The VanEck Vectors Gold Miners ETF (NYSEArca: GDX), the largest gold miners exchange traded fund, is up nearly 5% this year. Some of that gain is attributable to higher gold prices, but plenty of it can be tied to speculation pertaining to increased industry consolidation.

However, recent headlines suggest the largest gold miners may be eschewing mergers and acquisitions in favor of joint ventures that serve the objectives of boosting production and cutting costs.

GDX is comprised of global gold miners, with a notable tilt toward Canadian and U.S. mining companies. Stock fundamentals like cost deflation across the mining industry, share valuations below long-term average and rising M&A are all supportive of the miners space as well, but those fundamentals could be glossed over if the dollar strengthens.

“Increased joint venture (JV) agreements in the gold sector will provide companies opportunities to capture synergies and optimize assets,” according to Fitch Ratings. “As availability of high-quality assets declines, co-development of properties is more cost efficient, requires less capital, and is therefore positive for credit profiles.”

Gold prices have been steady this year amid expectations for a weaker U.S. dollar and that the Federal Reserve will slow its pace of interest rate increases. Those scenarios are benefiting gold miners and ETFs such as GDX.

Expect More Joint Ventures in Gold Mining

Declining output at some mines and the notion that the easiest to reach gold has already been mined are among the factors compelling miners to explore more joint ventures.

“Finite mine life due to the natural depletion of assets is also encouraging efforts around cost reduction and efficiency that may be leading to more JVs,” said Fitch. “CRU estimates total world mine supply has only grown 1.2% on a CAGR basis since 2001 to 3,099 tonnes in 2018 and expects production to decline by 85 tonnes to 3,014 tonnes by 2023. Lower production is projected for traditional gold mining countries including the U.S., Canada, Australia and South Africa. CRU does not expect the price of gold to break decisively out of the well-established range of $1,200/ounce to $1,350/ounce. Fitch sees support at our $1,200/ounce price assumption.”

Barrick Gold (NYSE: ABX) recently tried to acquire rival Newmont Mining (NYSE: NEM) in hostile fashion, but that deal was scrapped in favor of a joint venture. Those are two of GDX’s largest components.

“Even though Barrick made an initial claim that a JV would not be optimal, the companies agreed to create a 55% Barrick/45% Newmont Nevada JV in lieu of a merger last week. The project is projected to enable average annualized pretax synergies of about $500 million worth approximately $5 billion over 20 years,” according to Fitch.

For more information on the gold market, visit our gold category.

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