some M&A action.

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