Categories:
General Market Commentary
/
Precious Metals
Topics:
General Market Commentary
/
General Precious Metals
Rob McEwen: The Dust is Settling on Major Gold Deals — What’s Next?
The major theme in the gold space lately has been mergers and acquisitions (M&A), with big deals between top miners taking center stage.
Not all market participants view these transactions as positive, but Rob McEwen, chairman and chief owner of McEwen Mining (TSX:MUX,NYSE:MUX), is one executive who sees them as good for the industry.
Speaking via phone, he highlighted a number of reasons why he believes this is the case, with the fact that M&A activity could stoke interest from generalist investors rising to the top.
“It’s getting front page news on many forms of media,” he said. “What we were lacking in the industry was much exposure to the broad audience.”
The idea that the gold space needs more generalist investors is one that others have raised as well — and again, it’s not a point everyone agrees with. For McEwen, however, it’s a matter of simple math.
As he pointed out, the aggregate market cap of all the companies in the S&P 500 (INDEXSP:.INX) represents an estimated 80 percent of the value of all the public companies in the US.
“There’s only one gold stock in it, and I think the size of its market cap really reflects the level of interest by the American public, which is the largest single market for gold shares in the world,” he said.
“It gives you a sense of how few — how small the number of players are in the space.”
In some ways he doesn’t blame the average investor for not being interested in gold. “The general investor is looking and saying, ‘alright, the gold price is up maybe 23 percent since the beginning of 2016. The S&P is up about 42 percent, the Dow (INDEXDJX:.DJI) is up about 50 percent,'” he said.
But again, numbers are key. “The VanEck Vectors Gold Miners ETF (ARCA:GDX), which is a collection of seniors and intermediate gold stocks, is up over 60 percent. So it’s outperformed the S&P, it’s outperformed the Dow. But most people are oblivious to that factor.”
McEwen believes that with M&A now in the spotlight, outsiders will begin to realize that money is being made in gold right now among both juniors and seniors.
“Once that starts getting out, that people understand that you can make money in this sector again, we’re going to see a return,” he said.
Aside from that, McEwen sees a number of other benefits to M&A, including that deals are taking place at low premiums or at market, and that consolidation will bring operational improvements.
Speaking further about the latter, he pointed out that the deals completed so far have involved large companies taking over other large companies that have not been performing well.
“So perhaps we’ll see an improvement in [their] operations as a result of these companies being taken over. And that will reflect well in the industry going forward.”
The potential for property divestments could also be key moving forward. “There’s just a lot of properties that are thought to be coming on through [M&A between major miners]. They just want to sell. So I think it’ll be a buyer’s market for awhile for companies that want to buy properties.”
In terms of just how many properties could come available, McEwen noted that over the last several months big investment banks have listed over 20 that they think could come available.
For that reason, he believes that the story now will become less about major M&A moves and more about which companies scoop up the assets that eventually go on the market.
“The more exciting stories are probably going to be the junior and intermediate exploration and production stories. Where they have an opportunity to acquire some assets that will materially improve their production curve or their resources or their cash flow or all of that,” said McEwen.
While McEwen believes M&A activity could generate a slew of benefits, one deal he’s less positive on is Newmont Mining’s acquisition of Goldcorp. It closed this past week, creating a new company called Newmont Goldcorp (TSX:G,NYSE:GG).
McEwen, who founded Goldcorp in the 1990s, said that Goldcorp will “disappear under Newmont,” noting that the deal will move Goldcorp’s corporate heart from Vancouver to Denver and could jeopardize the support Goldcorp was giving to numerous initiatives in the mining industry.
“I suppose though I definitely would have liked to see Goldcorp continue much longer, grow larger and stronger, more profitable. But that’s not going to happen now.”