The top honcho of Kirkland Lake Gold, Tony Makuch, was quick to ease jitters of investors that the planned C$4.9 billion ($3.7 billion) buyout of Detour Gold Corp. will not lift the company's stocks when they crashed on Tuesday.
Canada's Kirkland Lake stocks slumped 17 percent, the worst since mid-July 2015, after announcing an all-share deal to purchase Detour Gold, which operates the Ontario Detour Lake mine. For more than 20 years, Detour Lake is expected to produce 600,000 ounces a year.
Acquisitions for gold mining have risen since 2018 with the purchase of Randgold Resources Ltd. by Barrick Gold Corp. and the acquisition of Goldcorp Inc. by Newmont Mining Corp. It was not easy for Newmont to consolidate the projects after the mergers, which inherited a company saddled by growing pains as it integrates assets from Goldcorp.
In the third quarter, Kirkland has managed to cut its all-in operating costs by almost half to $562 an ounce, from three years ago. This contrasts with a profit of 15 percent in the $1,198 price set by Detour.
In the three years up to Friday, Kirkland's stock price has risen eight-fold, as profits soared. In the BI Global Senior Gold Valuation Peers index, the shares outperformed a 36 percent raise and a 21 percent rally in gold prices over the same period.
That put the firm in a strong position to expand. The gold mine at Detour Lake is about the same scale as Kirkland's biggest venture, Australia's Fosterville mine.
In the decade-long bull run that took precious metal prices to record in 2011, companies rushed to buy assets to raise output to meet rising metal demand, accumulating debt to close those deals.
Investors hit the exit as prices reversed and the metal languished in a bear market for years, leaving many miners unable to fulfill their obligations and forcing them to cut costs to survive.
A group of investors including the hedge fund set up by billionaire John Paulson and La Mancha's Egyptian billionaire Naguib Sawiris had called on gold firms to unlock $13 billion in value through mergers and cost cuts.
The 18-member investor Shareholders Gold Council urged mid-tier firms to pursue no-premium fusions to cut duplicate corporate structures and achieve economies of scale.
Detour Gold's the acquisition "will increase the overall cost profile of Kirkland Lake," said Fahad Tariq, an analyst at Credit Suisse Group AG in a note prior to trading on Monday. "It also raises concerns over potentially weaker Fosterville exploration updates," Tariq added.
