CIBC analysts ponder Detour Gold suitors

Shares of Detour Gold (TSX: DGC) jumped nearly 12% yesterday on disclosure from one of the company’s largest institutional shareholders, Paulson & Co., that a potential acquirer is interested in the Toronto-based gold miner.

In a research note from CIBC entitled “Who Could Devour Detour?” the bank’s mining analysts drew up a list of 12 companies that might be interested in pursuing the gold producer.

The analysts note that given Detour Gold’s enterprise value of US$1.8 billion, “companies with an EV of less than US$2.5 billion would struggle to acquire Detour unless as a ‘merger of equals’.”

Of those companies that could afford to buy it outright, CIBC eliminated eight.

They reasoned that Detour would be too big for B2Gold (TSX: BTO; NYSE: BTG), Centerra Gold (TSX: CG), Gold Fields (NYSE: GFI), Iamgold (TSX: IMG; NYSE: IAG) and Yamana Gold (TSX: YRI; NYSE: AUY) “based on the percentage that Detour would represent of the enlarged shareholder base and production outlook.”

The analysts also said that based on corporate strategy, Agnico Eagle Mines (TSX: AEM; NYSE: AEM), Kirkland Lake Gold (TSX: KGI; US-OTC: KGI) and Newmont Mining (NYSE: NEM) would not be interested.

That leaves four companies that might be interested in Detour from a valuation, production mix and strategic perspective: Barrick Gold (TSX: ABX; NYSE: ABX), Goldcorp (TSX:G; NYSE: GG), Kinross Gold (TSX:K; NYSE: KGC), and Newcrest Mining (ASX: NCM).

“Barrick could afford to acquire Detour from a valuation perspective,” the analysts state, but “the investment hurdle of 15% ROIC at US$1,200 per oz. would need to be relaxed.”

As for Kinross, “Detour may be a stretch … given the size and relative valuations.”

“Newmont has expressed a goal of owning five tier-one ore bodies by 2020 and Detour could fit the bill, but the lack of mining experience in North America is an impediment,” they note.

Ultimately, Goldcorp “appears to have the greatest potential to benefit from the acquisition of Detour,” they reason. “The company would need to forego the 20/20/20 goal of US$700 per oz. all-in sustaining costs by 2021 and to renege on the ‘we don’t need to do any M&A’ statement to acquire Detour.”