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RPT-UPDATE 1-Gold's fall threatens to cool temperature of mining M&As

Published 22/07/2015, 08:53 am
© Reuters. RPT-UPDATE 1-Gold's fall threatens to cool temperature of mining M&As
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(Repeats story published late Tuesday; no changes to text)

By James Regan and Denny Thomas

SYDNEY/HONG KONG, July 21 (Reuters) - A dramatic slide in gold prices this week threatens to squash a run of mining mergers and acquisitions just as momentum in the sector was picking up.

Mining executives and fund managers warn predators will turn more cautious before splashing out cash or approving capital raisings, at least until bullion shows signs of stabilising.

The value of completed gold mining mergers and acquisitions so far this year has reached $3.2 billion, compared with $4.4 billion for all of 2014, according to Reuters data.

Gold this week took its sharpest dive since September 2013, landing at $1,088 per ounce, a five-year low.

That sent key indices measuring the health of gold mining companies crashing in its wake.

The Australian .AXGD and Canadian .SPTTGD indices fell 11 percent each, while the Johannesburg Stock Exchange gold index .JGLD.AX dropped 12 percent.

"There's still an appetite to grow through M&A (mergers and acquisitions)" said Hedley Widdup, a fund manager at Melbourne-based Lion Selection Group, which invests in small mining companies and explorers.

"The issue now is shareholders and funds providers will be looking at the gold price and wondering about valuation," Widdup said.

John Tivey, a partner at law firm White & Case in Hong Kong, said gold price volatility was a setback for deal-making as it made it hard to agree on valuations.

Companies that were already committed to sales programmes in a bid to reduce debt would have to lower their price expectations, he added.

"In the face of a continued fall in the gold price the market will get to a point where smaller gold miners have no choice but to more aggressively look for merger opportunities or strategic investors in order to survive," Tivey said.

CURRENCY SUPPORT

Jake Klein, executive chairman of Australia's Evolution Mining EVN.AX , one of the most acquisitive gold miners this year, wouldn't rule out more purchases as long as they can add value.

For the most part, that points to mines and prospects in commodity-based economies such as Australia, where gold's plunge has been offset by a weaker currency that has boosted returns for domestic miners.

While the U.S. dollar denominated gold price is down more than 40 percent from its September 2011 peak, gold has only fallen about 20 percent in Australian dollar terms.

Evolution in May raised A$172 million to help pay for its $550 million acquisition of the Cowal gold mine in Australia from Canada's Barrick Gold ABX.TO , receiving strong support from existing institutional shareholders and new investors.

"Investor sentiment in gold is understandably very low and investors have lost a lot of money," Klein said.

"Not withstanding that, the Australian gold sector is undoubtedly a good place to be. Costs are coming down and with the falling Aussie dollar supporting a higher A-dollar gold price, the profitability wedge per ounce is widening."

Andrew Cole, chief executive of Oz Minerals OZL.AX said his company has already passed over a few opportunities this year, but was still on the lookout in both gold and copper.

For Oz Minerals, said Cole, "It's absolutely a global search."

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GRAPHIC: Falling Australian dollar supports miners' profits

http://link.reuters.com/wex25w

^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Richard Pullin)

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