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TABLE OF CONTENTS Jan 20 - 26, 2014 Volume 99 Number 49 - 0 comments

Macquarie's musings on M&A, gold in 2014

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Analysts in the Toronto, Vancouver and London offices of Macquarie Equities Research are forecasting more consolidation in the mining industry this year, especially amongst producers, and calculate that the average premium paid in 15 mergers and acquisitions last year was 35% for producer targets and 53% for explorer and developer targets.

They say that in 2014, companies that could become acquirers include Agnico Eagle Mines (TSX: AEM; NYSE: AEM), Argonaut Gold (TSX: AR; US-OTC: ARNGF), Alamos Gold (TSX: AGI; NYSE: AGI), Osisko Mining (TSX: OSK; US-OTC: OSKFF), Iamgold (TSX: IMG; NYSE: IAG) and B2Gold (TSX: BTO; NYSE-MKT: BTG), while acquisition targets could include Semafo (TSX: SMF; US-OTC: SEMFF), AuRico Gold (TSX: AUQ; NYSE: AUQ), Detour Gold (TSX: DGC; US-OTC: DRGDF), Kirkland Lake Gold (TSX: KGI; US-OTC: KGILF), Carpathian Gold (TSX: CPN; US-OTC: CPNFF), Timmins Gold (TSX: TMM; NYSE-MKT: TGD) and Iamgold.

The mining analysts emphasize that the focus in 2014 will be cost containment, as producers try to trim operating costs and become “extremely judicious with their capital allocation — especially for new projects.” They estimate that these measures will lower the 2013 all-in sustaining costs (AISC) for producers from US$1,100 per oz. to US$917 per oz. in 2014, and US$892 per oz. in 2015.

Macquarie cautions investors to “stay defensive” and “avoid high-cost, near-term producers with stressed balance sheets.”

Analysts say they are focused on producers with low AISC and developers with advanced projects.

As for the gold price, they predict that “volatility will again be a key theme” this year, but that they expect “Chinese buying [investment and/or jewellery] to minimize the downside risk to the gold price,” even while demand from India in the first half of the year “looks set to be a drag.”

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