Gold Miners: The Benefits of Consolidation
By Joe Foster, Portfolio Manager and Strategist, VanEck
Of all the mining industries, gold is possibly the most fragmented, and in our view, the gold industry and its investors would realize considerable benefits from consolidation. We believe the most potential for synergy and value creation rests among the large number of single-asset companies.
Historically, such companies were merger and/or acquisition (M&A) targets for larger producers. However, producers have become reluctant to pursue mergers and/or acquisitions. The lack of M&A has resulted in an abundance of single-asset companies.
An efficient way of unlocking the latent value of one-property companies is through a merger of equals. The benefits of creating larger multi-property companies include:
- Deeper technical talent that is fungible across operations
- Geopolitical risk that is spread across jurisdictions
- Procurement scale that enables better pricing for materials and equipment
- Reduced general and administrative costs (G&A)
- Cheaper access to capital
- Ability to attract larger institutional investors
- More opportunities to create value
Consolidation of single-asset companies to form larger multi-mine companies can unlock these benefits, and the shift in valuation has great potential.
MVGDXJTR vs. GDMNTR (in USD)
About the Author:
Joe Foster has been Portfolio Manager for the VanEck International Investors Gold Fund since 1998 and the VanEck – Global Gold UCITS Fund since 2012. Mr. Foster, an acknowledged authority on gold, has over 10 years of dedicated experience in geology and mining including as a gold geologist in Nevada. He has appeared in The Wall Street Journal, Financial Times, Barron's, and on Reuters, CNBC and Bloomberg TV. Mr. Foster has also published articles in a number of mining journals, including Mining Engineering and Geological Society of Nevada.
The article above is an opinion of the author and does not necessarily reflect the opinion of MV Index Solutions or its affiliates.