Editorial: In M&A, Canada goes for the gold

A healthy pace of mergers and acquisitions is usually a positive sign in any industry, and so the rebounding M&A scene in Canadian mining over the past few months is encouraging.

Some hard numbers are found in KPMG’s latest Mining M&A Quarterly Newsletter, which covers second-quarter M&A activity around the world.

KPMG’s headline number is striking: globally, the deal value from the first quarter of 2014 to the second quarter more than tripled, from US$2.9 billion to US$9.8 billion. Adding to the bullish trend, the end of the second quarter saw rising mining equity indexes and stronger gold and copper prices.

Companies from Canada, Australia, China and Indonesia were the dominant acquirers, and the subsectors that saw the most activity were gold, iron ore, mineral sands and copper.

KPMG tallied 23 substantial transactions in the second quarter compared to 18 in the first quarter, and three of the latest acquisitions topped US$1 billion.

Canada stood out as both the top acquirer and top target country in the quarter, KPMG notes, largely due to major gold deals.

“So complete was Canada’s domination of gold activity in second-quarter 2014 that every leading global gold transaction above US$200 million in the quarter was Canadian,” KPMG writes. It tallied a total of 12 Canadian gold transactions accounting for US$4.6 billion in deal value in the second quarter, up from the first quarter’s US$500 million.

However, this lofty second quarter sum was “anchored by one blockbuster deal”: the joint US$3.6-billion friendly offer for Montreal-based Osisko Mining by Canadian mid-tier miners Yamana Gold and Agnico Eagle Mines. After a few twists and turns, the duo’s effective C$7.60-per-share offer edged out a hostile one from Vancouver-based Goldcorp, and replaced an earlier deal that would have seen Yamana buy half of Osisko’s Canadian Malartic mine in Quebec.

Taking second place in second-quarter gold M&A was the US$543-million acquisition by Vancouver’s B2Gold of Australia’s Papillon Resources and its feasibility stage Fekola gold project in Mali.

Snapping up Papillon should allow B2Gold to increase its annual gold production from the current 400,000 oz. gold to 900,000 oz. gold by 2017, from existing and newly built mines in Nicaragua, the Philippines, Namibia and Mali.

Third in second-quarter Canadian gold deals was Rio Alto Mining’s friendly offer to buy Sulliden Gold for US$296 million. Sulliden’s advanced Shahuindo gold project in Peru is right next door to Rio Alto’s La Arena gold mine, which is producing 210,000 oz. gold per year. A US$132-million heap-leach mine at Shahuindo could produce over 100,000 oz. gold a year over 10 years, beginning in late 2015.

The fourth-largest Canadian gold deal was worth only US$58 million: Mandalay Resources’ purchase of Elgin Mining and its underground Bjorkdal gold mine in Sweden, which annually produces 50,000 oz. gold at cash costs of US$900 per oz.

KPMG found that copper M&A transactions globally in the second quarter totalled US$1.5 billion, with only two deals: an unsolicited A$1.1-billion bid by China’s state-owned Guangdong Rising Assets Management for Australia’s PanAust, which produces copper and gold at its Phu Kham and Ban Houayxai mines in Laos, and has development projects in Papua New Guinea and Chile.

The other copper transaction was First Quantum Minerals’ friendly US$395-million takeover of Ross Beaty-linked Lumina Copper and its large Taca Taca copper-gold-molybdenum deposit in northwest Argentina.

And of course, looking through the all the above transactions, there is the glaring absence of any of the super-majors as acquirers.

Indeed companies such as BHP Billiton, Vale, Rio Tinto, Anglo American, Codelco, Freeport-McMoRan Copper & Gold, Barrick Gold, Newmont Mining, Alcoa and De Beers are all focused on digesting and divesting acquisitions made during the boom period of several years ago, and if anything, are more likely to be seen selling smaller assets as the year draws to a close.

KPMG’s full report is available for free at www.kpmg.com.


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