Acquisitions by China’s gold mining companies reached a record this year as the metal’s steepest quarterly drop in more than nine decades slashes mine values and sidelines Western competitors laden with debt.
Takeovers and asset purchases by producers based in China and Hong Kong rose to a record $2.24 billion this year, beating last year’s record $1.96 billion, according to data compiled by Bloomberg. Zijin Mining Group Co., the world’s seventh-largest gold company by market value, and Zhaojin Mining Industry Co. are among companies looking to strike after the share prices of targets fell an average 53% since bullion peaked in 2011.
“The gold declines are good for key Chinese producers to buy overseas assets,” Chen He, head of overseas resources development at Zhaojin Mining, China’s fourth-largest producer, with a $2.3 billion market value, said in an interview. “This year our main task is to closely watch potential targets as prices in 2014 are forecast to be lower.”
Global producers led by Canada’s Barrick Gold Corp., the world’s second-biggest by value, were warned by investors against deals after taking $26 billion in writedowns since July 16 following a spree that saw $162 billion spent on acquisitions during a decade-long price boom.
Shareholders are “actually actively telling a lot of companies, we’d rather you not do M&A transactions,” Barrick Chief Executive Officer Jamie Sokalsky said May 21 at the Bloomberg Canada Economic Summit in Toronto.
Chinese buyers are less constrained as demand at home explodes. With consumption having jumped to 4 metric tons a day, the nation is set to overtake India as the biggest consumer this half. Many producers in China have better cash flow than overseas competitors and lower production costs.
Zijin is forecast to have all-in costs, which include administration, capital spending and exploration, of $658 per ounce this year and Zhaojin $549 per ounce, compared with a global average of $831, brokerage UOB Kay Hian Ltd. said in a note to clients dated July 9.
Papillon Resources Ltd., which has a project in Mali, may be a possible target for Chinese companies, according to RBS Morgans Ltd. Iamgold Corp., with a $2.4 billion market value, Amara Mining Plc and Perseus Mining Ltd. also are possible targets, said David Brennan, an analyst in Melbourne at Ord Minnett Ltd.
“There are some good bargains out there, and things that are too good to pass up on,” said James Wilson, a Perth-based analyst at RBS Morgans Ltd. and a geologist who has worked in Australia, Africa and China.