Gold Sector Consolidation Continues Through July
Deals just keep on coming; focus now on reporting season
Merger and acquisition activity in the gold space has continued at pace in July.
On Monday, Torex Gold Resources Inc (TSX: TXG) announced it would acquire Prime Mining Corp (TSX: PRYM) in a friendly scrip deal that values Prime at C$449 million.
Prime shareholders will receive 0.06 of a Torex share for each Prime share held, implying a 32.4% premium to the 30-day volume-weighted average price of the Prime shares and an 18.5% premium to the Prime’s Friday closing price.
The deal will give Torex ownership of the advanced Los Reyes gold-silver project in Mexico, which has a resource of 2.38 million ounces of gold and 75.6Moz of silver.
Torex already owns the Morelos Complex, which was the largest gold producer in Mexico in 2024, producing more than 450,000oz of gold.
Prime shareholders, which include Pierre Lassonde, will hold 10.7% of the enlarged Torex.
The deal comes only a month after Torex announced the US$26 million acquisition of Reyna Silver Corp (TSXV: RSLV), continuing a string of recent silver deals.
Silver Miners Continue to Be Snapped Up
M&A in the silver space has continued to ramp up over the past 12 months.
Also on Monday, McEwen Inc (NYSE: MUX) signed a letter of intent with Canadian Gold Corp (TSXV:CGC) over a potential combination.
Under the proposed transaction, Canadian Gold shareholders would receive 0.0225 of a McEwen share for each share held, representing a premium of 26% to the 30-day volume VWAP.
Canadian Gold’s main asset is the Tartan mine, a former producer in Manitoba.
McEwen said Tartan was similar to its Fox Complex and it saw the potential to restart production there within 24-36 months.
Last week in Australia, Capricorn Metals (ASX: CMM) announced the A$188 million scrip acquisition of explorer Warriedar Resources (ASX: WA8).
Capricorn will issue one new share for every 62 Warriedar shares held, representing a 35% premium to Warriedar’s 30-day VWAP.
Warriedar holds the Golden Range project in Western Australia, which has a resource of 1.38Moz of gold and 60,000t of antimony, or 2.3Moz gold equivalent.
Golden Range is 90km north of Capricorn’s Mt Gibson gold project, which is set to become the company’s second gold operation once permitted, producing an estimated 150,000oz per annum at all-in sustaining costs of A$1650-1750 an ounce.
The latest string of deals follows AngloGold Ashanti’s (NYSE: AU) C$152 million acquisition of Vancouver-based developer Augusta Gold Corp (TSX: G), announced two weeks ago.
Cashflow improving
The run of deals comes as gold companies continue to build cash amid the record gold price.
As reporting season kicks off, capital management will again be in focus.
Canaccord Genuity analyst Carey MacRury said investors were increasingly wondering how gold companies planned to use the significant uptick in their cashflow.
“In our view, management teams remain highly wary of avoiding the mistakes of the last cycle, which featured chasing growth, manifested by M&A activity with significant premiums and a surge in capex overruns,” he said.
“To be fair, gold went mostly sideways over the 1980s and 1990s, so the 2000s bull market was a paradigm shift, however, North American large-cap producers ultimately wrote off US$45 billion between 2011 and 2015.”
Canaccord expects gold producers, particularly the senior producers, to remain disciplined and focus on sustainable production rather than outright growth, as well as returns to shareholders.
“That said, we do expect M&A activity to continue with: producer and royalty company consolidation and increasing developer M&A to build out development pipelines,” MacRury said.
Canaccord expects to see an increase in share buybacks.
Newmont Corporation (NYSE: NEM) was the first major gold miner to report last week, announcing record quarterly free cashflow generation of US$1.7 billion.
The company announced an additional US$3 billion share buyback. Newmont bought back US$1.24 billion of stock last year and has already repurchased US$1.35 billion this year.
“I'll be as clear as I can: our focus is internal, and the best use of our capital is to buy back Newmont stock, and that's where you'll see us spend our time and attention,” Newmont CEO Tom Palmer said in a response to a question about M&A.
Australian major Northern Star Resources (ASX: NST) completed its A$300 million buyback during the June quarter, repurchasing 27.2 million shares at an average price of A$11.04.
“We see that as a valuable tool in capital management, and I think the board, in time, will assess the opportunity to do that again,” Northern Star managing director Stuart Tonkin said on a conference call.
Tonkin said any excess cash would likely be applied to the company’s organic projects, including the A$1.5 billion KCGM mill expansion and the development of the newly acquired Hemi project.
“It doesn’t mean a buyback is not compelling when we are at a discount to NAV, but the returns out of these organic investments are significant,” he said.
OceanaGold Corporation (TSX: OGC) renewed its share buyback last week, allowing it to repurchase 23 million shares, representing a maximum of 10% of the company's public float over the next 12 months.
The company has repurchased US$65 million worth of shares over the past 12 months.
Agnico Eagle Mines (TSX: AEM) will report on Thursday. The company increased its share buyback in April.
MacRury said buybacks made a lot of sense given the sector was still undervalued, they indicated confidence in the outlook, improved per-share metrics, were tax-efficient and presented an opportunity to take advantage of the volatility in the sector.