AuRico Gold Inc., the Canadian miner that bought Northgate Minerals Corp. for C$1.34 billion ($1.32 billion) in October, said it’s focused on its existing assets and will be “opportunistic” in considering further deals after gold-asset valuations fell.
“There are a lot of great things out there right now that are trading at all-time lows,” Chief Executive Officer Rene Marion said in a June 18 interview. “If someone goes into play then we will sharpen our pencil to see if there’s an accretive way of doing a transaction.”
Marion said that while Toronto-based AuRico isn’t actively looking for deals, it watches for opportunities. The CEO said he expects mergers and acquisitions in the industry will accelerate because gold stocks are trading more cheaply while new mines are becoming more expensive to build.
Gold prices have risen for 11 straight years while companies in the 59-member S&P/TSX Global Gold Sector Index trade at about 15 times reported earnings, compared with a five-year average multiple of 39. The index has fallen 10 percent this year, while gold futures in New York have gained 2.6 percent.
AuRico fell 1.7 percent to C$8.57 at the close in Toronto. The shares have gained 4.6 percent this year.
Marion, 49, said his focus for now is on finishing the startup of the Young-Davidson mine in Ontario and increasing the company’s share price. AuRico also is studying the potential for a new mine at its Kemess site in British Columbia.
AuRico would only consider buying gold assets in North America with the potential to produce at least about 100,000 ounces a year with relatively low operating costs, Marion said. AuRico acquired Young-Davidson last year when it bought Northgate.
“We had been following Northgate for two years and we had our own financial model and development plan for Young-Davidson,” Marion said. “We waited and when they went into play we felt pretty confident that it was time to act.”
AuRico also operates mines in Mexico and forecasts production this year of 323,000 to 363,000 so-called gold equivalent ounces, a measure that includes silver output. It expects to produce about 600,000 gold equivalent ounces by 2016. Most of the extra output will be from Young-Davidson, which is expected to reach commercial production in August, Marion said.
The company, which is selling its El Cubo mine in Mexico to Endeavour Silver Corp., will complete a feasibility study on an underground mine at Kemess in the first quarter of 2013. It may build the mine and obtain some funds from Asia in return for an offtake agreement, fund the whole development itself, or possibly sell the asset, depending on the results of the study, Marion said.
Gold-mining companies are becoming more cautious about large projects amid rising costs for labor, raw-materials and equipment, he said.
AuRico probably won’t take on a big unfunded development project it doesn’t already own because of the risk of rising construction costs, he said.
“I think investors are going to rerate specific companies,” Marion said. “It’s going to be companies that do what they say they are going to do, that have minimal capex overruns and that are sustainable low-cost producers.”