DEALTALK-Sharks circle, but record gold price not ideal bait

* Fears of gold price retreat keeps M&A at bay

* Deals seen among smaller players looking for growth

* Gold price stays at record levels

By Cameron French and Pav Jordan

TORONTO, Oct 19 (Reuters) - Fear that gold prices will retreat from current record highs will likely discourage the return of the takeover frenzy that gripped the gold-mining industry before the global economic crisis struck, market players say.

Instead, they suggest deals now will be mostly small or strategic in nature, involving single-mine operators looking to add scale quickly.

"You're going to see companies looking to make the next step in market cap size and production level to attract a better valuation multiple or a broader investment audience," said Barry Allan, an analyst at Toronto's Research Capital.

Gold prices shot through record highs two weeks ago and have since stayed in a lofty range of $1,050-$1,060 an ounce, due largely to a plunging U.S. dollar.

Two years ago similar circumstances would have sparked predictions of an M&A feeding frenzy, but acquisition-minded miners are now exercising caution in valuing targets.

"I think right now the stalemate is around what is the long-term price to use to value transactions, and the buyers and sellers just haven't met yet," said Tom Whelan of accounting firm Ernst & Young.

SEEK VALUE, NOT JUST GROWTH

Rather than growth for the sake of it, companies have trained their sights on finding deals that add value, either through cost synergies or because they are a strategic fit.

That was the thinking behind Barrick Gold's (ABX.TO) $465-million bid last week to buy a 70 percent stake in the El Morro deposit in Chile from Xstrata (XTA.L).

Barrick, the world's biggest gold miner, was spurred to pull the trigger on the deal because it saw cost savings from El Morro's proximity to its Pascua Lama project and its Veladero mine.

"You can sort of see it as a one-off or you can see it as something that we look at again in the future," said Barrick spokesman Vince Borg. "If your view of the gold price is that it's going to stay at this level or go up, you might be more active (in M&A)," he added.

Newmont Mining (NEM.N) is another major that could be on the hunt for targets as it is seen having room to fill in its development pipeline.

But analysts and bankers see most deals taking place at the lower end of the producer spectrum as small miners add assets in the hopes of making the leap to mid-tier status.

Recently agreed takeovers include Lake Shore Gold's (LSG.TO) C$335 million bid for West Timmins Mining WTM.TO, which will consolidate Lake Shore's gold holdings in northern Ontario.

That all-stock deal, announced in August, is one of a handful in the past few months as gold sector M&A has begun to thaw after law year's credit crisis and market crash.

"Gold over $1,000 per ounce means that market values for gold stocks are climbing and consolidation activity is increasing," said Miranda Werstiuk, of Toronto-based investment banking firm IBK Capital Corp.

Other recent transactions include Eldorado Gold's (ELD.TO) C$2 billion bid for China-focused Sino Gold SGX.AX, and Barrick's offer for the El Morro stake.

CASHED UP

The deals come as resurgent demand for gold equities and assets has allowed miners of the metal to issue billions of dollars worth of stock and pad their cash positions. Debt is also more available for miners with assets and production.

Companies like Gammon Gold (GAM.TO), Aurizon Mines (ARZ.TO), and Alamos Gold (AGI.TO), each with one operating mine and market capitalizations in the $1 billion range, are seen as likely hunters, targeting explorers with properties made economic by strong gold prices.

"A lot of marginal gold properties right now are no longer marginal," Research Capital's Allan said. (Editing by Peter Galloway)