UK gold mining investors still face the dilemma of where to put their cash even though the gold price is moving upwards and profits are rising at London-listed gold stocks.
The issue is a lack of options. There is only one large-scale mining company left after Russian delistings, and potential growth companies have run into production troubles. Centamin (CEY) chief executive Martin Horgan has called for more consolidation to create companies of bigger scale to challenge more global competitiors.
The gold price hit $2,000 (£1,606) an ounce (oz) earlier in April, the highest level in 13 months. There were hopes the yellow metal would continue to climb amid US recession fears and a weaker dollar. The latest ‘Beige Book’, a US economic outlook prepared by the Federal Reserve Bank of Richmond, reported tighter lending conditions and a potential for higher unemployment figures, both supportive of the gold price.
Expectedly, major North American gold miners have gone into dealmaking mode this year. Newmont (US:NEM) is pursuing Newcrest (AU:NCM), and the latest offer (0.4 Newmont shares for each Newcrest share held, plus a dividend) has seen the companies go into a due diligence period. One deal from earlier this year has even completed already – B2Gold (CN:BTO) bought out a smaller player in an all-share deal worth C$1bn (£660mn).
“I do think consolidation needs to happen,” Horgan said. “From a London perspective, Randgold went off with Barrick, the Russians have had to leave because of Ukraine. That leaves Endeavour as the one senior gold play.”
The outlook for UK-listed gold miners is largely asset-dependent: Centamin reported Q1 production ahead of forecasts and at a lower cost, while Hochschild Mining (HOC) has set 2023 cost guidance higher because of an ageing asset and local currency changes.
West Africa-focused Hummingbird Resources (HUM), which has seen a significant share price rebound this year, said earlier this week its gold sales for Q1 had almost doubled on last year while costs had halved. Hummingbird had struggled with its Yanfolila mine in Mali for some years, but is now on track to quickly increase output through a new mine and improved Yanfolila performance.
Liberum analyst Yuen Low said: “Consolidation in the gold space is a hot topic at the moment, particularly given Newmont’s approach to Newcrest." He picked Caledonia Mining (CMCL) and Shanta Gold (SHG) as potential targets, while “Centamin could look to merge with a Tier II/III peer”.
Centamin rejected an approach from Endeavour at the end of 2019, before it listed in London and managed a swift climb up the ranks of global gold miners. Low said a repeat would be unlikely unless Centamin makes "a truly spectacular discovery in Egypt and West Africa…or its market capitalisation falls significantly”.
