Investors flock to Toronto this week with gold consolidation deals top of mind

INVESTORS gathering at the Prospectors and Developers Association of Canada conference in Toronto this week will be seeking more news on potential consolidation in the world’s gold sector following a rash of transactions involving some of the industry’s largest firms.

Reuters cited an analyst saying that the large mergers – between Barrick Gold and Randgold Resources, and a proposed deal involving Newmont Mining and Goldcorp which may be trumped by a rival bid by Barrick for Newmont – would create a vacuum for mid-tier gold company consolidation.

“The M&A activity with Barrick and Newmont is overshadowing everything, but it’s also creating a vacuum,” said Reuters citing Kai Hoffmann, CEO of Oreninc, a provider of deals information about junior miners. “Low-cost, mid-tier producers … are going to get bought regardless of what’s happening in the big ones.”

“The gold price is good, but capital flows, while probably better than last year, are still very scarce,” Reuters cited Robert Cohen, portfolio manager at 1832 Asset Management, as saying. “Mergers and weak management teams have destroyed capital. Investors have become a bit more cautious in their approach.”

Australian miners are likely to be potential buyers, as companies such as Northern Star Resources and Evolution Mining have benefited from disciplined management and “have all made oodles of free cash flow in the past few years,” said Maria Smirnova, senior portfolio manager at Sprott Asset Management. “Some of them would like to enter the North American market.”

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