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'Disastrous' deals sideline gold-mining M&A as metal rises

Section: Daily Dispatches

By Luzi-Ann Javier
Bloomberg News
Wednesday, January 17, 2018

Stung by some lousy investments that led to billions of dollars in losses a few years ago, the world's major gold producers have cut way back on mining deals -- even as metal prices posted their biggest rally since 2010.

The value of the industry's transactions, from acquisitions to venture-capital financing, tumbled by more than a third in 2017 to $8.95 billion, the lowest in at least a dozen years of data compiled by Bloomberg. The decline reflects the skittishness of an industry that went on a buying spree in 2010 and 2011, when prices surged to records, and then got stuck with too much debt and huge writedowns after bullion tumbled.

While prices are up over the past two years, executives are reluctant to start buying again. Shareholders harshly criticized past deals, which billionaire hedge-fund manager John Paulson estimates led to $85 billion of writedowns since 2010. Bullion remains about 30 percent cheaper than its record in September 2011, but over the same period, shares of major mining companies tracked by Bloomberg Intelligence fell even more, by more than half.

"There were some disastrous M&A deals done in the past, which destroyed a lot of shareholder value," Thomas Kaplan, chairman of Electrum Group Ltd., a mining-focused investment firm that's the largest shareholder in NovaGold Resources Inc. "We're still in the phase where investors have been turned off by low returns." ...

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