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Don't Expect Near-Term Surge In Mining M&A – Analysts

By Alex Létourneau of Kitco News
Tuesday September 17, 2013 2:37 PM

(Kitco News) - As analysis regarding the poor health of the mining industry has been drawn out over the last six months, many expected producers with deep pockets to swoop up distressed projects.

To date this has been anything but the case. Rather, there has been very little action on the mergers and acquisitions front. And according to analysts, they don’t expect an upturn in that department any time soon, especially from larger gold producers.

“The producers have focused on quantity of ounces versus quality of ounces - they adopted a growth philosophy versus a value philosophy,” said Mickey Fulp, The Mercenary Geologist. “Gold mining is not a growth industry, it’s a value industry, so, until the majors and the mid-tiers write-down all their bad investments, raise their cutoff grades, cut out the high costs deposits and go to the high-margin deposits, I think the M&A activity will be somewhat suppressed.”

Second-quarter write-downs from the six largest primary gold producers was over $23 billion, according to Jeff Clark of Casey Research.

Those staggering numbers support resource expert, Adrian Day’s belief that M&A won’t come from major gold producers.

“I think the M&A we’re likely to see in the foreseeable future is not so much a big company buying another big company, or mid-sized company, because the big companies have all scaled back on their own exploration, on their own budgets,” said Day, founder of Adrian Day Asset Management. “I think the M&A we’re going to likely see in the next six to twelve months are small cashed up companies buying companies with good projects that have simply run out of money and can’t survive any longer.”

While the M&A front has been quiet, Fulp does point out that there has been some good business recently.

“There have been a couple of acquisitions,” Fulp said. “Alamos Gold has acquired a couple of nice, advanced projects over the last three or four months, so they’ve been very aggressive.”

Alamos Gold Inc. (TSX, NYSE: AGI) announced the closings of the Esperanza Resources and Orsa Ventures acquisitions on Aug. 30 and Sept. 13, respectively.

The key projects in these acquisitions are the Esperanza gold project, from Esperanza Resources, which holds 1.5 million ounces of gold in measured and indicated resources, along with 16 million ounces of silver, as well as the Quartz Mountain Project from Orsa Ventures.

Ultimately, “access to capital is the key right now,” said Day.

Day and Fulp both spoke at the Resource Investors Forum in St-John's, Newfoundland, Canada.

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By Alex Létourneau of Kitco News aletourneau@kitco.com

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in precious metal products, commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.
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