Rising gold price may spark takeovers: analysts
TORONTO (Reuters) - Surging gold prices could signal a renewed bout of corporate takeovers in the precious metals sector, although the concurrent rise in costs could lead some would-be buyers to err on the side of caution, analysts say.
Gold extended its 28-year highs on Friday, building on a 12 percent monthly rise that has driven gold stock valuations higher, a scenario that bodes well for consolidation.
"Every time gold heats up, M&A picks up. There's a high correlation," said Frank Holmes, chief executive of U.S. Global Investors, whose $5 billion fund includes large mining holdings.
The sector has been relatively quiet this year, save for mid-cap Yamana Gold's (YRI.TO) attempted three-way tie-up with Meridian Gold MNG.TO and Northern Orion NNO.TO.
Following a tepid initial response from shareholders, Yamana boosted the cash component of its offer on Thursday, and analysts now say the deal will likely go through.
The offer comes in the wake of comments from several gold CEOs that there are few good acquisition targets out there, and that the preference is for organic growth.
But with miners struggling to increase reserves, growth by acquisition is inevitable, analysts say.
"We're starting to see fewer discoveries so it's going to be critical for companies looking to grow to look at acquisitions," said Haytham Hodaly, an analyst at Salman Partners.
RISING GOLD=MORE DEALS
A trigger to more action could be the rise of gold, which has benefited from safe-haven flows as the U.S. currency struggles. Spot gold XAU= was at $729 on Friday.
The metal's rise over the past month has already boosted company valuations, making it easier for potential buyers to use their own stock as currency. But some say further gains are needed to offset rising input costs of oil and other commodities used in production.
"I think it's going to take another big leap forward in the gold price before it kick starts the activity in the sector," said Peter Spina, who runs the gold investor Web site goldseek.com.
He sees $850 as a key level, as current conditions -- oil prices hit record highs this week -- make it more palatable for producers to try to expand resources at existing operations,
However, some larger producers, who must struggle to expand resources to ensure steady production, may not want to wait that long.
While the Yamana offer -- C$3.5 billion for Meridian and C$1 billion for Northern Orion -- is the biggest deal of late, some expect top players to re-enter the M&A game. Continued...
