We are now seeing a number of emerging developers become successful producers. Gold companies can create value for shareholders in some different ways. One of the most direct is to grow organically by discovering a piece of real estate in some remote part of the world that can be turned into a gold mine. And then build the mine.
Alternatively, they can grow by acquisition. Historically most large producers have grown through acquisitions. However acquisitions can be costly, because they usually come at a premium. Thus far in the current cycle, producers are using a different approach by taking equity stakes in early stage, pre-resource companies that they believe will develop winning properties.
Global Gold Sector Transactions, 1998 to 2016
Source: BMO Capital Markets; VanEck. Data as of December 31, 2016
As we expect production among the majors to stagnate or decline in coming years, these emerging companies are helping to revitalize the sector. If the major's current growth strategy does not pay off, these young companies could become the acquisition targets of the future.
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