Looking further out.There are very few large-cap gold miners the size of Newmont, Barrick, Goldcorp, and Randgold left for another 'mega-merger' to happen, and so consolidation in the sector will likely happen within the mid-tiers and junior miners, said David Garofalo, chairman and CEO of Gold Royalty Corp. and former CEO of Goldcorp.
“There are very few players who are going to be able to dance with each other at the top anymore,” Garofalo told ***** News. “I think large-scale consolidation is by and large done. I think it’s going to be the mid-tier, where there’s been a proliferation of emerging producers and mid-tier producers, there are probably too many of them and they’re all facing depleting reserve and production profiles and they haven’t had any significant success on the exploration side.”
Over the next 12 months, post-COVID, a “long line of M&A deals” will emerge amongst the mid-tiers who risk “irrelevance” if they don’t consolidate, Garofalo noted.
On supply and demand for gold, Garofalo said that the gold mining sector faces the "existential issue" of dwindling reserves, and so supply will be a more important factor for sentiment than fundamentals.
“The dynamics of the sector are such that we’ve seen reserves decline by about 50% in the last decade because companies, and the producers in particular, have been focused on margin, profitability, return on capital to shareholders, as they should,” he said. “But exploration has been sacrificed, and that’s become an existential issue now for the sector, with reserves declining, that’s a leading indicator of where production is going to go.”
