June 06, 2022
Gold edged down -0.3% to US$1,845/oz this week, holding near flat for the second consecutive week, as there was limited news on changes related to inflation or geopolitical issues which have been its main drivers over the past few months.
With Gold Fieldsâ€™ acquisition of Yamana, this week we look at the era of mega-M&A for the gold sector emergent since 2018 and we also track the performance of the mid-sized TSXV gold juniors in the context of the small cap equity decline in 2022.
Gold was near flat for the week, edging down -0.3% to US$1,845, and has remained relatively flat for the past two weeks, in contrast to about two months of volatility that preceded this. This included the strong pick-up in first two weeks of April 2021 on geopolitical concerns and heavily negative US real bond yields, with gold nearly hitting US$2,000/oz. This was then followed by a four-week downturn to a low near US$1,800/oz from mid-April to mid-May 2022 as the Fed started to come through on its plans for aggressive rate hikes. With the market probably now pricing in a 50 bps rate hike for the next US Federal Reserve meeting and the level of the conflict in the Ukraine no longer a shock to the market, the major factor that could still pose a surprise in relation to the gold price is inflation. Inflation higher than expected is likely to push up the gold price, as it implies more heavily negative real yields, but conversely easing inflation could put some pressure on the gold price short-term.
The most major company news for the week was certainly the acquisition of Yamana Gold by South Africaâ€™s Gold Fields for $US6.7bn, creating the fourth largest gold company in the world after Newmont, Barrick and Agnico-Eagle. Gold merger and acquisition activity started to pick up in 2018, to US$11.7bn, after a long trough from 2011 to 2017, when M&A averaged just US$9.9bn per year (Figure 4). M&A almost doubled in 2019, hitting US$20.3bn, and was still strong in the first year of the global health crisis, at US$15.1bn, and jumped to US$23.1bn in 2021, its highest level in over ten years, with the last peak at US$30.1bn in 2010. Gold mining M&A has also become the largest contributor by far for overall global mining sector M&A in recent years, reaching over 80% of the total in both 2019 and 2020 (Figure 5). In contrast, it had averaged just 46% of total global from 2011 to 2018 and was as low as 26% of the total in 2012.
The current run of mega-deals began in 2018 with Barrickâ€™s US$6.0bn acquisition of Randgold, with the largest deals in 2016 and 2017 having been just around US$1.0bn (Figure 6). The trend continued into 2019, and while even the second largest deal, Kirklandâ€™s acquisition of Detour at US$4.9bn, looked large in the context of deals from 2014-2018, it was dwarfed by the US$10.0bn merger of Newmont and Goldcorp. The largest deal in 2020 was Saracenâ€™s US$4.5bn acquisition of Northern Star, and then in 2021 there was another mega-deal surpassing even Newmont-Goldcorp, the US$10.6bn merger of Agnico-Eagle and Kirkland Lake. The other major deal in 2021 was Newcrestâ€™s US$2.8bn acquisition of Pretium Resources.
It seems that the era of the mega-merger may, however, necessarily be coming to an end soon, as the number of very large targets is disappearing, with Yamana, Kirkland Lake and Pretium all having been acquired in the last year. Mergers between the remaining giants Newmont, Barrick or Agnico would be unlikely given potential antitrust issues and Gold Fields will take time to integrate Yamana before considering major new acquisitions. This leaves Eldorado Gold, with a market cap of US$5.6 bn, B2Gold, at US$5.5bn, or Alamos Gold, at US$4.0bn, as the only very large western gold players that could be acquired or merge. However, even if all three were acquired or combined, the deal size would be just US$15.1bn, well below the US$23.1bn of gold sector M&A in 2021. With the year already half over, it seems likely that gold M&A will decline considerably this year versus 2021.
This week we look at the share price and operating performance of the mid-sized
TSXV-listed gold companies, ranging from around US$145mn in market cap to
US$115 cap (Figure 7), comprising Collective Mining, O3 Mining, Osino Resources,
Cerrada Gold, Bonterra Resources, Roscan Gold, AEX Gold and Nevada King Gold
(Figure 8). Overall the group has seen pressure from declining equity markets as small
caps have especially been hit in 2022 given the rising risk-off sentiment, and junior
miners, which mostly have no revenue and are in constant need of capital inflows to
fund exploration activities, are even higher-risk than the average small cap.
As might be expected given this context, five of this group of eight are down over 20% over the past year, with O3 and Bonterra both down -25%, Osino fallling -26%, Roscan declining -36% and AEX Gold dropping -38%, even though they have all reported strong operational progress over 2022. However, there are still three stocks that have held up under pressure and generated gains over the past year, with AEX Gold up 23%, Collective up 19% and Cerrado up 6% (Figure 9)
AEX Gold has been the strongest performer, up 23% over the past year, and is quite
rare among junior miners in that it explores in Southern Greenland. It is mainly
focused on the past producing Nalunaq mine, with drilling results from the project
released in early April 2022 driving a major jump in the share price. The company is
also exploring multiple other targets mainly at earlier sampling stages, and results
from one of these, Sava, in mid-April, further drove up the share price. Exploration
results from another project, Vagar Ridge in May 2022 did not propel the share price
further, and it has eased off its April 2022 highs.
Collective Mining has also seen decent gains, generally trending up off of lows set in October 2021, and faced limited pressure from the 2022 small cap sell off, with the stock supported by continued strong drill results from the Olympus target at its Guyables project in Columbia. Outstanding grab samples from Olympus were released in December 2021 as high as 485 g/t Au and 1,919 g/t Ag, and further strong grab samples were reported in January 2022.
Strong drilling results from Olympus followed, with 1.11 g/t AuEq over 302 m in March 2022, 1.13 g/t Au over 108 m in April 2022, 1.08 g/t Au over 216.7 m in May 2022, and then channel sampling of 221 g/t Au and 812 g/t Ag, both in May 2022. The company announced in April 2022 that it was also drilling at the Apollo target, 600 m southeast of Olympus and in late May 2022 that reconnaissance drilling had started at the newly defined bulk tonnage target Trap.
Cerrado Gold has seen mid-single digit gains, with the company having one project, its Don Nicolas Mine, already in production, and generating $27.4mn in revenue in Q1/22, up 145% yoy, and net income of $3.3mn, up from a $-5.7mn loss in Q1/21. The cash and profit generation leaves the company is a considerably stronger position than the average junior miner which is pre-production and still needing to raise cash in an increasingly difficult capital markets environment. The company also continues to advance its Monto do Carmo project, with a US$20mn stream financing arranged with Sprott Resource Streaming and Royalty to fund exploration. Results from infill drilling from the Sierra Alta zone of the project were reported in April 2022 and drilling at the new Michelle target, 90 km from Don Nicolas, started in May 2022.
The performance drops considerably past the top three, with O3 Mining down -25%
over the past year, operating the PEA-stage Marban project in Quebec, Canada and
the earlier stage Alpha Project. While the share price slid through most of H2/21, it
picked up on very strong results from the Alpha project including 12.4 g/t over 1.9 m
in January 2022 and then positive metallurgical results from the Marban pit with 96%
gold recoveries, and roughly maintained most of these gains through to April 2022
before seeing a significant decline in the small cap sell off of the past month.
Bonterra Resources, operating the Urban Barry project in Quebec, is also down -25%, having trended up from September 2021 lows on a series of strong drill results, including 8.0 g/t Au over 12.1 m in October 2021, 50.0 g/t Au over 1.4 m in November 2021 and 6.4 g/t Au over 1.5 m in January 2022, with the share price peaking in midFebruary 2022. While strong drill results have continued since, with 23.1 g/t Au over 2.3 m and 69.5 g/t over 2.5 m in March 2022 and 7.1 g/t Au over 7.6 m in April 2022, this has not been enough to support the share price, which has continued to trend down in the equity market slide.
Osino Resources, which operates the PEA-Stage Twin Hills project in Nambiaâ€™s emerging gold belt, is down -26% over the past year, mainly on the broader equity market decline, as operational news flow has remained strong. The shares saw a major decline from June 2021 to August 2021, and then reversion back to near August 2021 levels after two pick-ups, one in November 2021 after news of its private placement and another in Q1/22 after drilling results including 1.50 g/t over 49 m and 2.06 g/t Au over 34 m in February 2022.
Roscan Gold, operating the Kandiole property in Mali which is in the mid-exploration stage with extensive drilling ongoing but without any resource estimate yet, is down -36% over the past year, with a downtrend from June 2021 to September 2021 and then again in the market downturn from late April 2022. However, the stock consistently gained from October 2021 to early April 2022 on a series of strong drilling results including 16.0 g/t Au over 8 m in January 2022, 7.29 g/t Au over 6 m in February 2022 and 2.09 g/t Au over 21 m in March 2022.
While Nevada Gold King, which is exploring three projects currently in Nevada, two past producers, the Atlanta Gold Mine and the Lewis Project, and the earlier stage Iron Point, is down -38%, most of the underperformance was from June 2021 to October 2021. The share price has risen consistently since November 2021 on a series of strong exploration results, including 8.26 g/t over 9.1 m north of the Atlanta Mine in November 2021, 5.34 g/t Au over 54.9 m within the Atlanta Pit in January 2022, 1.04 g/t Au over 83.9 m at Lewis in April 2022 and 3.28 g/t Au over 21.0 m at the Atlanta Pit in May 2022, while drilling has also continued at Iron Point over H1/22.
The producing gold miners were mostly up even as gold edged down and equity markets were flat (Figure 10). The largest gain was from Yamana, up 8.8% on the news of its acquisition by Gold Fields while Newmont reported that it had closed its transaction with Skeena to acquire properties in Tahltan Territory. Alamos reported a Q1/22 dividend of US$0.025/share and that it had returned $27mn to shareholders in dividends and buybacks in 2022, and Equinox received regulatory approval for the tailings storage facility raise at the RDM mine in Brazil (Figure 12).
The Canadian juniors were mixed as both gold and equity markets were relatively flat (Figures 11). For the Canadian juniors operating mainly domestically, Osisko Development completed its acquisition of Tintic, Eskay Mining started a 30,000 m drill program at its VMS Project and Probe Metals announced a private placement of up to $CAD9.3mn (Figure 13). For the Canadian juniors operating mainly internationally, Minera Alamos reported an update on its Santana Mine, Gabriel Resources and Mako Mining both reported Q1/22 results and Prime Mining, Lumina Gold and Lion One all reported drilling results (Figure 14).
Disclaimer: This report is for informational use only and should not be used an alternative to the financial and legal advice of a qualified professional in business planning and investment. We do not represent that forecasts in this report will lead to a specific outcome or result, and are not liable in the event of any business action taken in whole or in part as a result of the contents of this report.