Is LatAm mining set for an M&A surge?

Latin America’s mining industry could see a surge in M&As this year, with market conditions providing fertile ground for takeovers, particularly in the gold space.

With developers and cash-strapped small producers struggling under the strain of the COVID-19 pandemic, well-financed firms are looking to snap up a bargain.

In addition, while the economic fallout of the health crisis has sent prices of many metals plummeting, gold has risen sharply, boosting cash flows and purchasing power.

While lockdown measures aimed at slowing the spread of the coronavirus have disrupted operations in many countries – including Mexico and Peru – others are so far unaffected, with output continuing at the bulk of the region’s biggest gold mines.

“I think we’re coming into what is going to be an M&A market in the mining sector like we’ve not seen before,” Dan Wilton, CEO of Canada and Mexico-focused junior First Mining Gold told BNamericas.

“That is quite simply because you have unprecedented levels of free cash flow [in the gold segment], a lack of projects in order to replace reserves, and producers with very little development pipeline,” he added.

While some producers are trading at up to 2x net asset value (NAV), the figure for some developers is around 0.1x, according to Wilton.

“We’ve never seen this value gap quite as big as you see it now. It’s the best set-up for an M&A market that I have seen.”

Further consolidation is likely after the COVID-19 pandemic is resolved, Control Risks partner Daniel Linsker told BNamericas in a recent interview.

“Some of the larger companies that have cash might go out and buy assets on the cheap,” he said.

BUYERS’ MARKET

Meanwhile, a number of companies are planning deals this year.

Christian Milau, CEO of Equinox Gold, which merged with Leagold Mining earlier this year, has indicated he is planning to complete one or two acquisitions in 2020, while shedding some smaller assets.

“We continue to be a little bit opportunistic in this current market,” he said earlier in April.

Endeavour Silver CEO Brad Cooke also confirmed he is considering possible deals this year, eyeing assets or companies producing 2-8Moz/y silver equivalent in the Americas, while consolidating land packages around the company’s Mexican mines.

DEALS TO DATE

While the region has not witnessed anything to rival the string of US$500mn-plus deals of 2019, several smaller scale transactions have been announced.

In Mexico, Argonaut Gold is advancing its planned acquisition of Alio Gold.

Alio sold its San Francisco gold mine in northern Mexico to Magna Gold and has the suspended Ana Paula gold project in Mexico, along with the Florida Canyon mine in the US.

Small, early-stage deals targeting precious metals projects in April include options signed by Barrick Gold on the El Quevar silver project in Argentina and Precipitate Gold’s Pueblo Grande primary gold project in the Dominican Republic.

In the lithium space, Orocobre completed its acquisition of Advantage Lithium, which had assets in Mexico and Argentina.

In copper, First Quantum Minerals is reported to be considering selling a stake in its US$6.5bn Cobre Panamá copper-gold mine in Panama, while Camrova Resources plans to sell its 7% stake in the Boleo copper-cobalt-zinc operation in Mexico.

Ascendant Resources also announced the planned sale of its Mochito zinc-silver-lead mine in Honduras to Panama-based Kirungu Corporation.