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Chinese M&A activity is only just starting - Chen Lin

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Chinese mining companies have been making a lot of noise in the marketplace, aggressively buying projects and companies around the world, and one market analyst said that he is not surprised with this aggressive merger and acquisition activity.

On the virtual sidelines of the Mines and Money Online Connect mining conference, Chen Lin, president of Lin Asset Management, said that he is not surprised Chinese gold miners are on a buying spree.

“They have a lot of capital, so they're putting money to work. It's very simple math,” Lin said. “If they believe gold prices are going higher, then they are buying and they are building the company for the future.”

He added that even if gold prices stay at current levels above $1,700 an ounce mining companies will continue to see significant cash flow.

However, even with improved margins, Lin said that valuations for a lot of major gold producers are still extremely depressed.

Along with taking advantage of an undervalued marketplace, Lin said that with falling domestic production, Chinese gold companies are starting to look outside their borders to replace current production.

He added that domestically, Chinese companies are facing tighter environmental standards for low-grade production.

“They are looking out for anywhere they can make money,” he said.

Turning to the broader mining sector, Chen said that companies look extremely healthy as the impact from global lockdowns due to the COVID-19 pandemic have started to ease. He added that nations that have lost important service-sector jobs, are now looking to boost employment in manufacturing and natural resources. Lin said that because of the coronavirus the mining sector can be a leader in the global labor market.

Looking ahead, Lin said that he expects merger and acquisition activity to remain strong in the mining sector through 2020. He added that this factor that will eventually drive retail and generalist investors back to the sector.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.