Capital Market Highlights: Merger & Acquisition Activity

M&A transactions and relevant valuations in the metals and minerals space were down significantly for 2015. Although large miners such as Barrick were divesting expensive assets due to shareholder demand to focus on more economical, low cost production, some mid-tiers such as Goldcorp were more aggressive, and looked to acquire junior projects as they could buy them at considerably lower prices. The biggest merger of the year was the $1.5 billion dollar friendly takeover of AuRico Metals by Alamos Gold.

We expect M&A activity in the precious metals sector to pick up as senior and mid-tier producers realize they can acquire assets at extremely attractive valuations.

 

   Gold 2013 2012 2011
Number of Deals 39 48 42
Dollar Value ($ millions) $2,842 $8,348 $7,844
   Metals and Minerals 2013 2012 2011
Number of Deals 56 80 93
Dollar Value ($ millions) $2,648  $10,203  $21,070
   Price Paid(*) 2015 2014 2013 2012 2011 2010 2009 2008
Producing Assets $138 $120 $121 $200 $202 $207 $89 $115
Exploration Assets $16 $17 $23 $47 $90 $71 $29 $31

*Estimated price paid per ounce of gold in the ground, updated December 31, 2015

With regards to valuations for M&A transactions in the gold space in 2015, we have seen a significant drop in price paid per ounce of gold equivalent resource. Production and exploration assets have been sold at or near half the value per ounce that they were sold for in 2012.

Although mid-tier and senior producers have enough cash on their balance sheet to acquire projects in cash, we are seeing smaller firms structure deals more commonly in stock or future payment options to preserve cash. Various transactions announced earlier in the year have been revised down to reflect lower valuations as the underlying gold price took a significant dip during the course of the year.

IBK Capital analyzes mining M&A multiples on a quarterly basis. Bank and debt financing continue to be available, which is favourable for M&A activity.