Goldcorp Inc., the world’s second- largest producer of the metal, said mining acquisition targets are looking more attractive as tougher financing conditions have depressed share prices.
“The development-company valuations have come down to where, at least on paper, it looks like there’s some opportunities,” Chief Executive Officer Chuck Jeannes said in a recent interview. “There’s a lot of looking going on.”
Meanwhile Tuesday, Goldcorp said it has signed a deal to sell part of its stake in Primero Mining Corp. in a secondary offering worth $44.2 million. The big gold miner said a syndicate of underwriters have agreed to buy 8.4 million shares of Primero at a price of $5.25 per share.
Exploration and development companies, or so-called juniors, underperformed the large gold miners last year after they struggled to raise funds and investors shunned risky assets. The juniors are on average lagging the seniors again this year, even after rising 25 percent since hitting a two-year low on June 28.
The 74 companies in a Bloomberg Industries index of gold explorers now trade at an average 1.54 times book value, versus a three-year average of 2.58.
“A lot of the juniors have been hard up for cash, the financing window wasn’t necessarily open,” Marc Sontrop, a Toronto-based portfolio manager at Interward Asset Management Ltd., said by phone on Sept. 14. “I think we’re going to see takeover activity pick up, given the valuations.”
The Bloomberg Industries Global Explorers Gold Competitive Peers Index has fallen 15 percent this year, compared with a 2.8 percent decline in an index of 14 senior gold producers, which includes Vancouver-based Goldcorp. In that time, gold futures in New York have gained 13 percent.
“The challenge is now finding something that after thorough due diligence you would want, and finding something that the owners are willing to part with at what are historically low prices,” Jeannes, 53, said in the interview at the Denver Gold Forum. “There are things that look more attractive today than they have been for some time.”
There have been seven takeovers of gold companies worth $200 million or more announced this year, valued at $2.54 billion. That compares with nine deals valued at $11.61 billion in the same period last year.
Shares of gold explorers, which rose sharply from December 2008 to March 2011, have been “beaten down” since then, said Sonny Tahiliani, managing director at MacroMoves Capital Advisors Inc., a New York-based consultancy.
“The tide went out due to a combination of factors including overvaluation, stagnant gold price, cost escalation, new super profits taxes, funding evaporation and high profile operational hiccups by the majors, which highlighted to nervous investors the rarity of economically feasible gold deposits,” Tahiliani said by e-mail.
Jeannes said he expects gold equities broadly will outperform the metal as investors seek to take advantage of historically low valuations and producers promise to make better investment decisions. Miners including Barrick Gold Corp., the biggest producer of the metal by market value, and Kinross Gold Corp. have said they will be more disciplined in spending on projects and will target higher returns rather than output growth.
“I think there is a positive reaction to that, that’s what investors have wanted to hear, and so it’s giving them more comfort in the industry,” Jeannes said. “It’s not ounces, it’s value, and that’s always been our mantra.”