Consolidation in gold industry resumes as Kirkland Lake approaches Detour
The consolidation of the gold sector resumed with Canada’s Kirkland Lake Gold making a $3.7bn all-share offer for rival Detour Gold.
Since Barrick Gold bought Randgold Resources and Newmont Mining swooped to acquire GoldCorp last year, analysts have been waiting for another flurry of dealmaking activity.
However, boardroom intransigence and the fact majors like Barrick and Newmont are looking to sell non-core assets has seen deals almost dry up until now.
Kirkland’s recommended offer for Detour, pitched at a 24 per cent premium to its closing price on Friday, will create a 1.5m ounce a year gold producer that will be big enough to appeal to mainstream fund managers.
Sector specialists say there is an obvious need for consolidation in the gold mining industry because it is more fragmented than in other commodities, such as iron ore, where three large miners dominate the market.
Van Eck Associates, one of the biggest shareholders in Detour, recently called for the consolidation of single asset gold companies to form larger, multi-mine businesses.
“The addition of Detour Lake provides an opportunity to add a third cornerstone asset that is located in our back yard in Northern Ontario,” said Tony Makuch, chief executive officer of Kirkland.
“Detour Lake will provide the pro forma company with a 20-plus year mine life which provides unparalleled optionality and excellent growth potential for the benefit of all shareholders.”
Under the deal, Detour shareholders will receive 0.4323 Kirkland shares, giving them a 27 per cent stake in the merged company. The combination of the two companies will generate pre-tax synergies of $75m to $100m, they said.
Kirkland is taking advantage of its soaring share price — it has climbed by almost 240 per cent over the past two years — to acquire Detour, which owns Detour Lake, a 600,000 ounce a year gold mine.
Aided by a higher gold price, shares in Detour have also performed strongly this year.
The company hit the headlines back in 2018 after a bitter war of words with hedge fund Paulson & Co, ironically over a takeover approach. This eventually saw the board of Detour overthrown and new management installed.
Analysts say other single asset companies that could be vulnerable to a bid include Pretium Resources and Pretium Resources and Sabina Gold & Silver.
“We believe it is time for single-asset gold companies and their shareholders to reconsider the M&A landscape and adapt new strategies that will build the mid-tiers and majors of the future,” Van Eck said in its October letter to investors.