* Handful of large gold projects still owned by juniors
* Gold bull market makes M&A too expensive
* Top miners focusing on organic growth, exploration
By Julie Gordon
TORONTO, May 8 Barrick Gold (ABX.TO), the
world's top bullion producer, may have become a victim of its
To keep its breathtaking growth on track, the industry
giant opted to turn its back on gold last month, bidding on
copper producer Equinox Minerals EQN.TO in a move that
highlights the scarcity of attractive takeover targets in the
top end of gold sector. It decided it was better off putting
its money to work in base metals.
Indeed, there are only a handful of golden nuggets left
that could conceivably give a significant boost to Barrick's
reserves, or those of other top producers such as Goldcorp
(G.TO), Newmont Mining (NEM.N) and Kinross Gold (K.TO).
Canadian juniors Osisko Mining (OSK.TO), Detour Gold
(DGC.TO) and Gabriel Resources (GBU.TO) all boast sizable gold
assets in various stages of development.
That said, soaring gold prices have put company valuations
at record levels, making deals, especially those in the
multimillion-ounce club, very costly.
"It's getting more and more difficult for these larger
companies to add new projects that are significant," said
Dundee Securities mining analyst Paul Burchell.
"It doesn't mean that there aren't valid projects out
there," he added. "It's just that there's a lot of competition
for the few of them that are there."
At the top of everyone's list is Osisko, which owns the
Canadian Malartic project in mining-friendly Quebec.
With a market cap of C$5.3 billion ($5.5 billion), and
plans to produce over 600,000 ounces of gold annually, at first
glance the gold junior seems a far better deal than the C$7.3
billion Barrick is paying for Equinox.
But when Osisko goes into commercial production next month
it will likely be re-rated up to trade in line with the
intermediate producers. On top of that boost, shareholders
would expect a premium of at least 25 percent, said analysts.
It all adds up to a big number for a company that doesn't
have any need to sell itself.
"People want to pay for stuff cheap and Osisko's always
looked expensive because it's always delivered," said BMO
Capital Markets mining analyst John P. Hayes. "They can deliver
the value themselves in the next step."
The ideal takeout is a junior that has a great asset, in a
good jurisdiction, but has hit a bump in the road, thus
knocking its shares down, said Hayes.
"Some asset that's below its potential and people are not
delivering on it," he said. "That creates unrecognized value.
That's the best acquisition."
He points to Gabriel Resources (GBU.TO), which owns a
sizable deposit in Romania but has been tied up in permitting
for years and faces rising development costs.
Another good bet could be International Tower Hill
(ITH.TO). ITH owns a large deposit in Alaska, but has big
development costs and is still in the persuasibility stage.
Still, with gold climbing 29 percent in the last 12 months,
all the gold juniors are looking costly -- Gabriel's shares
have soared more than 64 percent, while ITH climbed 26 percent
and Osisko is up 30 percent.
If gold prices, which dipped this week from a record high
above $1,575 an ounce, drop further, the M&A climate could
improve. But analysts say the project risks need to be low, and
the potential rewards high.
"I think companies are very cautious when they are looking
at properties," said Morningstar analyst Min Tang-Varner. "It's
a very delicate dance that these gold companies are doing."
KEEP 'EM DRILLING
With hefty cash flows coming in each quarter, top producers
are turning away from deals and looking to put that extra money
straight into the ground.
Worldwide exploration spending is expected to rise by about
40 percent this year and many in the industry believe it's only
a matter of time before major new projects crop up.
"You go back a decade and there weren't a lot of big gold
mines out there because the industry had gone into a bit of a
slump and wasn't doing exploration," said Charles Oliver, a
portfolio manager with Sprott Asset Management. "Today,
exploration is going on. We are finding new things."
But exploration takes time, and for producers who need
replacement ounces within five years, the only option may be to
buy a late-stage development company.
"There's some good assets out there," said Hayes. "But
somebody's got to be willing to buy them."
(Additional reporting by Pav Jordan; editing by Frank McGurty
and Rob Wilson)