It’s now time to look at junior gold developers and explorers – Red Cloud
(Kitco News) - The merger and acquisition activity that swept through the mining sector in 2019 is only going to pick up momentum this year as mine developers and junior explorers are next on the auction block, according to one financing company.
In a recent webinar, Derek Macpherson, vice president of research at Red Cloud, said that with gold in the early inning of a new bull market, he expects to see more M&A activity in the mining sector.
However, he added that sentiment is a little different than it was in 2019.
“The M&A activity we saw last year focused on production assets,” he said. “As we see fewer of those assets become available companies will have to look further down cap. I think we are getting a lot closer to seeing junior explorers benefit from M&A activity.”
The comments come as junior explorers continue to struggle to attract investor attention. The sector was still largely ignored in 2019 as the M&A activity focused on creating mega-gold companies and larger producers.
Macpherson said that although some companies are struggling to attract attention, investors should focus on the companies that are activity developing and de-risking their projects.
“In this environment and with the potential for more M&A activity, the drill bit is the key to value,” he said.
Macpherson added because of solid production and higher prices in 2019 many mid-tier mining companies are in good shape to go shopping in the market again. Further divestitures from the major gold producers also means more opportunities to buy.
Not only are miners in a hurry to replace dwindling reserves, but Macpherson noted that a strong gold price will add to growing confidence in the marketplace. He noted that there are growing calls for $2,000 gold.
“I think gold at $1,600 is in the mix but I also don’t think $2,000 is out of the realm of possibilities,” he said.
Looking at the gold market, the financial firm sees strong investment demand for the yellow metal as central banks around the world maintain ultra-loose monetary policy.
“More money printing and negative yielding debt make gold a very attractive asset class,” he said.
Macpherson also noted that with equity markets at record valuations, it wouldn’t take much for investors jump out off the S&P and into more safe-haven assets.