AngloGold’s mid-size miner pounce may set a trend
Corrects the location of AngloGold's assets to Australia and other parts of Africa from South Africa, and the production volume from 2.6 billion ounces to 2.6 million ounces, in the second paragraph. The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
By Karen Kwok
LONDON, Sept 10 (Reuters Breakingviews) -AngloGold Ashanti AU.N is putting a shiny new twist on a familiar trend. Last year’s $17 billion swoop by Newmont NEM.N for fellow gold miner Newcrest Mining followed on the heels of M&A speculation in 2019 involving $34 billion Barrick Gold ABX.TO, GOLD.N. The $12 billion AngloGold’s $2.5 billion cash and share acquisition of UK-listed Centamin CEY.L is likely to be followed by similar deals, but involving similarly mid-sized players.
In a sense, it’s an odd time for major gold M&A. Spot prices of the precious metal are at $2,331 a tonne – near all-time highs – and usually gain when interest rates fall, which the latter are now doing. But most gold miner share prices are way off highs seen in 2020. Still, while investors used to buy gold companies as a leveraged play on the gold price, the emergence of lower-cost funds that invest in physical gold with leverage of their own has driven punters away from investing in gold producers directly. Smaller players like Centerra Gold CG.TO and Torex Gold Resources TXG.TO now trade at around 2.5 times EBITDA, in some cases half their level in 2020.
That gives bigger players like AngloGold a way in. The offer, which amounts to a 37% premium to Centamin’s market value on Monday, values the London-listed gold miner at 1.6 times its expected net asset value of $1.5 billion in 2024, according to analysts’ estimates polled by LSEG. That’s below AngloGold’s own 2.6 times, and it adds 450,000 ounces of high-quality Egyptian set of assets that can help the group diversify away from Australia and other parts of Africa, where most of its current 2.6 million ounces of production reside. It’s also paying mostly in shares which are inflated by recent high gold prices, limiting Centamin’s stake in the enlarged company to 16%.
But there’s something in it for the seller too. Post pandemic the cost of extending and expanding mines has increased. Swapping London-listed paper for AngloGold’s New York-listed equivalent make it easier to deal with these higher expenses: analysts estimate AngloGold’s free cash flow to be 5 times Centamin’s this year, according to data polled by LSEG. It also makes it more likely the company can weather lurches in the volatile gold price if interest rates surprise in an unpleasant way.
Either way, a consolidation of gold companies is long overdue. There are over 50 listed gold mining companies worth over $1 billion globally, versus just a dozen in the copper space. Bigger players like $39 billion Agnico Eagle Mines AEM.TO and Barrick Gold will be running the rule over smaller fry right now.
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CONTEXT NEWS
AngloGold Ashanti will buy Egypt-focused smaller rival Centamin in a $2.5 billion stock and cash deal, the companies said on Sept. 10.
Under the terms of the deal, Centamin shareholders will receive 0.06983 new AngloGold shares for each Centamin share and $0.125 a share in cash.
The implied 163 pence ($2.14) per share offer represents a premium of 36.7% to Centamin's Sept. 9 closing price of 120 pence, the companies said in a statement.
Shares in Centamin jumped about 25% to 149 pence as of 0958 GMT on Sept. 10.
Mid-size gold miners trade lower relative to 2020 https://reut.rs/4gjOVVJ
Editing by George Hay and Streisand Neto
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