(Kitco News) – Mergers between gold-mining companies may start picking up again as officials look to replace reserves after reduced exploration efforts in recent years when lower prices dented revenues, says George Ogilvie, president and chief executive officer of Kirkland Lake Gold Inc. (TSX: KGI).
However, there is likely to be a focus on acquiring quality assets rather than simply adding ounces, the CEO said in an interview with Kitco News. Ogilvie noted that his company is in a transitional year as output rises in the aftermath of the St Andrew Goldfields Ltd. acquisition completed in January.
Several years ago, when gold was on its way to record highs, many producers were racing to hike output through organic growth and merger-and-acquisition activity. Subsequently, when gold went into a bear market, producers collectively lowered their long-term gold price assumptions and undertook massive asset write-downs.
“I think the mantra today is profitability and free cash flow for shareholders and protecting the balance sheet, and trying to deleverage companies. We’re in that process,” Ogilvie said. “It has not been completed yet, but I think when we get out of that, companies are going to look around and realize, ‘we haven’t been doing a lot of exploration. The reserves and resources that we currently have are shrinking. Therefore, we need to add to those.’”
This may well lead to a new M&A cycle, but different from those in the past, the CEO continued. “I think they (producers) are going to be doing more selective deals with quality assets that are free-cash-flow generative. Certainly, we can put Kirkland Lake in that camp.”
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