The mining sector as a whole has seen an emergence of new M&A activity over the past few months. With major companies having struggled to meet shareholder expectations, seeking cost savings through acquisitions and selling off redundant business operations has become the go-to strategy for these firms.
The gold sector, in particular, has seen more than its fair share of mergers, with the recent multi-billion-dollar merger resulting in the world’s largest gold miner, Newmont Goldcorp (TSE: NGT).
However, one well-known gold company CEO expects this trend to continue, citing an overabundance of “mid-tier miners” in the sector that could easily be consolidated.
According to Reuters, Canada’s Iamgold Corp (TSE: IMG) CEO Stephen Letwin went on to say that the gold sector as a whole will see an increase in the number of acquisitions as miners compete to attract an ever decreasing pool of investment capital. “We are going to see consolidation” in the gold sector.
While some miners have hoped for gold prices to go up so that their profit margins can increase, it seems less likely that this will be a possibility as the U.S. economy still seems fairly strong. “There are too many mid-tier miners. The capital pool is shrinking,” said Letwin. “People are downright tired of waiting for the gold price to move higher. We need a lower U.S. dollar, a lower U.S. economy, a for gold prices to rise,” he added, leaving companies with few other options for increasing their bottom-line asides from the cost savings that come for large mergers and selling of any redundant assets.
Deal-making has been more of a rarity in the gold sector for the past few years as companies have traditionally focused on cutting costs internally as investors have criticized management teams for under performing.
Letwin, who has acted as Iamgold’s CEO since 2010, has declined to comment on possible deals that the company is involved with. He did mention that he gets plenty of interest from Chinese investors, however, and that he thinks that gold prices aren’t likely to go up in the future.
Although central banks have been buying gold at a record rate, their actions in and of themselves aren’t enough to outweigh the buying habits of the millions of retail investors. At the same time, most of this buying from central banks has come from non-western nations such as Russia, China, and India.
Gold prices for the month of April ended on a negative, dipping a bit in value for the third consecutive monthly decline. While many had anticipated gold breaking the $1,400 and even the $1,500 price ceilings earlier this year, much of this momentum tapered off as worries over a U.S. recession have largely receded.
As for Iamgold itself, shares of the Canadian gold miner dipped around 2.2 percent on Wednesday morning in response to these statements from its CEO. Ending the day at C3.99 per share, the company has been steadily declining over the past few months, dropping 21 percent in share prices since the start of the year.