Mergers and acquisitions lose their glitter with gold miners

“It’s a lot harder to sell assets now than it would have been a year or two ago.
JAMIE SOKALSKY
BARRICK GOLD CEO

TORONTO — Gold mining stocks have been decimated in recent months, but Jamie Sokalsky does not think investors should expect any corresponding uptick in M& A — mergers and acquisitions — activity.

Speaking at the Bloomberg Canada Economic Summit, the chief executive of Barrick Gold Corp. said there is a general “anti- M& A” mood in the gold space right now, and that investors don’t even ask him about it much anymore.

“It’s a lot harder to sell assets now than it would have been a year or two ago,” he said, adding that it is a “buyer’s market.”

Until recently, Barrick would have been taking advantage of a buyer’s market to snap up almost anything that caught its eye. But as the company shifts its focus from growing production to growing profitability, it is trying to dump its smaller and higher- cost mines rather than purchase anything new.

The Toronto- based miner has stated that its oil, nickel and Tanzanian gold assets are on the block, and sources confirmed to Postmedia News that its Australian gold mines are being shopped as well. Other seniors are also keen to shed non- core assets to upgrade their portfolios.

It is a rare opportunity for small and mid- sized mining companies to buy assets from a major. The fact that so few of them are stepping up to buy shows that they are reluctant to issue shares or part with cash amid such challenging market conditions. Additionally, they may not be enamoured with the higher- cost assets that are being offered by the majors, which make little sense if commodity prices ( especially gold prices) continue to decline.

Last month, mining giant BHP Billiton Ltd. announced a deal to sell copper assets to small rival Capstone Mining Corp. for $ 650 million. Analysts anticipate many more transactions like this, but they have been slow to materialize.

Seniors like Barrick might be even less likely to buy than their smaller rivals. Several of them were forced to take writedowns in the past year following ill- timed and overpriced acquisitions, and investors could punish them severely if they attempt to do it again.

Sokalsky noted that valuations on projects may be cheap, but it can cost billions of dollars to build them and many years to bring them into production. Investors would prefer that companies focus on maximizing cash flow in the short term, he said.

His main focus is getting Barrick’s troubled Pascua- Lama project back on track. The $ 8.5- billion US project has been halted by Chilean authorities due to environmental concerns.

Barrick is evaluating all its options at Pascua- Lama, including an outright suspension. It has already poured close to $ 5 billion US into the project.