Part II - The Tide Is Rolling In
Thanks to a subscriber for this report from Cowen and Co which may be of interest. Here is a section:
As shown in Figure 1 the higher-levered seniors ABX and NEM have been focused on selling non-core assets (and were reportedly in talks to merge and rationalize assets; see our report Barrick/Newmont - Sorting Through The Noise). Meanwhile, AEM and AUY have taken advantage of healthier balance sheets and historically-depressed equity valuations to buy production and expand project pipelines. Looking to 2015, we expect GG to be in the best financial position to engage in M&A. That being said, we see NEM and AUY as having the capacity to make additional purchases, and ABX and KGC being the most challenged.
?From a growth perspective, with their existing pipelines, both Agnico and Yamana are now both in a solid growth position after their joint purchase of Osisko – receiving not only operating assets, but both a near-term and longer-term development projects. Both Barrick and Kinross have little to no net growth ahead of them, and what production replacement they have will come at a heavy, up-front capital burden. With Barrick’s high financial leverage, we believe they will need to either delay major projects (Donlin, Goldrush, Turquoise Ridge O/P, Pascua-Lama completion), prioritize, or significantly reduce the initial scope – most likely all three. Like Barrick, Kinross has several large projects (Tasiast expansion, Lobo-Marte) that they need to execute on in order to counter declining existing production, but would face financial challenges.
Despite recent M&A activity, we see the senior gold producers as much better positioned both financially and operationally, to withstand a $1200/oz-$1300/oz gold price environment vs. last year. It is our view that they can now afford to make acquisitions to be built at a later date, and take advantage of low junior miner market valuations.
Here is a link to the full report.
The gold mining sector continues to go through a painful period of rationalisation but companies that did not engage in overly profligate spending before gold’s decline are now being rewarded with relative strength in their shares.
Barrick Gold accelerated lower last year and remains in what may be a lengthy base formation.
Agnico Eagle held a progression of higher reaction lows within its base from last year and broke out in June. While somewhat overextended in the very short-term, a sustained move below $34 would be required to question medium-term recovery potential.
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