According to the market research firm, the strategic logic behind this merger and acquisition is similar to other large deals completed in recent years, and includes (1) achieving scale, (2) geographic diversification and (3) replenishment of project pipelines.
“Cost synergies have been less of a driver, particularly for the latest transaction, with Gold Fields’ assets residing primarily in Africa and Australia, while Yamana operates primarily in Canada and Latin America. Interestingly, large M&A deals in the space have been financed mostly with equity despite the fact that companies have the financial wherewithal to finance deals through debt,” CreditSights said.
For the industry as a whole, CreditSights acknowledges that organic growth has stagnated in recent years, given the natural decline of existing mines and the fact that companies are unwilling to invest in large greenfield projects, which are typically fraught with execution risks, concerns geopolitics, environmental issues and time and cost overruns.
The report sheds light on the unknown fate of Barrick’s Pascua-Lama investment project, for which it recorded more than $5 billion in impairment charges, and the gold mining giant’s decision to resuscitate a project entirely new to Pakistan which will take 5-6 years and cost $7. billion. Barrick’s CEO has talked about mergers and acquisitions over the years, but cited unattractive valuations to stay disciplined and not aggressively pursue deals.
Still, CreditSights believes the M&A trend is set to continue as mining companies seek to replace dwindling reserves.
“The gold mining industry is still a very fragmented market, with the top 4 players accounting for around 20% of total production worldwide, despite the recent flurry of M&A deals. scaling to become more relevant to investors also makes strategic sense,” the report states.
Read more: Gold Fields to become world number one. 4 gold miner with the acquisition of Yamana