Insitu Gold Value Triples

The amount that the mining industry is paying for gold in the ground has almost tripled to an eight-year high, helped by a jump last year in the value of gold-focussed deals.

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The amount paid for gold in ore reserves and mineral resources has bounced to an eight-year high of US$89/oz. S&P Global Market Intelligence (SPGMI) reports that the industry paid, on average, 178% more for gold in the ground last year compared with the historic low of under US$32/oz paid in 2017. The historic high for gold in the ground was US$142/oz in 2010.

The value of gold-focused deals in 2018 (pending and completed) increased 82% to US$11.72 billion from deals valued at US$6.44 billion in 2017, and gold deals represented almost half of the total precious and base metals deal valuation of US$24.89 billion. This increase was due, however, to a single deal — the Barrick-Randgold merger.

Barrick Gold Corp.'s US$6.10 billion takeover of Africa-focused Randgold Resources Ltd was announced in September (the deal closed in January 2019) and this single deal represented more than half of last year's total gold-deal value. Without this deal, the remaining US$5.66 billion in 45 deals would have been less than the total in 2017, and only just over the 12-year low of US$5.01 billion in 44 deals in 2016, according to SPGMI data.

In a SPGMI article published this week, Nick Wright wrote that precious-metal companies last year heavily favoured producing mines over development-stage projects. Indeed, almost four times as much gold was acquired in producing companies and mines in 2018 than in non-producing companies and projects — 104 Moz was acquired in 27 producers and only 28 Moz acquired in 19 non-producing assets. By contrast, Mr Wright notes that buyers favoured non-producing companies and projects in 2017, with 117 Moz in 35 non-producing assets compared with 80 Moz in 23 producers.

SPGMI notes that the traditionally higher value of producing assets, in combination with the higher proportion of acquired gold in producers, partially accounts for the higher price paid per ounce for all deals in 2018. However, the US$104/oz paid in producing deals in 2018 was still two-and-a-half times the US$42/oz paid for producers in 2017.

SPGMI suggests that buyers may be switching from a longer-term strategy of picking up development-stage projects at low prices to a strategy of replacing minable reserves over the near term in response to rising gold prices. Based on precious-metal acquisitions in the first quarter, SPGMI expects the number and value of gold deals to increase this year. 

Chris Hinde

Chief Commentator, Mining Beacon

Previously editorial director of Mining Journal, and more recently head of S&P Global Market Intelligence's metals and mining team, Chris is now Mining Beacon's editor-in-chief and lead commentator. He posts two blogs every week, one on Monday reviewing market conditions over the prior week, and a second on Thursday looking at issues on the global mining scene. There is also a quarterly blog on business opportunities in the sector.