Mid-level gold miners must look for merger and acquisition opportunities to unlock billions of dollars in shareholder value – Gold Shareholders' Council

(Kitco News) – A group of mining investors recommends that mid-level gold producers examine merger and acquisition opportunities to generate shareholder value.

In a report released Thursday, the Board of Shareholders for Gold, created by legendary investor John Paulson, founder of Paulson & Co., said that if the number of gold producers of any size average was halved, it could potentially generate shareholder value of about 2.4 to $ 3.2 billion.

"The SGC strongly encourages midsize businesses to pursue mergers without consideration without equality, in cases where the elimination of duplicate business structures could be beneficial to shareholders," the report says.

SGC's last recommendation comes after analyzing the general and administrative expenses of the mining company. The report noted that mid-tier multi-asset gold producers have the highest G & A costs compared to major gold producers, mid-tier producers with unique assets and even corporations. non-gold mining.

According to the Board's research, the median percentage of expenditures and expenses as a percentage of consensus EBITDA in 2019 estimates that medium-sized producers of several assets are at 12.7%. This compares to 8.2% for major gold producers and 10.0% for single asset gold producers. Non-gold producers reached 4.2%.

"The fact that mid-sized, multi-asset gold producers are spending more on S & A than single-asset gold producers shows that the former can be managed more efficiently," the board said. "What is important is the potential for value creation that is most important here, as the overall leakage of M & A value for the multi-asset group as a percentage of market capitalization is between 15% and 20% These figures suggest that there are far too many medium-sized, multi-active gold producers and demonstrate the need for consolidation in this particular space. "

The report comes as the mining sector has seen renewed interest from investors as gold prices have reached their highest level in six years. The board noted that this year the major gold producers have outperformed the precious metal. The VanEck Vectors Gold Miners ETF (NYSE: GDX) rose 53%, while the price of gold rose 26%.

However, on a long-term basis, the situation has not been as optimistic for the mining sector in the last 10 years: the price of gold has increased by 57%, while that of GDX has increased fell by 22%.

"SGC believes that one of the many areas on which gold companies should continue to focus is cost control, particularly G & A spending," the board said. "SGC believes that for gold stocks to benefit from the recent outperformance and reduce the historical performance gap, the gold mining boards must continue to empower management teams and encourage them to find the way to unlock the value of G & A reductions in ways that shareholder returns. "