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Too soon for a takeover? David Erfle waits for better M&A terms in the gold sector

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(Kitco News) - The gold sector appears to have learned its lesson from the past bull cycle, said David Erfle, founder of Junior Miner Junky.

Erfle spoke to correspondent Paul Harris in March at PDAC 2023.

He said that during the last bull cycle in the early 2010s, gold miners often paid too much to acquire other businesses.

"You had companies taking over projects that were low-grade, bulk-tonnage," said Erfle. "They didn't care about the grade...they just wanted ounces and they did it with dilution."

As a result, generalist investors soured on the entire sector, Erfle said, and the mood has extended over the past decade.

With recent high gold prices, M&A is back but the deals are more judicious. Erfle pointed to the recent B2Gold deal where the senior miner acquired Sabina Gold & Silver for C$1.1 billion ($823.66 million). Erfle congratulated B2Gold on the terms of the deal, the purchase price was relatively low.

"Not many people made money on that transaction," said Erfle, noting that Sabina’s share price had dropped significantly in the months before the deal was done, and the acquisition price didn't recover much of the lost value.

"Although it's encouraging to see more M&A, I don't want to see any of my [portfolio] companies taken over too soon."

Coverage of PDAC 2023 sponsored by Uranium Energy and GoldMining.

'Few companies have the cash flow yield that Lundin Gold has' - CEO Ron Hochstein

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