The Gold Report: The Indaba Mining Conference in Cape Town, South Africa, is an ideal spot to take the pulse of the global mining business. You were there in February. What did you learn that could benefit mining equity investors?
Nana Sangmuah: The key takeaway is that exploration has left the scene and it’s no longer a core focus in weak equity markets. The focus on conserving margins by both senior and intermediate metals producers meant slashing exploration budgets. Those miners will not be able to replenish the reserves they are mining and are probably mining themselves out of business. The only way to correct this—given the 10- to 12-year gap from discovery to production—is for merger and acquisition (M&A) activity to pick up in a big way. Most of the conversations at Indaba went in that direction given the compelling valuation available in the sector.
What was also striking is the increase in companies saying publicly that they are on the hunt for acquisitions. Those included Randgold Resources Ltd. (GOLD:NASDAQ; RRS:LSE), Newmont Mining Corp. (NEM:NYSE), Newcrest Mining Ltd. (NCM:ASX) and Acacia Mining Plc (ACA:LSE) (formerly African Barrick Gold Plc). But, quite frankly, there is a short list of potential targets.
TGR: Did the M&A chatter focus on African assets?
NS: It’s clearly heating up on the continent. I can count about six transactions in Africa over the past 16 months. The time needed to advance projects seems to be much quicker on the continent because a lot of countries have a significant portion of their gross domestic product tied to the mining sector; those governments are more willing to get projects moving. The biggest problem …read more