Ann: Annual financial statements , page-11

Gold M&A 'wave' ahead as loaded majors eye cheap juniors: analyst

By: Matthew Hill
23rd September 2011

TORONTO (miningweekly.com) ? There could be a wave of mergers and acquisitions in the gold mining sector as cash-flush producers seek to snap up juniors that the market has cut a swathe through, Dahlman Rose analyst Adam Graf said on Friday.

Despite the uncertainty in the markets, the majors might be keen to take advantage of low valuations that they missed in the last financial crisis, and many had expressed regret for letting the opportunity pass, he commented.

?I?ve had a number of theses bigger companies say privately to me that they really made a mistake in 2008 and 2009,? Graf told clients on a conference call.

?In the midst of the financial crisis, most of the juniors were trading at extremely low valuations and they had a great opportunity to buy tremendous assets and instead they just froze and didn?t know what to do.?

The gold price plunged by over $100/oz on Friday, after having shed a similar amount the previous day, sending share prices in the sector down sharply.

The S&P TSX Global Gold index fell by 5% on the day, with junior companies posting the biggest losses as panicking investors dumped riskier assets.

Lake Shore Gold, which is developing a mine in northern Ontario fell by 7%, while the biggest bullion producer, Barrick Gold, was down by 5% on the TSX.

Major producers, such as Barrick and Newmont Mining, might be looking to spend some of the cash generation they had been enjoying from the record gold prices before the yellow metal dropped, said Graf.

?Maybe, with 2008 so fresh in their minds, they are still willing to jump into M&A if the junior space sells off like it did back then,? he added.

GROWTH CEASES

While miners including Kinross, Goldcorp, Yamana and Agnico-Eagle all have similar growth profiles for the next few years, this falls off dramatically after 2016.

Graf said that growth actually ?ceases? for these firms at that point.

?These larger companies all have to look ahead and say great we?ve some near term growth, but in three years what are we going to have left in the pipeline? For most of these guys the answer is very little,? he commented.

And, to remedy this, they will have to look at either buying new mines or finding them through exploration.

Given the drop in share prices and the big balance sheets the heavy weight producers have, acquisitions might be the more attractive route.

Graf said that he had been disappointed with the relatively low level of corporate activity in the gold sector over the past year and a half, but that things might get a lot more interesting ? even reaching the frenzied state just before the Great Recession.

?We haven?t seen the wave of acquisition repeat itself like what we saw 2006 and 2007. I think that?s likely still ahead of us,? he put forward.

Graf was hosting the call to give clients his thoughts on the happenings at the Denver Gold Forum that took place earlier this week.

One of his other main messages was that gold equities and the metal they produce had been caught up in the general pessimism, just as had happened in 2008, when the price of bullion fell from around $1 200/oz to $850/oz, before staging a remarkable comeback.

Scotiabank economics VP and commodities specialist Patricia Mohr said in an interview that gold had been "terribly oversold" as traders bailed on the precious metal to cover losses in other sectors.

Edited by: Creamer Media Reporter

http://www.miningweekly.com/article/gold-ma-wave-ahead-as-loaded-majors-eye-cheap-juniors-dahlman-rose-analyst-2011-09-23