Gold mining companies are ramping up M&A activity as record gold prices boost the free cash flow they can use to make deals.

As older mines become depleted and mining costs rise, quickly adding ounces in the ground is tempting, but it also adds the risk of paying too much or having trouble incorporating assets.

In the latest merger in the gold mining sector, Gold Fields Ltd. GFI said it plans to buy Osisko Mining Inc. OBNNF for $1.57 billion in cash, giving the acquirer full ownership of the Windfall gold project in Canada.

“Deposits with the scale and quality of Windfall, combined with a world-class jurisdiction like Québec, are extremely rare," Gold Fields CEO Mike Fraser said in a prepared statement.

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As gold companies rake in free cash flow from high gold prices, a big question this earnings season has been how they will allocate those funds, Bank of America analysts said in a note. Options include returning money to shareholders with dividends or share buybacks, exploring for gold and developing mines themselves, or buying other miners to bulk up on deposits quickly.

"Depleting resources, declining supply in old mines and the lack of new mines have been inherent threats to the industry," a Zacks Equity Research note said. "Due to the scarcity of discoveries and {exhausting of) existing resources, miners prefer building up reserves through acquisitions rather than digging new ones that are risky and capital-intensive."

On Friday, gold futures hit a record above $2,500 per ounce amid expectations of Federal Reserve rate cuts. The surge in the precious metal boosted gold mining stocks, with the VanEck Gold Miners ETF GDX rising 3.08% in Friday afternoon trading, as of last check.

A Feeding Frenzy for Assets

Gold deals last year included Pan American Silver Corp.'s PAAS and Agnico Eagle Mines Ltd.'s AEM purchase of Yamana Gold Inc. in a $4.8 billion cash-and-stock deal. But the blockbuster was the biggest-ever gold merger when Newmont Corp. NEM bought Newcrest Mining Ltd. for nearly $17 billion.

The Newmont-Newcrest deal is sparking further interest in gold M&A, as Newmont said it intends to sell eight mines, including two it acquired from Newcrest, to help pay down debt and focus on top-tier mines and a two-year share repurchase program. 

Newmont CEO Tom Palmer in a recent conference call said 20 parties made bids for its Akyem property in Ghana, and seven of those companies are preparing bids for the second phase of the sale process. 

"We're certainly seeing a competitive process and good value coming through," he said.

Meanwhile, the company had 67 parties participate in the first phase of the sales process for its Cripple Creek & Victor, Éléonore, Porcupine, Musselwhite and Coffee mines in Canada. There were "around" 24 bids submitted, he said.

"We've had a range of bids, from a single asset to a bundle of assets to the full portfolio," Palmer said. "And we are busily now having received those bids just in recent days, working through a process of assessing those, and determining, which parties we'll take into Phase 2. There's some very nice competition in that process."

In another example of how M&A begets more M&A, Alamos Gold Inc. AGI last month closed a $325 million all-stock deal for Argonaut Gold. Assets that Alamos didn't want were spun out and sold to Heliostar Metals Ltd. HSTXF and Integra Resources Corp. ITRG.

Copper to Continue to Play a Role

A trend in gold mining has been gold companies accumulating substantial amounts of copper. Copper is often found alongside gold in the earth's crust, and copper mine lives can run into decades, giving gold shareholders the promise of cash flow if gold deposits wane.

Additionally, copper is increasingly attractive to both base and precious metals mining companies as experts estimate demand for the metal will continue increasing as nations electrify their economies. Copper is widely used in wiring and electric vehicle batteries.

One of the reasons Newmont bought Newcrest was the latter's large holdings of copper, as the latter added nearly 50 billion pounds of copper reserves and resources to Newmont's books in one fell swoop.

In 2023, Agnico Eagle bought a 50% interest in a Mexican copper-zinc project from Teck Resources Ltd. TECK.

Meanwhile, Barrick Gold Corp. GOLD is spending nearly $2 billion to expand a copper mine in Zambia and $7 billion to build a copper and gold mine in Pakistan, with new production from both expected to begin in 2028. 

John McClusky, CEO of Alamos Gold, told Benzinga he thinks the largest gold companies will continue to scoop up copper assets as part of a broader decades-long gold M&A trend.

"At the major end, you're going to find that," he said.

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Photo: Underground gold and copper mine. Photo by Jose Luis Stephens via Shutterstock.