M&A Is Good For Gold Investors But Discoveries Are Better – Goldsource CEO
(Kitco News) - The recent mega-mergers among major gold producers have helped attract investor attention to the sector but more still needs to be done to entice much needed capital, according to one mining executive.
Ioannis Tsitos, president of Goldsource Mines (TSX.V: GXS), said in a recent interview with Kitco News that he sees more merger and acquisition activity in the mining space in the long-term. He added that the gold space is way behind other commodities sectors when it comes to a consolidation of assets and projects.
Ioannis Tsitos, president of Goldsource Mines
“The gold industry is very fragmented with diversified interests. Without looking at specific deals, a consolidation would be healthy for the industry,” he said. “For smaller players, like Goldsource, this is only good news because there will be companies in this space interested in building up their resources so they that can compete on the level of some of the major producers.”
Tsitos’ comments come as Newmont Mining clears most of its major hurdles to merge with Goldcorp to become the world’s largest gold producer. Earlier this week Newmont received approval for the merger from its shareholders, following the approval from Goldcorp investors the previous week.
However, while the recent M&A activity has breathed new life in the sector, the bigger issue the precious metals sector faces is the lack of major new discoveries, Tsitos said.
“The market is starving for discoveries,” he said. “There just aren’t a lot of new stories out there to attract new investors.”
The dearth of new discoveries is one of the reasons why Goldsource has put its production plans at its Eagle Mountain on hold as the company works to define its Salbora property, just northwest of Eagle Mountain in Guyana South America.
“The whole feasibility potential of the project has changed because of the scope and grade of this new discovery,” he said. “We still have a lot of work to do to prove the deposit but we are excited about some of the grades we are seeing. We think this is a good problem to have.”
Although companies can grow through M&A activity, Tsitos said that ultimately the best way to create shareholder value is through exploration and the organic growth of a project. He added that organic growth can help keep capital costs down.
Tsitos said that companies need to keep control of their costs because they can’t rely on commodity prices. He added that a $1,300 price environment is still positive for the mining sector and is a price that he thinks is sustainable over the long-term.
“The gold prices is pretty much stable and there is nothing wrong with it,” he said. “If gold goes to $2,000 then the world has much bigger things to worry about than what is happening in the mining sector. That being said, I also don’t see gold prices going back to $900 because the world still needs these metals.”
Goldsource has had some recent success in attracting investment capital. The company managed to raise nearly $7.5 million in a private placement deal, which was originally announced last month at $5 million.