Gold miners see benefits of partnerships
Majors see M&A as less attractive
The world’s largest gold mining companies expect more consolidation in the sector ahead — even if their own companies are more interested in partnerships, executives told a mining conference Wednesday.
For years, miners have been focused on slashing capital costs, many aiming to bring down all-in sustaining costs — the industry benchmark — to about US$700 an ounce.
But after years of declining reserves and with the gold price expected to fare better in 2017, many C-suite executives speaking at the conference said they expect a pick up in exploration and consolidation in the industry. However, many of the majors said they were more focused on partnering on projects rather than outright acquisitions.
“There are too many players for fewer and fewer resources,” Agnico Eagle CEO Sean Boyd told the TD Securities Mining Conference, adding that industry consolidation could be necessary to eliminate overhead costs such as head offices.
The past few years of underinvestment have led to weak project pipelines and limited merger and acquisition activity, Boyd said. He expects to see more activity in the next few years in order to offset the industry’s excessively cautious behaviour, which he attributed to the cyclical nature of the business, he added.
“When things are going well in the industry people get carried away and when things are down people tend to panic.”
Fresh off its investor day, Goldcorp’s CFO Russell Ball said the miner is a few years behind Newmont and Barrick in going after costs as it has been building and expanding during the downturn.
Ball said the company is “largely done rationalizing its portfolio” and going back to basics on its budget and will focus on both ramping up production and cutting costs by 20 per cent over the next five years.
However, he added, the company is open to partnerships with other large peers to find more undeveloped resources.
It will also continue to invest in junior miners, similar to a deal it recently cut with Auryn Resources Inc.
“Looking at the market I don’t see a wave of M&A, but I do see and what we are actively involved in discussions with is ‘how do we do this smarter?’”
Goldcorp has said it expects to see more partnerships along the line of its joint-venture with Teck Resources Ltd. in Chile, where by putting “two heads together” it can produce a better asset.
Randy Engel, vice-president of strategic development at Newmont Mining Corp., said the company is also open to looking at the type of partnership projects Goldcorp has proposed.
“The better way to add shareholder value is to look for opportunities for partnering. There are some really nice big projects out there, there are some metal deposits and there are some really nice exploration opportunities, but for us that’s probably the better way to think about M&A.”
Even as its two largest rivals expressed interest in partnerships to explore and build new mines, Barrick Gold’s chief financial officer Catherine Raw was more tempered on her company’s appetite for growth from acquisition.
While dramatic cost-cutting is done for now, she said, Barrick is also not planning a big ramp up in capital spending, instead preferring to focus on organic growth.
“I would say we’re off the defence now but to say we’re on the offence would imply that Barrick is returning to the level of M&A we’ve seen in the past,” she cautioned investors at the conference.
“If we’re not focused on growing for growth’s sake then the nature of M&A will change… but I do think as an industry new assets are getting harder and harder to find because this industry has not been spending on exploration to date.”
Yamana Gold CEO Peter Marrone said he has long believed more consolidation is necessary, but added the industry buzz word for 2017 will likely be “balance” — as miners work to achieve “efficient balance sheets and continue development spending on new discoveries at existing locations.”
“But I think there should be more consolidation in the space. I think there appear to be new assets that look promising and that will likely lead to more M&A in 2017 and 2018.”