Major gold mergers and acquisitions returned to the agenda as Kirkland Lake Gold (ASX: KLA) publicly traded in Canada and Australia (ASX: KLA) announced a C $ 24 billion deal to combine with Canadian Agnico Eagle in a zero-premium friendly merger.
The deal will see Kirkland Lake shareholders receive 0.7935 Agnico shares for every share they own, giving them 46% of the combined company.
It will be one of the largest gold miners in the world, rivaling Polyus and AngloGold Ashanti (ASX: AGG), third and fourth, for scale with an annual production profile of 3.4 Moz per year.
The company will have a mineral reserve base that has more than doubled over the past decade to 48 Moz, including the large Detour Lake mine at Kirkland Lake in Canada and its very high grade Fosterville mine near Bendigo in Victoria.
This is the latest in a series of “mergers of equals” that have been announced in recent years as consolidation accelerates in the gold industry and premiums attached to stand-alone operations have risen.
Zero-premium mergers in focus, but they don’t always excite investors
In a way, the friendly, no-frills nature of the Kirkland Agnico tie-up is not unexpected.
With gold prices uneasy and gold stocks declining 40-50% in the past year, the opportunity to make super deals at the top of the market is shrinking.
Indeed, it was the kind of deal predicted by Perth veteran Liam Twigger when he spoke with Storer at this year’s Diggers and Dealers mining conference.
“I think if you have groups like Randgold and Barrick coming together and getting stronger, the more companies you can consolidate the better, you can attract more money and definitely some of those ETFs will buy you. They don’t necessarily do research; they’re just working on your production and your market cap and you want to be on their radar.
“That’s why you have to gain volume. I think it will work, it’s just a matter of who keeps a job and who doesn’t and that’s where it gets tough.
This was canceled by Kirkland Lake and Agnico, with KLA’s Tony Makuch taking the role of CEO while Agnico CEO Sean Boyd moved up to a position of executive chairman of the 13-person board.
Not everyone reacted positively to the news. Investors in Kirkland Lake massively sold their shares, causing its shares to fall 7.76% on the TSX overnight.
KLA stock is down on the Australian stock exchange by almost 5% this morning.
– john davies (@renegadestyle) September 29, 2021
Concern over the deal on the Kirkland Lake side fuels hopes that it could attract a higher bid at a higher price from another party seeking to cut the grass from Agnico.
The world’s largest gold mining companies, Barrick Gold and Newmont, as well as Australia’s Newcrest were said to have been interested before the deal with Agnico was announced.
Mixed sentiment for the case: RBC
Is consolidation the ultimate end?
Mergers and acquisitions certainly excite market watchers and financial journalists, and the frenzied consolidation atop the gold sector has been widely welcomed.
Barrick’s deal to merge with Randgold, Newmont’s marriage to Goldcorp and closer to home the $ 16 billion merger of the owners of Super Pit Northern Star Resources (ASX: NST) and Saracen were all applauded at the time of the transaction.
RBC Capital Markets analyst Josh Wolfson, who titled his rating “My Big Fat Canadian Wedding,” would have a mixed impact on both sides.
“(The) timing of the transaction raises questions – KL has yet to describe its opportunity at Detour Lake, and the upside value and growth of that opportunity will be diluted for shareholders,” he wrote. .
“Likewise, the growth of the Macassa well expansion and Fosterville exploration as well as the reconciliation of positive grades will be diluted into a larger company with stable corporate output.”