Gold miners may be tempted back into the takeover game by lower prices and the need to replace reserves, but they are likely to shy away from flashy mega-projects that require big capital expenditures.
Gold mining deals have slowed to a crawl, thanks to a volatile market and pressure from investors still angry about the steep premiums paid during boom times. The pause can't last forever, but the excesses of the last cycle will cast a long shadow.
"Everyone is really gun-shy of the high capex projects," said Randy Smallwood, chief executive of Silver Wheaton Corp, which provides miners with cash to finance mine construction in exchange for the right to buy future silver production at a set price.
Smallwood said projects that use relatively low-cost heap leaching could be more attractive than those with mills. In a heap leach, ore is crushed, stacked and irrigated with chemicals that separate out the valuable metals.
Across the industry, executives have vowed to chase profits rather than production, which often means focusing on higher-grade ore. But projects that require significant capital spending may take years to break even, a risky proposition when commodity prices or tax regimes are volatile.
Jason Neal, co-head of BMO Capital Markets' global metals and mining group, said market volatility has cut down buyers' tolerance for risk.
"They are willing to stress their balance sheet less than they would have in a more robust environment," said Neal, who advises BMO clients on takeovers and other deals.
SAFE NEW WORLD
The first half of 2011 was one of the busiest periods of mergers and acquisitions in the mining industry, according to data from PwC, as miners scrambled to boost production after more than a decade of gold price increases.
But gold investors have punished companies that bought pricey assets and then struggled with spiraling costs and falling commodity prices, and shares and dealmaking have slumped. There were 649 mining deals in the first half of 2013, down from 1,371 in the same period of 2011, according to PwC.
Gold prices have fallen some 20 percent so far this year, weighing on miners' cash flow. Spot gold traded at about