Gold Miners See Targets But Slow to Deal

Affordable acquisition targets on the gold patch are plentiful these days, top miners told the Reuters Global Mining and Steel Summit on Wednesday, although not all are in a hurry to take advantage of the potential for instant growth.

With junior miners' valuations having been stung by the financial crisis, bankers are all but banging down the doors of large gold miners like Kinross, which has a history of M&A and recently fortified its balance sheet with a $414m stock sale.

Speaking to the summit in New York, Kinross CEO Tye Burt painted a picture of a buyer's market, a sentiment echoed by executives from Newmont Mining and Yamana Gold.

"There are lots of targets, lots of ideas and actually not a huge number of acquisitors that have the financial strength and experience and the capacity that one needs to make acquisitions," Burt said.

He said Kinross is on the lookout for attractive development targets, but would shy away from larger deals for producing assets, which he said often don't add value.

Newmont CEO Richard O'Brien also took a cautious tone, saying M&A just for the sake of adding bulk was not in the cards, and instead pointing to the potential for cost savings and geographical efficiencies.

"We're looking at things that make us better, not bigger," he said, adding that the company was looking at a number of junior and mid-tier companies and also at joint ventures.

O'Brien told the summit the company's new Boddington mine in Australia should produce 300,000oz to 500,00oz of gold this year and account for almost 20% of the company's total output by sometime next year.

Shift in thinking

The comments reflect a shift from the thinking of just two or three years ago, when companies such as Kinross, Yamana, and Barrick Gold added bulk and influence quickly by acquiring Placer Dome, Bema Gold and Meridian Gold, respectively.

Peter Marrone, chief executive of once acquisition-happy Yamana, said despite plentiful targets, he is in no hurry to add new assets.

"While I'm a proponent of acquisitions, Yamana's focus this year is not on acquisitions," Marrone said.

Instead, the company is working on developing a suite of mines that should see it double annual production to about two million ounces by 2012.

However, he said consolidation would be good for an industry that has struggled to find and develop major deposits in recent years.

Spot gold was at $909 an ounce on Wednesday. The metal has been volatile of late, but has recovered from a late 2008 sell-off much faster than other commodities, allowing gold miners to issue stock and plan on taking advantage of industry costs that have declined in recent months.

In terms of the outlook for the metal, the CEOs were reluctant to be pinned down on projecting a price.

Newmont's O'Brien said average gold prices should exceed $900 an ounce due to growing investment demand, inflation and lower industry output.

He also said he expected gold equities to beat bullion in terms of price performance this year, a sentiment echoed by Kinross' Burt, who said there was a "perfect storm" for gold stocks.

By Steve James, Euan Rocha, and Frank Tang, Reuters