Why gold miners are getting harder to find on the ASX
The Australian gold sector has been abuzz in the last few weeks with news breaking about US-listed gold mining behemoth Newmont lobbing a bid for ASX-listed gold miner Newcrest.
Like all good takeover bids, the story has already had its fair share of twists and turns, and it of course remains to be seen whether Newmont revises its bid, but if the takeover does proceed, it will no doubt reshape Australia's gold mining sector and will continue the trend of locally listed gold miners disappearing from ASX boards.
The rationale behind Newmont's bid is fairly clear for four key reasons, all of which are not unique to just the US-listed gold miner and could perhaps change the way Australian investors gain exposure to gold mining companies.
Why Newmont is bidding to take over Newcrest
First of all, as some of Newmont's existing gold mines reach the end of their life, assets in stable jurisdictions, like Australia, are one way to add growth options to their portfolio. Australia has a long history of gold mining and sovereign risk in other locations with gold deposits, like Africa, is far higher.
Many Newcrest gold mines also produce copper, which is also expected to see increased demand given the role it will play in the ongoing global transition to a net zero economy. Copper is often a by-product of gold mining and adds diversification benefits to gold miners who are at the whims of the prevailing gold price.
As a result, a number of large gold miners are reported to be looking for ways to add copper to their business, including BHP's planned acquisition of OZ Minerals.
Gold become scarce
Gold deposits are also becoming scarcer and harder to mine, and as a result existing gold miners will need more capital to extract the precious metal. This trend will give overseas miners with their deeper pockets a potential advantage in any M&A negotiations, as many Australian gold miners are often smaller and don't have the same profile and ability to raise capital in New York and Toronto.
Finally, as gold prices rallied at the start of the year acquisitive gold miners have seen the deal window open and seem to be on the hunt for deals.
Even though prices have fluctuated since, these players seem to be still keen to jump onto the long-term trends around growth options, the global energy transition and the increasing costs of capital required to extract the yellow metal. As a result, it's our view that many Australian gold miners will be in the acquisition crosshairs of their often larger overseas listed rivals.
The impact on investors
Now, what does this mean for investors? Well, for investors seeking exposure to gold miners, options are becoming scarcer on the ASX.
If Newcrest is subsumed by Newmont (Newmont has indicated that it would create a depository listing on the ASX), it would leave a collection of smaller gold miners available on the ASX - some of which tend to sit at the more speculative end of the market.
As a result, investors might wish to consider an ETF like the Betashares Global Gold Miners ETF (MNRS) to spread risk beyond the Australian gold mining sector. This consideration will perhaps become more acute if other ASX-listed gold miners are snapped up by their larger overseas-listed peers.
The future of gold stocks
In the future, we could see a shorter list of gold stocks on the ASX, potentially skewed towards more speculative names, those with assets not attractive to the bigger players overseas or those more willing to go it alone.
All three options offer a non-trivial amount of risk and, like always, mean that investors should carefully consider their options before making an investment decision.
In summary, investors looking to add gold mining exposure to their portfolio will perhaps need to look offshore to gain exposure as Australian gold mining assets are potentially snapped up by larger overseas rivals.
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