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With Canada’s biggest gold miners back in the mode of making deals and striking partnerships, analysts will be watching the companies’ self-discipline as first-quarter financials start rolling in.
Last year was a period of recovery for gold producers: balance sheets got better, gold prices were healthy and rising and share prices climbed. The S&P/TSX global gold index went up 50 per cent in 2016, and it’s up another 12 per cent so far this year.
In the past, strong gold markets have led to a round of mergers, acquisitions and mine-building, followed by a painful reckoning. Investors haven’t forgotten, so free cash flow, cost savings and debt reduction remain in their sights as precious-metal miners mull new projects in their march out of the commodity slump.
The industry’s poster child for irrational exuberance was Barrick Gold Corp., which burned billions of dollars with the $7.3-billion cash purchase of Equinox Minerals Ltd. in 2011. Barrick’s Toronto-listed shares, once worth about $55, fell below $8 a couple of years ago as the magnitude of its errors became apparent to the market. (They’ve since rallied to near $26.)
In this cycle, the deal making has been more sober and cautious. Typical was last month’s announced deal between Barrick and Goldcorp Inc., the country’s two biggest gold miners, which said that they would join together to consolidate gold-mine development in Chile’s Maricunga Belt.
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