Gold sector M&A seen on hold until markets settle

LONDON - Small gold firms hit by the credit crisis and weak gold prices are keen for mergers with bigger rivals, but consolidation will likely have to wait until volatile share prices stabilise, company officials said on Thursday.

"It's hard to convince someone to accept a 30% premium when their stock price is 90% down," Alex Davidson, an official with Barrick Gold Corp, told the RBC gold conference in London.

"The market's got to settle and I think it will, and once everyone gets comfortable with the resulting valuations I think you will see more M&A activity between cash-rich companies and project-rich companies," said Davidson, executive vice president of exploration and corporate development.

Barrick, the world's biggest gold producer, is in a healthy financial position, with $1,7-billion of cash and $1,5-billion in undrawn credit available, he said.

"We are in a very strong position to do our development projects or make acquisitions."

Barrick would press on with three new mine projects that will add nearly two-million ounces of production a year, but it is reviewing the viability of other potential developments, he added.

The downturn has opened up potential takeover opportunities, but not many are top quality, said CE Kevin McArthur of Goldcorp.

"A lot of companies have come knocking because a lot of juniors are in tough shape right now," he said.

Goldcorp will be very disciplined on takeovers since it also has new mines it would like to develop.

"I kind of look at it as a pool with 100 drowning men in it and we're going to be very careful where we're going to stick out our hand there," McArthur said.

"In that pool I can't see very many mines that can be built at this time."

Goldcorp has operations in Canada and Latin America and is developing its key Penasquito project in Mexico.

Chief Executive Mark Bristow of Randgold Resources said he was looking at opportunities, but was more interested in early-stage, longer-term projects since the firm's new mines being developed will ramp up output in the medium term.

"There are good deals to be done now with decent assets and we are looking at those."

Randgold, which focuses on West Africa, is interested in Democratic Republic of Congo, among other nations in the region, he added.