Gold miners’ big fat mergers can only end well, right?
Certainly, investors are hoping so. Consolidation is key for ailing gold miners to grow, or even just survive
The staid gold mining industry is, quite suddenly, experiencing a shake-up. Consolidation seems to be the order of the day and the market is licking its lips in anticipation of who might be next.
Mergers and acquisition are key for ailing gold miners to grow, or even just survive. Dwindling gold deposits mean mining operations need to go deeper to get to the precious metal. All the while expenses such as utilities and wages continue to grow well above the rate of inflation. In many instances cost-cutting measures have been exhausted.
Suddenly the highly-fragmented gold sector is experiencing a raft of deals. Where gold companies have combined forces, it typically means they have more scale, more capital, and can sell non-core assets and invest in growth projects. It eliminates some overheads and draws investors in.
It also makes sense in an environment where there are few high quality projects up for grabs but too many players in the mix. Last year saw a number of deals among smaller producers, but now mergers and acquisitions between larger companies are making headlines.
Late in 2018 Canada’s Barrick Gold and London-listed Randgold Resources merged to form the world’s single largest gold company. This mega-merger will soon be overtaken when US-based Newmont Mining takes over its rival, Gold Corp, in a $10bn deal.
These companies are going down a road that many other major gold producers necessarily, and inevitably, will follow.