- AngloGold Ashanti’s swoop for Centamin is the latest in a series of gold mining deals
- Shanta Gold purchased earlier this year
- Recent deals suggest remaining London-listed miners could yet be cheap
- Precious metal trades near to all-time highs
“Over the summer, global equity markets have been volatile, government bond markets have been firming (as yields have fallen) and currency markets have been all over the place, but gold has remained firm, near record highs, at around $2,500 an ounce,” says AJ Bell investment director Russ Mould. “This is not escaping the attention of gold mining executives, who seem keen to position their firms for further potential upside in the precious metal and do so by acquiring rival producers rather than developing new mines.
“London-listed Shanta Gold received a bid earlier this year, and that transaction followed a lengthy list of larger deals worldwide, notably Barrick Gold swallowing up Randgold Resources and Newmont buying GoldCorp in 2019; the merger between Agnico Eagle and Kirkland Lake Gold in 2021; Agnico Eagle and Pan American Silver carving up Yamana Gold and Newmont buying Newcrest in 2023; and South Africa’s Gold Fields move on Canada’s Osisko Mining in August of this year, just before AngloGold Ashanti joined in with its £1.9 billion cash-and-stock approach for Centamin.
“Intriguingly, the valuations implied by both the Osisko and Centamin deals suggest that the remaining gold producers on the London Exchange could yet be nuggets of value (as could some of the gold diggers on the New York and Toronto markets).
“Gold Fields’ all-cash bid of C$4.90 for Osisko values the target at roughly two times net asset, or book, value per share.
“At the initial offer price, which equated to 163p per share, AngloGold’s bid for Centamin valued its target at 1.7 times NAV per share.
“A basket of major US and Canadian producers trades on an average of 1.8 times book value and a quintet of London-traded gold miners trades on an average of 1.4 times NAV per share.
Source: LSEG Refinitiv data, Marketscreener, company accounts, consensus analysts’ forecasts. *Price implied by AngloGold Ashanti approach when the bid was first made public.
Source: LSEG Refinitiv data, Marketscreener, company accounts, consensus analysts’ forecasts.
“Granted, Osisko operates in Canada, while Endeavour, Resolute and Pan African Resources operate in South Africa, so it could be argued that the London-listed names merit some discount, given the potential for geopolitical or regulatory uncertainty (and Mali, home to Resolute’s Syama mine, is yet to return to civilian rule after 2021’s military coup).
“Equally, they are both producing, while Osisko is not and is still in its pre-revenue phase, for all of the excitement surrounding its Windfall project in Quebec which is due to come into production in 2026 or 2027. In this respect, the discount rating afforded Resolute and Endeavour could be too low, and a rising gold price (in the event of say a fresh inflationary outbreak, or even central bank money printing as a response to an unexpected economic downturn) could put such names back in the spotlight.
“After all, gold may be trading near all-time highs, but gold miners feel relatively neglected (perhaps because investors feel that central bankers can indeed engineer cooler inflation, a soft economic landing and interest rate cuts, or perhaps because they are still more interested in other areas, such as anything related to artificial intelligence).
“Either way, the gold price is not much higher now, relative to the S&P 500 stock index, than it was on 15 August 1971 when Richard M. Nixon took the dollar off the gold standard, smashed up the Bretton Woods monetary system and ushered in an era of Government deficit accumulation.
“In August 1971, the gold price ($42.80 an ounce) was the equivalent of 0.43 times the value of the S&P 500 equity index (98.8). That ratio today is just 0.46 times, compared to an all-time low of 0.18 times in 1999 (when the world was obsessed with technology, media and telecoms stocks) and 1980’s all-time high of 7.5 times (when the world was terrified of inflation and gold was soaring).
Source: LSEG Refinitiv data
“The NYSE Arca Gold Bugs index, known as the HUI, is starting to cotton on, perhaps inspired by the ongoing round of gold mining merger and acquisition (M&A) activity. The index is up by a quarter since 2020, but that still lags gold’s 65% advance over the same time frame.
Source: LSEG Refinitiv data
“That tardy performance in turn means that the Gold Bugs index is near to the all-time lows relative to the actual precious metal price, since the inception of the gold miners’ basket in spring 1997. This may suggest that if gold rises, the miners could conceivably start to play catch-up and rise faster still, even allowing for stock-specific risks such as higher inputs to the cost of production, geology and geopolitics and resource nationalism.”
Source: LSEG Refinitiv data
