Merger mania: Consolidation in the gold mining sector
Merger mania: Consolidation in the gold mining sector by Claudio Grass
Late last year, Barrick Gold, the world’s largest gold miner in terms of reserves, made headlines when it announced its acquisition of Randgold Resources, in an $18bn mega-merger that marked a key moment for the mining industry. In January, United States gold giant Newmont and principal rival of Barrick, made public its own plans to buy Canada’s Goldcorp, the world’s third-largest bullion producer by market value, for $10 billion. The deal, that is largely expected to go ahead and be completed in the next quarter, will result in the creation of Newmont Goldcorp, the world’s largest producer by output, with the capacity to produce up to 7 million ounces of gold annually over the next decade and with operations in South America, Australia and Africa.
Soon after the mammoth deal was announced, Barrick sent shockwaves across the industry once again, by announcing its intentions to take its greatest leap yet and launch a hostile bid for Newmont Mining, in a deal that would create a leviathan in the global gold sector. Even though in early March Newmont’s Board of Directors rejected Barrick’s $17.8 billion overture, options are still on the table for joint ventures and other partnerships. Furthermore, the fact that the Barrick-Newmont deal didn’t go through did nothing to discourage the M&A fervor that is sweeping the industry.
This intensified merger activity is not limited to the major mining companies either, despite the headlines and investor attention they often monopolize. In 2018 alone there were 1,349 mining deals valued at $86.3 billion, according to data compiled by Bloomberg. That’s an increase of 60% from 2017, bringing the total activity volume to a five-year high. As for the gold sector specifically, mergers and deal-making seem to be back in vogue, and quite decisively so, despite the relative inactivity in previous years.
The last decade has been a challenging time for gold miners, with weaker prices, increased pressure from shareholders and a race to cut costs and slash debt. Operational difficulties and the widespread, urgent need to replenish their pipelines, have also added to the troubles of mining companies across the board. At this stage, having already made cuts and amped up their efficiency, the larger problem, the need of actual gold in their existing operations is becoming increasingly apparent.