Gold sector enters consolidation mode as Kirkland Lake and Agnico announce Canadian mega-merger
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Major gold M&A has stormed back into focus as Australian and Canadian listed mid-tier Kirkland Lake Gold (ASX:KLA) announced a C$24 billion deal to combine with Canada’s Agnico Eagle in a friendly, nil-premium merger.
The deal will see Kirkland Lake shareholders receive 0.7935 Agnico shares for every share they own, giving them 46% of the combined company.
It will be one of the world’s largest gold miners, rivalling third and fourth placed Polyus and AngloGold Ashanti (ASX:AGG) for scale with an annual production profile of 3.4Moz a year.
The company will have a mineral reserve base that has more than doubled over the past decade to 48Moz, including Kirkland Lake’s large Detour Lake mine in Canada and its ultra high grade Fosterville operation near Bendigo in Victoria.
It is the latest in a string of ‘mergers of equals’ that have been announced in recent years as consolidation ramps up in the gold space and the premiums attached to standalone operations have grown.
In a way the nil-premium, friendly nature of the Kirkland Agnico tie-up is not unexpected.
With gold prices in a malaise and gold equities dropping in value by 40-50% over the past year, the opportunity for top of the market super deals is waning.
Indeed, it was the sort of deal predicted by veteran Perth dealmaker Liam Twigger when he spoke to Stockhead during this year’s Diggers and Dealers mining conference.
“I think if you’ve got the likes of Randgold and Barrick coming together and bulking up, the more you can consolidate companies and bigger is better, you can get on the radar of more funds and certainly some of these ETFs will buy you. They don’t necessarily do research; they just work on your production and market cap and you want to get on their radar.”
“That’s why you need to bulk up. I think it will work, it just comes down to who keeps a job and who doesn’t and that’s where it gets tricky.”
That has been nutted out by Kirkland Lake and Agnico, with KLA’s Tony Makuch stepping into the CEO role while Agnico CEO Sean Boyd moving to an executive chair role on the miner’s 13 person board.
Not everyone has reacted positively to the news. Kirkland Lake investors sold out heavily, knocking its shares down by 7.76% on the TSX overnight.
KLA stock is down on the Australian bourse by almost 5% this morning.
— john davies (@renegadestyle) September 29, 2021
The disquiet with the deal on the Kirkland Lake end is fuelling hopes it could attract a higher offer at a premium from another party looking to cut Agnico’s grass.
The world’s biggest gold miners Barrick Gold and Newmont, as well as Australia’s Newcrest were rumoured to be interested before the Agnico deal was announced.
Is consolidation the be all and end all?
Mergers and takeovers certainly excite market watchers and finance journalists, and the frenzied consolidation at the top end of the gold sector has largely been received well.
Barrick’s deal to merge with Randgold, Newmont’s marriage with Goldcorp and closer to home the $16 billion merger of Super Pit owners Northern Star Resources (ASX:NST) and Saracen have all been cheered at the time of transaction.
RBC Capital Markets analyst Josh Wolfson, who titled his note ‘My Big Fat Canadian Wedding’, said it would have a mixed impact on both parties.
“(The) timing of the transaction raises questions – KL has not yet outlined its opportunity set at Detour Lake, and value and growth upside from this opportunity will be diluted for shareholders,” he wrote.
“Similarly, growth from Macassa’s shaft expansion and Fosterville exploration as well as positive grade reconciliation will be diluted in a larger company with stable corporate output.”