The gold sector has been the talk of the town this week, as a series of bullish New Year’s predictions for the yellow metal coincided with heavyweight players predicting M&A activity among miners.
With 2018 ending in a rout for markets and the gold price already gathering pace, talk of an up-cycle is hardly surprising. But, most commentators pointed to gold equities having more upside than the metal itself, especially given the possibility for efficiencies in this notoriously fragmented industry.
Franco-Nevada chairman, Pierre Lassonde, was asked on BNN Bloomberg about the effects of the recent Barrick Gold-Randgold merger. He voiced concerns for the loss of head-office and support functions in Canada due to the new mega-corporation’s international approach to management. But he added that the reasoning for the deal held equally true for smaller players.
He said: “I think it’s a very strong possibility that we will see more mergers, not necessarily because [other companies] want to compete with Barrick, but due to reserves coming down. The best way to replenish reserves, if you are not going to explore, is to acquire someone.”
Such a scenario would bode well for successful small explorers, who could command a premium on acquisition by larger players. And Lassonde also believes that investment in the sector will boost discoveries in 2019: “You’re going to start to see more discoveries. The money is coming from private equity which is coming to the mining sector because it sees a good entry point,” he said.
Investor and adviser, Adrian Day, laid out further reasons why miners are set to merge: “It is an extremely fragmented industry, both among seniors and even more so among juniors. That is inefficient because if you have 20 companies of a $2 billion size, you’ve got 20 managements to support.”
In a lengthy interview with ceo.ca, May was also asked to name some of the junior mining stocks he likes for 2019 [LINK: https://ceo.ca/@miningstockedu/adrian-day-interview-jan-2019 ]. The two he highlighted were Mexican gold-copper miner, Almaden, and “nimble” super-small cap, Metalla.
A broker note this week from Don MacLean and his team at Paradigm Capital further laid out the case for gold miners. It argues that if even a muted gold rally is taking place, the upside for related equities is at least 50%, compared to 20% for the commodity itself. Like May, Paradigm backs royalty companies as its favoured format, although it adds that developers and explorers will be the “fastest boats” in a rally situation.
The voice of doom this week was provided by Canadian mining magnate, Frank Giustra, who warned Kitco readers of impending global financial meltdown [LINK: https://www.kitco.com/commentaries/2019-01-10/Dancing-on-the-Precipice-Bankruptcy-Happens-Gradually-then-Suddenly.html ]. Giustra believes that cash won’t be safe and even gold may take a short-term tumble when this happens.
Finally, the mining world is gearing up for the Vancouver Resource Investment Conference (VRIC) on January 20th and 21st. Among the speakers, Junior Stock Review founder, Brian Leni, will be talking about why he’s bullish on nickel and providing some tips for the sector.
He might be facing a younger crowd than usual. Jay Martin, CEO of VRIC organizer, Cambridge House, has been surprised by a sudden influx of 20-something investors at gatherings. These new attendees want to know about end uses to minerals to assess long-term prospects, rather than just considering the exploration and production side.
Martin said: “I always thought it would be a bull market that would bring new investors to the industry. It hasn’t been a great market of late, yet we’re seeing new faces.”