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Kirkland-Detour Deal Puts Gold Mining ETFs in Focus

Sweta Killa

Mergers & acquisitions have increased in the gold mining space since 2018 as miners are competing amid dwindling supply of easy-to-find gold. The latest to jump on the bandwagon is Kirkland Lake Gold KL, which agreed to acquire smaller Canadian rival Detour Gold for $3.7 billion (C$4.9 billion) in an all-stock deal.

The move came after the two major acquisitions — Barrick Gold’s takeover of Randgold Resources, and Newmont Mining’s purchase of Goldcorp (see: all the Materials ETFs here).

Under the terms of the deal, Detour Gold shareholders will get 0.4343 shares in Kirkland Lake Gold for each share held. This implies a total consideration of $27.50 per share or a premium of 24% to Detour's share closing price on Nov 22. Kirkland Lake Gold shareholders will own roughly 73% and Detour Gold shareholders will own around 27% of the combined entity.

With an all-stock deal, Kirkland will take advantage of a record stock price to acquire the company, which operates the Detour Lake mine in northeastern Ontario. The new entity will be stronger with gold production of about 1.5 million ounce in 2019 and free cash flow of $700 million. The deal is expected to generate pre-tax savings of about $75-$100 million per year.

Market Impact

Following the rumor, shares of Detour Gold advanced 1.8% to close the day and crushed its average volume as nearly 7.6 million shares moved hands compared with 909,000 shares on average. Meanwhile, shares of KL dropped as much as 16% in Toronto on elevated volume (read: Gold ETFs: Leader or Laggard?).

The announced merger has put the spotlight on gold mining ETFs that could be the best ways for investors to tap the opportunity arising from the deal.

iShares MSCI Global Gold Miners ETF RING

This ETF tracks the MSCI ACWI Select Gold Miners Investable Market Index and holds 35 securities in its portfolio. Kirkland Lake Gold takes the fourth spot at 5% while Detour Gold occupies the 12th position with 2.3% share. Canadian firms take nearly half of the portfolio, while United States and Australia round out the top three with a double-digit exposure each. RING charges 39 bps in fees and expenses. The fund has been able to manage assets worth $266 million and trades in good volume of 285,000 shares per day.

Market Vectors Gold Mining ETF GDX

This is the most-popular and actively traded gold miner ETF with AUM of $11.7 billion and average daily volume of around 59.5 million shares. The fund follows the NYSE Arca Gold Miners Index, holding 46 stocks in its basket. Kirkland Lake Gold occupies the eight position in the basket, making up for 4.8% of assets while Detour Gold accounts for 1.6% share. Canadian firms account for 50.1% of the portfolio, while the United States (17.6%) and Australia (14.7%) round off the top three. The fund charges 52 bps in annual fees (read: Gold Mining ETFs on a Tear: Here's Why).

Sprott Gold Miners ETF SGDM

This fund follows the Solactive Gold Miners Custom Factors Index, holding 30 stocks in its basket. Kirkland Lake Gold occupies the fourth position with 5.2% allocation while Detour Gold takes the eight spot with 4.7% share. Here again, Canada takes the top spot at 72.4% followed by 19.7% in the United States. The fund has amassed $173.9 million in its asset base and trades in a good volume of around 63,000 shares a day. It charges 50 bps in annual fees from investors.

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iShares MSCI Global Gold Miners ETF (RING): ETF Research Reports
 
VanEck Vectors Gold Miners ETF (GDX): ETF Research Reports
 
Sprott Gold Miners ETF (SGDM): ETF Research Reports
 
Kirkland Lake Gold Ltd. (KL) : Free Stock Analysis Report
 
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