In 2018, Barrick's acquisition of Randgold Resources for $18 billion initiated a significant rise in mergers and acquisitions (M&A) among gold mining companies.
This trend continued in 2021 with another major merger announcement, as Agnico Eagle Mines and Kirkland Lake Gold combined in a deal valued at nearly $11 billion.
Additionally, several smaller deals occurred that year, such as Kinross Gold's $1.4 billion acquisition of Great Bear Resources, Newcrest's $2.8 billion takeover of Pretium Resources, and the recent $4.8 billion purchase of Yamana Gold by Pan American Silver and Agnico Eagle.
Mining M&A activity remained strong in 2022, reaching its highest level in a decade, with 288 deals totaling $88.2 billion. This performance outpaced the global aggregate M&A activity, which experienced a 34% decline in deal value.
In 2023, mergers and acquisitions in the mining sector continue to thrive. B2Gold announced in February its plan to acquire Sabina Gold and Silver in a deal valued at $823.66 million. In the same month, Newmont Mining unveiled a massive $17 billion takeover bid for Newcrest Mining, Australia's largest gold miner.
More recently, Royal Gold revealed its intention to acquire two Brazilian mines for a total price of $250 million. Several smaller deals have also been announced this year.
The recent surge in gold mining mergers raises concerns about the industry's persistent challenge of declining ore grades.
Over time, the average ore grades in gold mines worldwide have declined. This is primarily due to the necessity of mining lower-grade ores.
Ore grade indicates the amount of gold contained within a rock, and higher-grade ores are more economically viable to mine.
After centuries of mining, most of the world's high-grade gold deposits have been depleted, leaving predominantly low-grade deposits for commercial operations.
Gold ore grade is typically measured in grams per tonne (g/t). So, for example, 30 g/t means there are about 30 grams of gold per tonne of rock.
However, even with such grades, extracting just one ounce of gold requires processing a tonne of rock.
This scarcity contributes to gold's value. Commercial gold mines operating with an average ore grade of 30 g/t are now exceptionally rare. The Fosterville Mine in Australia, acquired by Agnico Eagle in 2021, stands as one of the few major mines producing gold from such high ore grades.
The average ore grade from gold mining operations worldwide has dropped to approximately 1.35 g/t, and this trend is expected to continue.
As ore grades decline, the cost of mining gold increases. The World Gold Council's data indicates that the all-in sustaining cost (AISC) for mine production of an ounce of gold reached its highest-ever level at $1,289 in the first nine months of 2022.
Declining gold ore grades are among several factors anticipated to drive gold prices higher in the coming years, offering opportunities for investors.
In the long term, the demand for gold is projected to steadily rise. Companies with significant portfolios of the world’s remaining high-grade gold assets like Agnico Eagle are well-positioned to benefit from this trend.
