Merger and acquisition (M&A) activity continues at a measured pace. Historically, acquisitions at a premium have dominated M&A activity. This has led to too many companies overpaying for assets that failed to deliver the expected performance. However, in the current bull market, mergers of equals have become more common as companies find ways to increase value and shareholder returns, rather than overspending to grow ounce production to simply get bigger.As the gold price has trended higher, we have found both this shift in strategy and greater discipline to be firmly in place.
Amongst other things, we are observing:
- A focus on stable production and margin improvement through reducing costs.
- The generation of free cash flow to return to shareholders and reduce debt.
- The funding of lower cost, higher return organic and brownfield expansions.
- Continued use of $1,200 - $1,250 per ounce gold prices to run reserve calculations and no chasing of marginal low-grade ounces.
Unlike 2001 – 2011 Bull Market, Costs Remain in Check With
Rising Gold Price
Source: BMO Capital Markets. Data as of May 2020.
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