SYDNEY: Australian gold miners are still pursuing M&A deals, defying worries that last month's dramatic slide in bullion prices would extinguish momentum in the sector.
The triggers are a sliding commodity-weighted currency and a crumbling iron ore price, which has left that market to mega-miners such as Rio Tinto and BHP Billiton .
“For some time we have been saying that this is a pivotal time for the gold industry,” said Jake Klein, executive chairman of Evolution Mining, which has spent close to A$800mil (US$584.40mil) buying mines this year.
“Asset values are in the range of 60% to 70% below their peak in 2011 and sentiment, which is set on the basis of the prevailing US dollar gold price, is poor," said Klein.
Gold in July took its sharpest dive since September 2013, landing at US$1,088 per ounce, a five-year low.
“There's a good balance of willing sellers and ready buyers again,” said Gavin Wendt, an analyst with MineLife consultants.
Sandra Close, a director of gold consultancy Surbiton Associates, said history also favoured more interest in the gold sector.
Overseas ownership of Australia's gold mines was around 20% until 1997, according to Close.
“This was followed by a period of escalating takeover activity, when the Australian dollar was weak and overseas control rose to 30% by mid-2001, then up to 60% by early-2002, before reaching a maximum of 70% in 2003," Close said.
M&As in the sector fizzled after that as iron ore prices soared and the value of the Australian dollar overtook the US dollar, sapping interest in gold. But with iron ore recoiling some 70% from its 2012 peak and the Australian dollar fetching only around 73 US cents gold is again gaining lustre.
“It's no longer about iron ore, the big boys like Rio Tinto, BHP and Fortescue have that sewn up," said Morgans Financial analyst James Wilson. "Gold is very much in favour." At the annual Diggers and Dealers miners' and bankers' conference in the Australian town of Kalgoorlie this week, where many deals are traditionally hatched, 31 of the 46 companies presenting before some 1,800 attendees mine gold.
The Australian dollar gold price has remained relatively stable averaging more than A$1,500 per ounce since the beginning of the year, whereas USdollar gold is down 8%.
The S&P/ASX All Ordinaries Gold index index tracking Australian gold producers is up 4% this year from early January versus a decline in the two previous years. — Reuters