MandA and growth hunger is alive and waiting16 Nov 2021 01:27
As posted previously the MandA hunger is only increasing in the gold industry. Some notes from Rick Rule
Gold miners now seem to be hungry for growth, looking to use their growing bank balances to fund capital investments, mergers and acquisitions.
“I think Australia is particularly ripe for mergers and acquisitions in two senses,” Rule says.
“One, the acquisition of non-Australian companies by Australian companies and increasingly — if the bigger and better Australian companies don’t begin to sell at premiums — the takeover of those companies by foreigners.
“And of course, the lateral and strategic mergers within the Australian Exchange. I think the next 18 months is going to surprise everyone positively with mergers and acquisitions.
“In the near term that benefits the acquiree, but in the long term if it is structured well, it will benefit the acquiror.”
Who are takeover targets in Australia?
Rule has a list of M&A targets he would prefer to keep proprietary, for obvious reasons.
But he does say to look for companies that are simply too cheap.
“Companies where the net present value of their cash flow, particularly where they have long life reserves, are substantially cheaper than their enterprise value,” he says.
“By my way of thinking, the plus $2bn to $10bn Australian gold mining industry – that market cap range – is universally too cheap.
“At current gold prices – not higher gold prices – these companies are all selling at prices that are as cheap as I have ever seen them in my career.
“I also believe that the gold price will go up, so I am attracted to both the numerator and denominator in that equation.”
From talking to industry execs worldwide, Rule knows that they are beginning to work up the courage to do M&A again.
The industry got pretty discouraged from doing that, for very good reason, in the decade 2000-2010, where so many aggressive acquisitions turned out to be disastrous for shareholders.
“But there is a circumstance now where the lack of investment, particularly in precious metals mining, for the last few years has meant that the surviving companies have to acquire, or they begin to shrink,” Rule says.
“They cannot explore and develop fast enough to maintain their current production. And the assets that they need to acquire are, in historical terms, extremely cheap.”
Its useful to have a look at the link below, and ask yourself, where does CEY fit in? Look at Evolution, Mkt Cap A$7.5 b, produces 680k ounces pa, profit after tax $345m, p/e 20.6 (and so on). Developing underground at Cowal, 2.55 gpt Au Resource grade, mining method?, ore continuity? (etc)...lots of risk in the pipeline....
https://stockhead.com.au/experts/universally-too-cheap-rick-rule-says-these-ma-focused-gold-miners-are-also-prime-takeover-targets/
CEY looks good to me
as does gold
best
the gnome
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