There is excitement growing in the mining sector
(Kitco News) - We just wrapped what has traditionally been the two most important weeks for the mining sector. First, we had the virtual Beaver Creek Precious Metals Summit and we have now closed the book on this year’s virtual Denver Gold Forum.
In this new virtual landscape, I hope nobody is suffering from computer vision syndrome – which is a real thing, I looked it up. I heard some people watched 30 to 40 company presentations; that is a lot of screen time.
But getting past the issues of hosting a virtual conference, we can’t deny the growing enthusiasm for the mining sector. Talking to analysts, mining executives and fund managers, money is flowing back into the sector. And even with all the money that is flowing back into the sector, there is still value in the marketplace.
“The gold miners have never had it so good. The margins they are producing are the fattest, the best, the absolute unbelievable margins they’ve ever had,” Pierre Lassonde, chair emeritus of Franco-Nevada told Kitco News’ David Lin. “You haven’t missed the boat at all, even though the gold stocks are up. We’re barely off the bottom at this point in time, and there’s a lot to go before we reach the top.”
Not only are companies seeing better margins but many analysts have said that the work they have done over the last few years to clean up their balance sheets, means they are in a much better position to capitalize on their rising cash flow and return more value to shareholders.
However, one of the interesting themes to come out of the two conferences is maybe a potential slowdown of M&A activity or at least a shift in focus. I have heard from different analysts that in this higher gold price environment some of the senior produces see more benefit from spending more money on their own brownfield exploration than buying a junior.
However, others have pointed out that there is still plenty of room for consolidation among mid-tier producers and even junior explorers to increase their potential.
While M&A activity might slow down, it is definitely not going away. Joe Mazumdar, editor of Exploration Insights, noted that senior gold miners are still producing more gold than they can find. He added that they will eventually have to buy juniors to maintain their long-term production pipeline
Mazumdar also has some excellent advice for all the new investors coming into the market.
“Number one, don't chase anything. Don't get caught up in the fear of missing out. Look for quality projects and importantly, quality people," he said. "The management teams are the ones that add value to the asset and they are the ones that mitigate the risks.”
That is it for this week. Have a great weekend and stay safe