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Mining royalty company Royal Gold has agreed two acquisitions worth $3.7bn, in the latest deals to show how record bullion prices are driving consolidation in the highly fragmented sector.
The Nasdaq-listed company said on Monday it would buy Toronto-quoted Sandstorm Gold in an all-share $3.5bn transaction, and would also acquire Horizon Copper — whose biggest shareholder is Sandstorm — for $196mn in cash.
The deals have been agreed by the boards of all three companies and are set to make Royal Gold one of the world’s top streaming companies, which pay mines upfront for a future “stream” of their output or royalties on profits.
Surging prices have boosted profitability for gold miners and streaming companies, even though the two have different business models. The historic bullion rally has also contributed to a fresh bout of dealmaking.
“High commodity prices tend to enthuse the animal spirits,” said Kieron Hodgson, an analyst at Peel Hunt. “There’s an element of consolidation, both for growth and for optionality”.
He said higher bullion prices had intensified competition for quality projects among streaming companies.
The gold price has almost doubled in the past two years and touched a fresh high of $3,500 per troy ounce in April.
Last year, gold deals accounted for 70 per cent of dealmaking by value in the mining sector, according to S&P Global, and analysts expect that trend to continue.
The largest gold mining deals last year included AngloGold Ashanti’s $2.5bn takeover of Centamin and Northern Star’s $3.3bn purchase of De Grey.
Deals this year included CMOC’s $581mn purchase of Lumina Gold in April, as well as Australian gold miner Ramelius Resources’ $1.5bn takeover of Spartan Resources in March.
After the transactions, Royal Gold expects its market capitalisation to rise from $11.9bn to about $15.4bn, according to company figures. The world’s largest streaming companies are Wheaton Precious, valued at $41.2bn, and Franco-Nevada at $32bn.
Royal Gold chief executive Bill Heissenbuttel said: “The transactions will reinforce our position as the only large-cap, gold-focused streaming and royalty company domiciled in the US.”
After the transactions are complete, Royal Gold’s portfolio will double to 80 producing assets, with a further 266 mines at the exploration phase. About three-quarters of the revenues of the expanded company will come from gold, with the rest from silver and copper.
All three companies will require shareholder approval before the completion of the deal, which is expected in the fourth quarter of this year.
