December 9th, 2021 | 04:57 CET
Barrick Gold, Barsele Minerals, Merck KGaA - Much movement in the market
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"[...] Both the geology and the infrastructure around the project make for a very attractive cost structure. We expect to be able to produce at 50% of the current gold price. [...]" Bill Guy, Chairman, Theta Gold Mines Limited
Barrick Gold - Will more acquisitions follow?
The industry has been characterized by several decisive trends for years. Worldwide, the gold grades of projects are declining. In addition, there is an increasing lack of high-quality development projects. In addition, reserves, i.e. gold deposits that have not yet been mined, are declining.
Major producers such as Barrick Gold are increasingly focusing on acquisitions and the further development of their own projects and exploration activities. In this area, experts expect a significant increase in M&A activity. In the course of the currently high gold prices and corporate profits and strongly increasing cash flow generation, in addition to a debt reduction, substantial funds are available for acquisitions.
One transaction, relatively small for Barrick Gold but all the more historic for the Tembo Gold exploration company, is the strategic investment in the Tembo Gold Project in Tanzania. Barrick Gold operates the high-grade Bulyanhulu mine in the Lake Victoria goldfield in the East African country. In recent years, the old government, hostile to mining, caused standstills and a flight of capital. Only after the election of a new state president, who supports the industry with subsidies, is the sector making a comeback.
Directly adjacent to the major's Bulyanhulu mine is the Tembo Gold Project, in which Barrick Gold has now taken a 5.5% stake. In addition, six licenses were acquired for USD 6 million. Going forward, Barrick Gold committed to investing at least USD 9 million in the newly acquired license area over four years following the transaction's closing, which would add another USD 45 million to Tembo Gold's coffers in a best-case scenario.
Barsele Minerals - Top project in Northern Europe
Another high-grade development project is located in northern Sweden. It is operated through a joint venture with the major Agnico Eagle. With 55% ownership, Agnico Eagle owns the majority, with Barsele holding 45%. This position is comfortable and low-risk for Barsele, as Agnico Eagle bears the costs as operator. Barsele itself does not have to spend any cash until a pre-feasibility study is completed. However, after completing the pre-feasibility study, the major can acquire another 15% in the project, bringing it up to 70%.
In recent months, both joint venture partners presented a letter of intent under which Barsele Minerals could acquire the project outright. Although this expired at the end of October, a joint deal is to be further refined in the future.
The eponymous Barsele project in the northern area of the Scandinavian country covers a size of 47,000 hectares. It stands for a potential of more than 5 million ounces of gold, according to the management of the Belcarra Group, which leads the fortunes at Barsele Minerals. Back in 2016, the Royal Bank of Canada (RBC) conducted a valuation of the Barsele Gold Project for Agnico Eagle. At a gold price of below USD 1,350 at the time, the experts calculated a project value of USD 375 million.
The proposed transaction was worth USD 45 million. Agnico would have held around 15% of the shares in Barsele Minerals upon completion of the capital measure. Barsele Minerals is currently valued at a market capitalization of CAD 59 million. If the deal goes through despite the expiration of the LOI, the undervaluation would come to light.
Merck KGaA - Forward-looking transaction
DAX-listed Merck already entered the electronic materials business for the semiconductor industry in 2019 with the acquisition of Versum. The Darmstadt-based company plans to expand this with investments of more than EUR 3 billion by 2025.
Because of the chip shortage, the Merck Group now wants to create a new platform called Athinia to improve data analysis in the semiconductor industry. For this reason, the cooperation with the US data specialist Palantir is to be expanded. The platform is intended to reveal better transparency in supply chains to combat the chip shortage that continues to loom.
A press release said that both chip manufacturers and suppliers are to communicate on the platform to achieve efficiency gains. It will also provide industry players with a deeper understanding of the interactions between materials and processes in semiconductor production facilities.
Although gold prices have been hovering around the USD 1,800 per ounce mark for months, the market for acquisitions is already underway. Barrick Gold bought an initial 5.5% stake in Tembo Gold. Barsele Minerals is also likely to see some action. If the deal with Agnico does go through, the stock is clearly undervalued. Merck is expanding for the future and countering the semiconductor crisis.
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