M&A among gold companies jumped in 2021, and deals are poised to increase in 2022 as miners scramble for a shrinking number of producing assets to keep their pipelines full.
The $10.62 billion merger between Agnico Eagle Mines Ltd. and Kirkland Lake Gold Ltd. led the way among a wave of monster gold deals in 2021. While complete M&A data for the year is not yet available, the market was also rocked by Newcrest Mining Ltd.'s $2.78 billion takeover of Pretium Resources Inc. and Kinross Gold Corp.'s $1.44 billion acquisition of Great Bear Resources Ltd.
Deal flow in 2022 is set to follow a pattern similar to 2021, but with fewer options. Depleting gold reserves, market pressure to bulk up company valuations and gold asset scarcity will send larger miners out looking to swallow smaller players that are sitting on active mines and higher-quality projects in 2022 gold mining M&A.
"It has actually been a very busy year ... and I see the pace of M&A only picking up," Gold Royalty Corp. President, Chair and CEO David Garofalo said in LinkedIn direct messages.
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| A worker pours gold at Kinross Gold's Fort Knox site in Alaska. Kinross Gold is acquiring fellow Canadian mining company Great Bear Resources. |
The Agnico-Kirkland deal, expected to close in the first quarter of 2022, is set to create Canada's largest gold producer and the third-largest gold miner globally. The Newcrest and Kinross transactions involved larger producers taking out smaller gold companies organized around single assets in Canada, respectively targeting the producing Brucejack mine and the exploration-stage Dixie project.
But with those deals now on the books, the cupboard of gold assets is increasingly bare, leaving only a handful of higher-quality multimillion-ounce projects or mines for sale, according to Osisko Mining Inc. Executive Chair and CEO John Burzynski, who has helped execute his own share of multibillion-dollar deals.
"The few assets left are what people have to reinforce their depleting reserves," Burzynksi said in an interview. "Otherwise, you're looking at seven or so years to drill out a new deposit."
The draining pool of gold assets for sale comes amid a longer-term issue faced by the gold sector, which is declining reserves due to dropping gold discoveries. There has been a steep drop in reserve life among major gold miners, S&P Global Market Intelligence showed in a 2020 analysis.
"Sixteen of the world's 20 largest gold miners ... saw their overall remaining years of production fall over the 2010-19 period," Market Intelligence analyst Robert Anders said in the Aug. 18, 2020, report, pointing to declining discovery rates and lackluster investment in exploration as drivers of the trend.
The issue has not escaped industry executives. Barrick Gold Corp. President and CEO Mark Bristow said in late 2020 that the sector faced a "serious reserve crisis" and called for greater consolidation.
Stable gold price builds confidence
Prior to 2021, the gold sector was held back in recent years by unstable company valuations in a notoriously volatile gold market, said Matthew Lennox-King, president and CEO of Contact Gold Corp., an exploration company that owns gold assets in Nevada.
But gold company valuations stabilized through 2021 amid a historically strong gold price that traded at about $1,800 per ounce for much of the year. As a result, executives may be more willing to entertain proposals, Lennox-King said in an interview.
"If you have steady baseline valuations in the market, I think that's constructive," Lennox-King said. "That sets us up pretty well for more M&A in 2022."
Producing gold assets were increasingly targeted through 2021, suggesting miners may have gained confidence in pursuing deals given a fairly stable gold price, Market Intelligence analyst Nick Wright said in an email.
"That takes some of the risk out of acquiring producing assets, and I think we're seeing the results," Wright said.
Miners and their backers prefer assets in politically stable countries such as Canada, and ideally producing assets. But with the pipeline of top-producing gold assets for sale thinning out, development-stage assets may increasingly become targets in 2022, Wright said.
"We have seen a willingness for producers to take on more development risk," Gold Royalty's Garofalo said. "And they will have to do that to create any sort of pipeline."
Gold miners are also looking to expand to be included in exchange-traded funds. It has become increasingly important to have a larger market cap and a higher trading volume to meet thresholds to be included on some indexes and to attract major investors, Burzynski said.
"The game has become: be the biggest or get bigger. And we saw that with Kirkland and Agnico," Burzynski said.