Mining companies have to aggressively rebuild their gold reserves with M&A - Ian Telfer
(Kitco News) - Mining companies need to aggressively grow their reserves through mergers and acquisitions if they want to attract new investors, according to mining legend Ian Telfer.
In the last few years, the mining sector has seen a significant improvement in margins as higher prices and solid production has driven cash flow to record levels. However, Telfer said that many producers are making a mistake trying to attract investors with share buybacks and increased dividends. He added that this is not a sustainable trend for the sector.
"I don't know any investor who buys a gold stock for the dividend," he said. "The only people that buy gold shares are people who think the price of gold is going higher."
Instead of buying back shares, Telfer said that mining companies should be using their growing stockpile to look for acquisition targets. He added that in the current environment, the only way a company is going to grow is through aggressive M&A activity.
Telfer reiterates his base case that the mining sector has seen peak gold. He added that all the easy gold has been discovered and it's going to get more and more challenging and expensive to find major precious metal deposits.
"I don't think we are ever going to see projects valued at $1,200 gold again. If that is the criteria you are looking for, then you will see your reserves shrink away to nothing," he said. "Mining companies have to be aggressive when it comes to rebuilding their reserves and that is what will attract investors. Gold investors want to see companies that are growing."
Telfer is also putting his words into action as independent chair of Aris Gold Corp (TSX: ARIS);. Tuesday, the junior producer closed its acquisition for a 20% joint-venture interest in the Soto Norte gold project in Colombia, to become the operator.
According to the project's Feasibility Study, the deposit contains indicated mineral resources of 8.5 million ounces of gold, 55.3 million ounces of silver, and 193 million pounds of copper.
|The world's top 10 largest silver mines in 2021 - report|
Aris plans to develop Soto Norte as an underground mine that will see annual gold production of around 450,000 ounces.
The company noted that along with its current Marmato mine, which is expected to produce 175,000 ounces of gold per year when both the Upper Mine and Lower Mine are operating, the transaction will position Aris Gold as a significant mid-tier gold producer in Colombia.
"Getting our hands on Soto Norte was a huge step forward for the company," Telfer said. "We think that there are enough opportunities out there for us to build another major gold producer. It won't be easy and you have to be aggressive. There's no doubt about it, but in my view, I think that's the way to go."