Tom Palmer, chief executive the world’s biggest gold producer, said that the costs of going green will drive a wave of consolidation across the industry.
“One of the challenges for the gold industry is the number of gold companies,” the Newmont Corporation executive said to Financial Times. “So I think the industry needs to consolidate and I think the catalyst will be climate change.” Last month saw a merger between Canada’s Kirkland Lake Gold and Agnico Eagle Mines, which Palmer sees as the first step to the industry being able to meet 2030 targets and 2050 net zero emissions goals. ESG metrics continue to be a hot button topic, and problems of scale in smaller and medium-sized firms are likely to fuel a period of mergers.
This could be excellent news for the Sprott Junior Gold Miner’s ETF (SGDJ), which tracks small-cap gold companies that could find themselves well-positioned as acquisition targets. One of the traditional upsides to SGDJ was that high-quality junior miners are often just one good discovery away from being acquired by senior miners.
Gold’s Fortunes Could Rise
Precious metals could become a value buy at the moment. Gold futures have had three straight sessions of losses, and gold — despite ongoing concerns about inflation and stagflation — continues to dip off of strength in the dollar. Mining companies were hit particularly hard in September, as investors seemed to be factoring lower gold prices and concerned about margins.
Despite all of the pressure, gold ended September at $1,757/oz, above its March low of $1,683. On Sprott Insights, Doug Groh noted that mining companies present “compelling value as seen in balance sheets, operations that can adjust to various margin scenarios (many producers can successfully produce cash flow from economic reserves and resources at below $1,300 per ounce) and attractive precious metal equity valuations, all provide a rational investment opportunity.”
The fundamentals for precious metals remain strong. The pandemic continues to have an unprecedented impact on daily life. Governments have been forced to spend at record levels, and the traditional markers of inflation and stagflation are striking. If gold shakes out of this downside period and prices start to go up, mining companies will reap huge benefits. These economic realities, combined with the environmental realities, make junior gold miners a compelling buy.
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