Consolidation among smaller gold miners is expected to be top of mind as much of the industry meets in Toronto this week, with dealmakers cautiously optimistic a fresh wave of buyouts is imminent once major pending transactions are settled.
Barrick Gold Corp's ABX.TO GOLD.N $18 billion hostile bid for rival Newmont Mining Corp NEM.N last week came shortly after the former's acquisition of Randgold Resources and the latter's friendly offer for Goldcorp Inc G.TO .
These deals, their expected outcomes and the impact on the broader gold mining industry are expected to dominate the conversation at the annual conference of the Prospectors and Developers Association of Canada, when tens of thousands of participants from around the world - from executives to investors to regulators - descend on Toronto.
But given questions over which Newmont deal will proceed, and which assets the final combinations could shed, investors and analysts see other miners waiting out the uncertainties before making any moves for rivals.
"The M&A activity with Barrick and Newmont is overshadowing everything, but it's also creating a vacuum," said Kai Hoffmann, chief executive officer of Oreninc, a provider of deals information about junior miners. "Low-cost, mid-tier producers ... are going to get bought regardless of what's happening in the big ones."
Deals hashed out before Barrick's surprise offer for Newmont are still likely to go ahead, Hoffmann added.
Lingering financing constraints, as well as memories of earlier consolidations that have failed to yield the expected returns, are also likely to keep companies and investors cautious.
"The gold price is good, but capital flows, while probably better than last year, are still very scarce," said Robert Cohen, portfolio manager at 1832 Asset Management, which holds shares in several mining companies. "Mergers and weak management teams have destroyed capital. Investors have become a bit more cautious in their approach."
Australian miners are likely to be potential buyers, as companies such as Northern Star Resources (NST) and Evolution Mining (EVN) have benefited from disciplined management and "have all made oodles of free cash flow in the past few years," said Maria Smirnova, senior portfolio manager at Sprott Asset Management, which invests exclusively in miners.
"Some of them would like to enter the North American market."
Northern Star and Evolution Mining could not be immediately reached for comment outside business hours.
Acquisitions are more likely to be focused on assets and single-asset companies, rather than bigger miners, said Phil Hopwood, global leader for mining and metals at Deloitte, which provides advisory and tax services to companies.
That will be driven by expectations that the Barrick-Newmont deals will result in sales of mines that do not meet the pair's investment rationale, he said.
A continued lack of funding for smaller companies also remains a hurdle, Smirnova said.
"When the money comes, it comes to the bigger guys first," she said.
However, if the gold price, currently near $1,300 an ounce, stabilizes between $1,360 to $1,380 an ounce, that could draw more investors and provide momentum for deal-making, Smirnova and Hoffmann said.
"There's definitely a lot of interest but the market's not ready yet," Hoffmann said.
