By Luzi-Ann Javier
So much for the run on cheap gold mines. Producers who were forced by slumping prices to unload assets last year are regaining leverage.
With bullion off to its biggest rally to start a year in four decades -- aided by the U.K.’s vote to quit the EU -- mine buyers are paying higher premiums and the pace of deals is accelerating, data compiled by Bloomberg show. The value of reserves held by major producers has almost doubled since the third quarter of last year, according to Bloomberg Intelligence.
The revival comes after a three-year slump led to losses, rising debt and a fire sale of assets. With valuations dropping, private equity firms and companies including Zijin Mining Group Ltd. pounced. The number of acquisitions worth at least $1 million rose 14 percent last year to 192, the first increase since 2010, data compiled by Bloomberg show. But now investors are pouring money into gold funds, and prices are near the highest in more than two years, boosting premiums for available mining assets that are getting harder to find.
“Scarcity of high-quality targets, both producing and development-stage, is more of a factor than bargain-hunting,” said Michael Siperco, an analyst at Macquarie Capital Markets in Toronto. “We could see potential acquirers more willing to pull the trigger on transactions, given the improving near and longer-term macro environment for gold.”
The average premium paid on deals worth at least $1 million is about 42 percent in the current quarter, up from 29 percent in the first quarter, data compiled by Bloomberg show. The 60 deals pending or completed in the quarter are the most since the fourth quarter of 2011, the year that bullion surged to a record high of $1,921.17 an ounce.