Mining acquisitions valued at less than $1 billion have slumped to an eight-year low as the industry’s largest players rein in spending after a drop in commodities prices.
The slump threatens hundreds of exploration and development companies that don’t have revenue, more than half of which are based in Canada. Being bought by a larger miner is proving increasingly elusive as companies such as Toronto-based Barrick Gold Corp. (ABX), the biggest gold producer, avoid acquisitions and new projects in favor of improving existing operations.
“Buyers are being very cautious on where they deploy capital,” said Matthew Hind, the Toronto-based head of Canadian metals and mining investment banking for Credit Suisse Group AG. “Players are in the process of re-evaluating their balance sheets and pipelines.”
There were 76 takeovers of companies in the third quarter, with a combined valuation of $1.73 billion, according to data compiled by Bloomberg. That’s the lowest volume since the fourth quarter of 2004, the data show.
Copper and zinc have dropped this year amid concerns that a Chinese economic slowdown, and gold has declined 24 percent, heading for its first annual decline in 13 years. BHP Billiton Ltd. and Rio Tinto Group, the two biggest mining companies, have cut billions of dollars of spending while Barrick sold three mines in October and said it may sell others to cut costs.
“There are a lot of sellers and very few buyers,” Clive Johnson, the chief executive officer of B2Gold Corp., a Vancouver-based gold producer that’s considering acquisitions, said in an interview.
“The general mood is anti-M&A in the gold space for the most part, particularly at the senior level,” Barrick CEO Jamie Sokalsky said May 21 at a conference in Toronto. While potential targets have low valuations, often “they’re projects that you might have to spend a billion or two billion to build.”
Andy Lloyd, a spokesman for Barrick, declined to comment on potential acquisitions.
There are about 972 mining companies based in Canada that reported no revenue in the past 12 months, according to data compiled by Bloomberg. The largest, Detour Gold Corp. (DGC), started production at its Detour Lake gold mine in Ontario in August and has a market value of C$1.03 billion ($988.8 million).
While Toronto-based Detour and some others have been able to raise funds and start production, for many more the capital and operational expertise required to develop a mine means selling is the best strategy.
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