Are M&A's the key to reviving the gold industry in Australia?
Mergers and acquisitions (M&A) in Australia hit a ten-year low in 2014, aiding to the collapse of investor confidence and the downturn in the gold sector.
In recent months, however, Australia has been riding a wave of positivity as gold prices rise, costs lower and more favorable currency conditions occur. The answer: mergers and acquisitions.
• Related content: 2015: Year of the Mega Mergers
"Everyone is looking for assets that enable them to grow. We've seen more M&A in Australia in 2015 than in the past five years," Ian Murray, chairman of Perth-based Gold Road Resources Ltd told Reuters,
So far this year, Australia’s merger and acquisition activity in the gold sector has seen 26 announced deals worth more than $1.7 billion.
Recent deals include Evolution Mining acquiring Barrick Gold’s Cowal mine for $550 million and Newcrest Mining’s exploration deal with Mungana Goldmines Limited to explore for copper-gold in North Queensland.
“We are already starting to see that in completed deals, with gold accounting for more than a quarter of all global deals by value during the first quarter – and we have continued to see it in announced deal activity,” said Murphy.
As confidence in adjusted cost bases grew, and the cycle stage by commodity became more apparent, investors, including financial investors, were likely to begin taking stronger positions in the sector. Adding fuel to the M&A frenzy are cuts in central bank interest rates, aimed at lowering the Australian dollar.
• Related content: [CHART] Timeline of Mining Mergers and Acquisitions
"Assets are being sold at a low point in the cycle and if you position yourself to accumulate them, you are going to do very well,” Evolution Executive Chairman Jake Klein told Reuters.
The gold sector in Australia is expected to have an exciting year in 2015. As major miners continue to slim down in an effort to reduce debt, it will enable local producers to pick up assets at favorable prices. In return, the investment attention in Australia may return very soon.
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