Gold company mergers in the face of shrinking global reserves and the outlook for the precious metal in a world awash with government stimulus dominated the conversation on the first day of the Diggers and Dealers conference in Kalgoorlie on Monday.
Coming on the back of last week’s $16 billion merger announcement with Kalgoorlie Super Pit partner Saracen, Northern Star executive chairman Bill Beament said he could not see the gold price dipping back below $2000 due to the economic response to the COVID-19 pandemic.
“I’m quite positive. I’ve probably never been more positive in the gold price in my career than probably about eight weeks ago,” he said.
“With the amount of stimulus that’s getting pumped in across the globe, I can’t be anything but positive on gold.
“We haven’t even hit the financial crisis yet, everyone is still doing the health crisis.
“Wait until we come out of the back end and have the financial crisis, it’s going to hit when the taps all get turned off, they have to get turned off.
“That’s when you’ll see, I think, gold even kick again.”
The gold price reached a record $US2075 per ounce in August and nearly $AU2900 due to economic uncertainty, low interest rates, and a weakened US dollar.
Expectations vary on where the price will end up by the end of next year, with Bank of America predicting it would hit US$3000 per ounce by 2022, while market analytics firm Fitch Solution thinks it will fall back down to US$1650 by 2023.
But Gold Road Resources boss Duncan Gibbs said the Australian dollar was likely to strengthen on the back of other parts of the mining sector, which would hold back any major price jumps.
“Strong stimulus and global growth driving commodity prices iron ore base metals, usually the Aussie dollar goes up with that, I think that will take some of the juice out of the Aussie gold price,” he said.
“Whether it stays the same, I guess I find it hard for the Aussie gold price to go a lot higher than it is at the moment.”
As the sector grapples with a lack of recent major gold discoveries – and with the Saracen-Northern Star merger still front of mind for most delegates – the sustainability of existing producers was hotly discussed.
Evolution Mining has its feet firmly planted in mid-tier status, with five Australian mines and a sixth in Canada.
Its executive chairman Jake Klein was sceptical and told reporters consolidation only worked where the assets were good and there were clear synergies between the two companies.
“Where consolidation provides identifiable synergies that are deliverable, yeah, it makes sense in any business sector,” he said.
“I would [propose] that if you put two companies with ordinary assets together – and that’s clearly not the case with Northern Star and Saracen – you still get one company with ordinary assets.”
Mr Klein said the solution investors had been asking for was to produce less gold for higher returns.
“In spite of this higher gold price, gold companies haven’t really delivered the returns that they should have. That is an indicator that the sector, in my view, needs to shrink to greatness in a way by producing less gold at a higher margin,” he said.
“I think that would lead to a more robust and resilient industry rather than just putting companies together without any identifiable synergies.”
Mr Beament was more bullish about consolidation but echoed Mr Klein’s comments that it had to be done right.
“I’ve been a fan of consolidation or a number of years. I think you’ve got to do it for the right reasons,” he said.
He said there were other merger potentials that were “no-brainers” in the sector and there were probably too many management teams in the industry.
“It’s pretty hard to get high-quality management teams, they’re not sitting on the shelf, and the industry is growing so a bit more consolidation will help that but it’s got to be done for the right reasons.”
Source: Thanks smh.com