BREAKINGVIEWS-Zijin’s $4 bln Canada gold grab has scarcity value

By Karen Kwok

LONDON, Jan 26 (Reuters Breakingviews) - Zijin Gold 2259.HK is snapping up a Western miner. The $72 billion Chinese group – whose name literally means “purple gold”, a distinct and prized alloy used in high-end jewellery – announced on Monday it would buy Canada’s Allied Gold AAUC.TO for $4 billion in cash. While a swoop has been on the cards, a repeat looks tricky.

Since its Shanghai listing in September Zijin Gold’s shares have surged over 70%, outpacing Western rivals like Newmont NEM.N and Kinross Gold K.TO, which are up roughly 50%. That gives Zijin a powerful share-based acquisition currency: its offer values Allied at roughly 3.4 times its expected 2026 EBITDA, according to Visible Alpha, while Zijin itself trades at 13 times. Its majority shareholder, $149 billion Zijin Mining 601899.SS, is partly owned by a Chinese state that is keen to acquire foreign mining assets including gold.

The deal also has a reasonable chance of regulatory clearance. While Ottawa remains wary of Chinese buyers, Prime Minister Mark Carney just signed a “strategic partnership” with Xi Jinping in Beijing. Allied’s assets sit in Africa, and Canada doesn’t classify gold as a critical mineral.

That said, it might be hard for Zijin to snap up other significant gold miners. Amid unprecedentedly high gold prices, Newmont’s market capitalisation is now $135 billion, while other enticing players Agnico Eagle Mines AEM.TO and Barrick ABX.TO are $108 billion and $86 billion respectively. Meanwhile, miners like them have extensive operations in North America – running the risk any deals get blocked by Washington.

Even more importantly, Zijin is obliged to pay in cash rather than shares. That’s nice for Allied shareholders, who get a 5.4% premium on their January 23 share price on top of the chance to exit at a level 260% higher than this time last year. But it also means if the gold price tanks, Zijin will have made the classic miner mistake of paying hard cash at the top of the market.

The two companies’ relative sizes mean the Chinese miner won’t mind too much about that. Analysts expect Zijin Gold to generate $2.7 billion in net income this year, up from $481 million in 2024, according to Visible Alpha data – with $6.3 billion in forecast net cash this year. They also assume Allied Gold will make $1.5 billion in operating income by 2028 – a 24% post-tax, pre-synergy return on invested capital for the buyer.

If geopolitical ructions mean the gold price lingers anywhere near its current levels, Zijin’s deal will stack up. But unless Barrick follows through on a process that could see it split its North American assets from its African ones – giving Zijin the chance to snap up the latter – it’s not obvious how a chunkier gold deal might materialise.

Follow Karen Kwok on LinkedIn and X.

CONTEXT NEWS

Zijin Gold will buy Canada’s Allied Gold for about C$5.5 billion ($4 billion) in cash, the companies said on January 26.

Zijin will pay C$44 per share, implying a premium of about 5.4% to Allied stock’s last close. U.S.-listed shares of Allied were up nearly 4% in premarket trading.

Under the agreement, Allied will have to pay C$220 million to Zijin, if the deal is terminated under certain conditions.

The companies expect the transaction to close by late April 2026.

Shares of gold miners jumped in morning trading on January 26, as bullion prices surged to a record high of $5,100 an ounce.