Thank you for your efforts in providing this valuable information and analysis of the markets to the collective. With the expectation of increasing M&A activities in the gold miners, what would you look for as candidates for take overs can you provide some suggestions.
Thank you for your kind words and this email which raises a question I have also been pondering. When we think about where the tide of M&A activity is heading in the gold mining sector, we can look at potential acquirers and their motivations for why they are buying. We can then look at what they might be interested in buying and whether there is likely to be competition for that asset.
The simple fact of the matter is there is a dearth of truly high-grade, long-life gold mining opportunities around. At the same time gold miners are cheaper relative to the gold price than at anytime other than early 2016 which is a testament to the need for investment. The lack of enthusiasm for exploration because the gold price does not justify the risk is where the demand for mergers is based.
Barrick and Newmont have already made acquisitions and they are the two largest gold miners by market cap. They went for reasonably large miners like Randgold Resources and Goldcorp with good, well understood resource bases.
If I were a mining executive I would be looking at mines with relatively tight geographic concentration and low all-in sustaining cash costs. The suggests Kirkland Lake Gold, Royal Gold, Oceanagold and Northern Star are probably on someone’s shopping list.
Kirkland Lake gold has an all-in sustaining cost of production of $812. The share remains in a steep but consistent medium-term uptrend.
Royal Gold is a royalty streamer and has been confined to a range for much of the last five years.
Oceanagold has an all-in sustaining cost of production of $767 and is currently testing the region of the trend mean.
Northern Star has an all-in sustaining cost of production of $1029 and is also in a step uptrend.
Detour Gold with a $1064 all-in cost has just broken a medium-term sequence of lower rally highs.