The gold mining industry went through a radical shift in 2019. With shareholders of major miners across the world becoming fed up with what has been a long-lasting period of subpar returns, management teams have responded by going all out in multi-billion-dollar mergers.
The idea is that the cost savings that would come from these mergers, alongside the sale of redundant assets, would help boost annual returns for what has otherwise been a lackluster industry.
While the first half of 2019 has already seen a record-breaking gold merger shake the industry, one expert has gone on to say that there’s another wave of M&A’s coming on the horizon.
Mikhail Stiskin, CFO of Russia’s largest gold miner, Polyus, went on to say that the gold mining industry is poised for a “wave of mergers and acquisitions” as smaller miners look to capitalize on strengthening gold prices.
“The space is clearly open to M&A. There will be consolidation. There are some companies that don’t have the luxury of any projects and they are still driven by egos: this combination will push them towards M&A, especially given the high gold prices. The shareholders will become more supportive,” said Stiskin according to The Financial Times. He went on to add that global risks surrounding alternative gold producers in areas such as Russia are greatly overexaggerated and will self-correct in the coming months. “We feel that Russian risks are particularly overestimated compared to the African risks. Obviously there’s a question of geopolitics and the sanctions but at the same time Russia has had a very stable regulatory regime.”
Gold prices have recently swung up to beyond the $1,400 price range, setting expectations among investors quite high as many expect the precious metal to continue to surge.
However, with President Trump going on to announce a number of positive developments for international economic stability, including the continuation of trade talks with China alongside a surprise visit to North Korea for denuclearization talks, gold ended up dipping on Monday.
Falling to around $1,384.50 per ounce, prices still remain relatively high for the precious metal, which helps increase profit margins for major miners.
In particular, we’ve already seen one of the largest gold mining mergers in history take place in 2019. Goldcorp and Newmont Mining came together in a $10 billion deal that created the world’s largest gold mining company, Newmont-Goldcorp (TSE: NGT).
At the same time, the second largest gold miner, Barrick Gold (TSE: ABX), agreed to buy it’s rival Randgold Resources in a deal worth over $6 billion.
While the mainstream financial press has focused on these large deals, this M&A trend will also impact junior and mid-sized miners find potential buyers in the upcoming years.
The relationship between smaller, exploration-based companies that do much of the initial surveying work and the larger miners that buy them out after a discovery is made has been a close one for decades.
Often these smaller miners end up going public on smaller exchanges in countries like Canada and Australia to raise their initial funding, but this also comes with its own downsides. An increase in gold M&A activity could spill over to many of these smaller stocks as well.
