Gold mining sector back on takeover trail

After a number of difficult years, the gold mines are once again on the acquisition spree. Due to the rise in the price of gold and cost reductions, the sector is in a better position, which means that they finally have the space to replenish their underground gold reserves. They do this not only by making new investments in existing mines, but also by acquiring other companies in the sector.

Due to the low gold price, the sector has hardly invested in exploration in recent years, the mapping of new areas to extract gold. According to figures from Bloomberg, economically recoverable gold reserves have fallen by 40% since 2011 as a result.

According to Mark Bristow, managing director of Randgold Resources, a new wave of acquisitions in the sector is therefore inevitable.

"None of the big players in the gold mining sector have a growth story, because no one has invested in the future of this sector. Since 2000, the industry has not mapped out enough new reserves to replace the ounces that have since been extracted from the ground. So there needs to be consolidation."

Peter Steenkamp, director of Harmony Gold Mining, also expects that many acquisitions will take place in the gold mining sector in the near future.

We all have the same problem and that is that we haven't done much exploration in the last ten years. The lifespan of our mines is getting shorter and shorter and everyone is trying to replenish the ounces that are being mined.

Production of the gold mining sector down

In recent years, the gold price has been sufficient to maintain mine production, but did not provide sufficient room for the mining sector to map out new reserves. Therefore, according to calculations by BMO Capital Markets, global gold mining will decline rapidly after peaking in 2019. Arnold van Graan, analyst at Johannesburg-based Nedbank Capital, also warns against this. He stated the following to Bloomberg.

In three to five years, there will be a significant drop in the production of the gold mining sector. Most companies are struggling to fill this coming gap and so we are seeing a resurgence in exploration, mergers and acquisitions.

Gold mining sector production to decline after 2019 (Source: Bloomberg)

Mergers and acquisitions

Mining company Acacia Mining wants to merge with Endeavour Mining, while Sibanye Gold has paid $2.2 billion to acquire Stillwater Mining, a platinum and palladium mining company.

Other mining companies such as Gold Fields and Harmony Gold are investing millions for the expansion of existing mines in Australia and South Africa, respectively. AngloGold Ashanti, the third largest player in the gold mining sector, also sees opportunities for organic growth. This company intends to invest more in exploration in countries such as Tanzania, Brazil, Guinea and Congo.

Gold mining sector on acquisition trail again