Shine Trader Limited reports:
A series of gold company deals have been announced at the annual gold industry conference in Denver in recent years, including the 2018 acquisition of Randgold Resources. One precious metals trading veteran said this year’s meeting would focus on consolidation of potential mid-tier producers.
David Garofalo, the current head of Gold Royalty Corp, Goldcorp before it was bought by Newmont Corp, attended his first offline annual meeting since COVID-19, He believes deals between mid-level producers are long overdue after the world’s biggest gold suppliers started working together.
Years of over-exploration and mining of mines, combined with higher development costs and widespread inflation expectations, have led to reduced reserves and shorter mine lives. Companies are likely to merge operations to reduce operating costs. Calofaro said:
“We have suffered a lot in terms of mine operations.”
To be sure, some factors are pushing up inflation — such as a low interest rate environment and the pandemic — and in turn are spurring gold’s upside, with Mr. Calofaro seeing it rising to $3,000 an ounce from its current level of about $1,800.
Another feature of the market ripe for consolidation, according to Mr Calofaro, is the emergence of franchise-transfer companies, which offer upfront payments in exchange for the right to a percentage of the product or related revenues. His company, Royal Gold, went public earlier this year and announced the acquisition of Abitibi Inroyalties and Golden Valley earlier this month.
As franchise-transfer and equity firms were seen as cheap sources of financing to get projects off the ground, a wave of companies entered the market – including industrial metal-mining companies that produce precious metals as a by-product.