January 15, 2019 / 12:55 AM / a year ago

DEALTALK-Newcrest in focus as gold dealmaking heats up

TORONTO, Jan 14 (Reuters) - Two recent large M&A deals in the gold sector have prompted speculation that Newcrest Mining , Kinross Gold Corp and B2Gold Corp may be among the next gold companies to combine with a rival, bankers and analysts said.

On Monday, Newmont Mining announced a $10 billion takeover of Goldcorp Inc, close on the heels of Barrick Gold’s purchase of Randgold Resources.

Deal-making had largely been dormant in the gold sector in recent years, as companies focused on cutting costs amid investor criticism of inadequate management of capital. But the need to bolster shrinking gold reserves to boost growth and take advantage of rising gold prices are now providing the impetus for more consolidation.

“There are potential benefits to consolidation and gold miners that can generate returns above cost of capital will likely be rewarded over time,” Chris LaFemina, an equity analyst at Jefferies, wrote in a note on Monday.

Gold producers who have good assets but face stagnant growth are seeking to partner with well-run companies, according to bankers and analysts.

Eyes are on Australia’s Newcrest, a banker close to the Newmont-Goldcorp deal said. The Australian Financial Review newspaper late last year quoted analysts saying Newcrest could combine with a North American gold producer and named Goldcorp and Newmont as obvious partners.

“If we can see an asset where we can ... use one of our competitive advantages to increase the value of that asset, that’s how we’d approach M&A,” Newcrest spokesman Chris Maitland told Reuters. A takeover of Newcrest may be possible but “we’d be quite a large buy,” he added. The company has a market cap of around 18 billion Australian dollars ($13 billion), according to Refinitiv data.

NEED FOR DEAL

The Newmont-Goldcorp deal came about because the target’s chairman, Ian Tefler, acknowledged the company was not doing well on its own and saw the need for a tie-up, the person close to the deal told Reuters, adding that the Barrick-Randgold agreement likely lit a fire under Goldcorp to do a deal.

Newmont and Goldcorp initially came together to try to identify early-stage development properties on which they could work together, Newmont Chief Executive Gary Goldberg told Reuters in an interview.

“In the end, none of it came through but in the process, we got to know each other better and as we talked about different opportunities, we said, why don’t we come together,” he said. “It moved relatively rapidly from there to where we’re at.”

Canadian miner Kinross and AngloGold Ashanti, based in South Africa, are among the gold producers that could combine with other companies, according to analysts and bankers.

“If you do a list of who has high-cost assets, those are the guys who have to make deals,” another person close to the Newmont-Goldcorp deal said.

Kinross did not immediately respond to a request for comment. AngloGold Ashanti could not be reached outside business hours.

While Kinross does not need acquisitions to sustain current production levels, it has acknowledged challenges to replacing depleted assets, and would likely focus on North America if it were to do a deal, analysts at Scotiabank wrote in a note in November.

Vancouver-based B2Gold, which has operations in Africa, South America and the Philippines, could be a target because of its strong growth profile, said sector watchers, including PI Financial’s Chris Thompson, who has a “buy” rating on the stock.

B2Gold did not immediately respond to a request for comment.

The acquirer would likely be a company that has operational expertise in the jurisdictions B2Gold operates in, particularly West Africa, which offers the best growth prospects for the company, Thompson said. ($1 = 1.3875 Australian dollars) (Reporting by Nichola Saminather; additional reporting by Clara Denina, John Tilak and Harry Brumpton; Editing by Rosalba O’Brien)

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