Gold Mining in the Grip of a Merger Frenzy; FINANCIAL MAIL

Article excerpt


A GOLD rush is on and it is likely to transform the global industry.

Faced with falling prices and indifference from investors, mining companies are rushing to merge in the hope that boosting their size will polish up their appeal to sharebuyers.

There is merger mania as companies fear they may be left on the sidelines unless they can find partners.

In the biggest shakeup in the history of the sector, experts predict that within three years the market's 20 biggest producers will shrink to just four, each controlling up to 15 per cent of the world's gold production.

The industry is notoriously fragmented even by the standards of the wider mining sector, with the biggest, AngloGold, accounting for only nine per cent of global production.

The fragmented market and the lack of dominant global players means that gold companies have 'barely registered on the radar screens' of the big fund managers in New York, Toronto and London.

Now, with a sustained low gold price over a number of years hitting profitability, the industry is being forced to consolidate.

Industry executives believe a market dominated by four players, each with a market value of more than [pounds sterling]6.6 billion, will attract institutional investors in London and New York.

They also believe that bigger players, able to build the kind of global profile that De Beers enjoys in the diamond industry, would appeal to small investors keen to take stakes in well-run gold companies.

The pace of consolidation has accelerated in the past month with three big mergers or takeovers, including the biggest-ever in the sector, a [pounds sterling]2.6 billion linkup of South Africa-based Gold Fields and Toronto-listed Franco Nevada.

The Americans, reluctant to be left behind, responded within days. Newmont announced a takeover of smaller rival Battle Mountain, making it the world's second-biggest producer after AngloGold, and last week Bar-rick announced that it was buying Tanzania-based Pangea.

Industry experts are now speculating that London-listed Rio Tinto may bid soon for Freeport McMoran Copper & Gold, in which it already has a 14 per cent stake.

The combined business, though not a pure gold operation like AngloGold or Gold Fields, would catapult Rio Tinto into a position to challenge Anglo-Gold's market leadership.

Kelvin Williams, director at AngloGold, said: 'In the broader context of the mining world, no other sector is so fragmented or has so little centre of gravity among the largest companies. …