Canada's TSX main stock index fell on Wednesday, driven by a decline in bullion prices and mining stocks offset gains in oil prices amid an economic rebound from vaccination rollouts and a U.S. fiscal package.
After hitting an all-time high in August 2020, gold stocks and gold prices are now experiencing a correction as the US, UK and other governments announced massive stimulus packages. The current moment is considered by many to be an opportune
As such, experts predict another round of consolidation for the industry in 2021, which will see a rise in mergers and acquisitions. Although mega-mergers are not likely, we can expect to see a continuation of the trend in 2020 that brought a larger number of junior gold miners strike deals.
The trend for mergers and acquisitions is partly driven by pressure to replace reserves that have been mined. Gold reserves have been falling since 2012, while gold output has remained stable. A report from Bank of America analyst Michael Jalonen examines the pressure on replacing reserves that have been mined as one of the key drivers for mergers and acquisitions this year. The report in Investor Place said that: "The BofA team doesn't expect to see mega-mergers in the mining space this year. Instead, they look for senior gold producers to optimize their assets to lower costs and build the next generation of growth projects.”
Senior gold producers may attempt to take advantage of the situation and optimize their assets to lower costs and build the next generation of growth projects. For this purpose, they are keeping a watch for available world-class assets. Interest in projects in the U.S., Canada, Australia and other parts of the world that are politically safe is thus likely to increase.
The need to replace gold reserves will have a big impact on the M&A market, opening new opportunities for sellers. Mining stocks that are making waves this week include Barrick Gold Corporation (NYSE: GOLD) (TSX: ABX), Golden Independence Mining Corp. (OTCQB: GIDMF) (CSE: IGLD), Hecla Mining Company (NYSE: HL), Franco-Nevada Corporation (NYSE: FNV) (TSX: FNV), Newmont Corporation (NYSE: NEM) (TSX: NGT).
Last year's mergers and acquisitions in the gold mining sector were driven by senior gold producers disposing of non-core assets. But in 2021, mid-tier and senior gold producers are likely to review their recently-enlarged asset basis for non-core assets to dispose of. This could possible see the creation of new producers and developers. As such, focus on regional and bolt-on acquisitions will remain strong given that travel remains either limited or not required due to the pandemic in the coming months. As the gold sector adapts to the challenges of post-lockdown, online analysis of potential targets will soon become standard and replace due diligence site visits. The end result would see even more mergers and acquisitions of promising junior gold miners.