Top Stories This Week: Expert Talks Latest Gold “Super Major” - Is Bigger Better?
Catch up and get informed with this week’s content highlights from Charlotte McLeod, our editorial director.
We’ve made it one week into October, and so far it’s been relatively uneventful for the gold price.
It peaked at about the US$1,770 per ounce level early in the week, and then descended to just below US$1,750; it was at that point around the time of this writing on Friday (October 8) afternoon.
Looking at companies, there’s been a little more excitement — one recent piece of news is the deal between Agnico Eagle Mines (TSX:AEM,NYSE:AEM) and Kirkland Lake Gold (TSX:K,NYSE:KL,ASX:KLA). It was announced last week, and if approved will close in December of this year or Q1 of next year.
I had the chance to speak with Adrian Day of Adrian Day Asset Management about the merger of equals and what it can tell us about M&A in the gold space. He said the agreement will change Agnico Eagle’s status from major miner to “super major,” putting the company among the likes of Barrick Gold (TSX:ABX,NYSE:GOLD) and Newmont (TSX:NGT,NYSE:NEM).
“They will be the company with the best political profile among what we’ll call the ‘super majors'” — Adrian Day, Adrian Day Asset Management
When asked if bigger means better in the gold market, Adrian said that’s not always the case, although size does bring benefits for companies — for example, they become more appealing to generalists. On the flip side, he’s struggled to see the positive aspects of some previous mergers and acquisitions where synergy and cost savings haven’t been evident.
“(With some gold M&A) the only logic was to get bigger, and I don’t think that’s a very good logic in and of itself” — Adrian Day, Adrian Day Asset Management
Moving forward, he expects to see more senior and intermediate companies buying single-asset developers and miners to deepen their own production profiles. We’ll be publishing Adrian’s interview next week, so stay tuned for more of his thoughts on M&A activity and the gold space overall.
With the Agnico Eagle and Kirkland Lake tie up in mind, we asked our Twitter followers this week if they think low or no premium mergers are a good strategy. In total, 46 percent of respondents said yes, while 28 percent said sometimes; only 26 percent said they are never a good strategy.
It’s been a fairly tough year for the industry, partially because many market watchers expected to see big changes in the US after Joe Biden was elected president. Although some state markets are thriving, there’s still no plan or date for federal legalization.
“What we’ve seen with cannabis this year — it has been a really tough sled since February … most of us thought that maybe this year the US Congress would be a little bit more congenial, (that) there wouldn’t be this partisanship that we’ve seen. That hasn’t been the case ” — Matt Carr, the Oxford Club
Matt said for him it’s significant that conversations around cannabis continue to happen, and he’s encouraged by this dialogue. He advised investors to look for “value plays” and said he expects to see more big M&A deals as the space continues to consolidate.
“It’s more than symbolic, it’s continuing this conversation about cannabis and how we can get it de-scheduled and legalized at the federal level” — Matt Carr, the Oxford Club
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Securities Disclosure: I, Charlotte McLeod, hold no direct investment interest in any company mentioned in this article.
Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.