Mining M&A revival favors “quality” juniors

As gold prices continue to rebound, a flurry of recent mergers and acquisitions (M&A) have breathed new life into a deflated global mining industry.

One of the recent headline-grabbing deals saw the Vancouver-based mining giant Goldcorp Inc. kick off the new year with a bang by scooping up a Canadian gold development junior, Probe Mines, for the princely sum of $526 million in an all-stock arrangement.

What is particularly interesting about this acquisition is that it reflects a new reality: When buying gold deposits, multinational mining companies are now choosing the quality of the asset over the size of the metal inventory in the ground.

In other words, it doesn’t matter that Probe’s two-million-ounce-plus deposit near Chapleau, Ontario is less than half the size of the 3-million-ounce minimum threshold that big-league miners traditionally seek out.  What does matter is that it is a high-grade deposit that promises to be relatively cheap to mine at a modest capital cost.

What is key is that the deposit is relatively close to the mill that processes ore from Goldcorp’s proximal Porcupine mine in Timmins. So projected capex (mine construction) costs promise to be substantially less than if such regional infrastructure was not already available. Hence, this is a consolidation of assets in a secure jurisdiction where Goldcorp has a decades-long commitment.

To put this paradigm shift into perspective, the world’s dominant gold miners are placing an overriding emphasis on significantly reducing their capital and operating costs. And the key to doing this is to acquire new assets that are complementary to their existing mines and inexpensive to develop relative to greenfields operations.

Mining analysts—who have been mostly starved of good news over the past several years—like what they see in this new approach. They include Toronto-based Barry Allan of Mackie Research Capital.

 “It feels like we are in a new gold market. This means we should see a lift on other gold assets if they are also well-located and high quality,” he says in response to Probe’s big buy-out.

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Marc Davis is managing editor of