AuRico Gold Inc. (AUQ), the Canadian miner that bought Northgate Minerals Corp. for C$1.34 billion ($1.31 billion) in October, said it 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 theres an accretive way of doing a transaction.
Marion said that while Toronto-based AuRico isnt actively looking for deals, its watching 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 14 times reported earnings, compared with a five-year average multiple of 39. The index has fallen 11 percent this year, while gold futures in New York have gained 2.1 percent.
AuRico fell 1.8 percent to C$8.56 at 11:39 a.m. in Toronto. It has gained 4.5 percent in 2012.
Marion, 49, said hes focused on finishing the startup of the Young-Davidson mine in Ontario. AuRico also is studying the potential for a new mine at its Kemess site in British Columbia.
Rising Output
AuRico would 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. (EDR), 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.
Construction Costs
Gold-mining companies are becoming more cautious about large projects amid rising costs for labor, raw-materials and equipment, he said. That may
AuRico probably wont take on a big unfunded development project it doesnt already own because of the risk of rising construction costs, he said.
I think investors are going to rerate specific companies, Marion said. Its 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.
To contact the reporter on this story: Liezel Hill in Toronto at [email protected]
To contact the editor responsible for this story: Simon Casey at [email protected]
