Gold Stocks Attract Takeover Targets as Price of Precious Metal Soars

The price of gold has recently skyrocketed to record heights, causing some fund managers to believe that there could be a surge in takeovers of junior miners as producers choose to grow production through acquisition rather than shoulder the massive costs of building new mines. Gold giant Barrick Gold Corp.'s recent acquisition of copper producer Equinox Minerals Ltd. for $7.3 billion in an all-cash deal instead of another precious-metals miner has turned heads. Some fund managers predict that a rising gold price will propel merger and acquisition activity in the second half of this year.

Key Takeaways:

• The soaring price of gold is changing the psychology of the market, making people feel good about their business and future outlook, which could result in a new burst of mergers and acquisitions (M&A) activity.
• Gold stocks have not risen along with bullion, making them attractive and cheap, with some fund managers suggesting that it is cheaper to buy a mine rather than build one.
• Analysts expect lower prices for gold over the next three or four years, but larger gold miners are becoming more interested in acquiring smaller firms that have just built a mine or exploration companies with high-grade deposits.
• Sir William Antony Arbuthnot, a portfolio manager at Sprott Asset Management, predicts that M&A activity will increase in the second half of the year, with gold stocks being "very attractive and cheap" right now.
• Charles Oliver, a portfolio manager at Sprott Asset Management, suggests that juniors like Osisko Mining Corp. and Perseus Mining Ltd. could be potential takeover targets, while Mark Serdan, a portfolio manager with BMO Asset Management Inc., warns that juniors may have a "high view of what they are worth" given the metal's recent rise.

Statistics:

• The price of gold has risen to over $1,785 an ounce, making gold stocks attractive and cheap in comparison.
• Barrick Gold Corp.'s acquisition of Equinox Minerals Ltd. was worth $7.3 billion in an all-cash deal.
• Analysts expect lower prices for gold over the next three or four years.
• The cost of building a major new gold mine is in the multibillions, making it more attractive to acquire smaller firms that have just built a mine or exploration companies with high-grade deposits.

Sources:

• Charles Oliver, a portfolio manager at Sprott Asset Management, quoted in an article by Shirley Won.
• Mark Serdan, a portfolio manager with BMO Asset Management Inc., quoted in an article by Shirley Won.
• Dennis da Silva, a portfolio manager with Middlefield Capital Corp., quoted in an article by Shirley Won.