Gold producers in Australia are outperforming their global competitors, prompting investors to encourage them to expand their horizons and acquire struggling North American rivals.
Boosted by some of the sector’s best margins, low debt and swelling cash piles, miners in the world’s No. 2 producer are defying a wider lull in gold equities. Saracen Mineral Holdings Ltd. and Northern Star Resources Ltd. have surged in the past year as rivals in Canada, the U.S. and South Africa faltered.
“Australian gold miners currently enjoy some of the highest margins in the world,” said Stephen Land, San Mateo, California-based portfolio manager at the $1.1 billion Franklin Gold and Precious Metals Fund. The producers are being supported by cuts to operating costs and stronger prices of bullion in Australian dollar terms.
Miners in Australia and New Zealand account for about 20 percent of the Franklin fund’s holdings, which last year added positions in Dacian Gold Ltd. and Gascoyne Resources Ltd. Australian companies are now valued more equitably against North American peers “allowing them to be competitive in global M&A,” Land said.
Newcrest Mining Ltd., Australia’s top producer, invested $250 million in Canada’s Lundin Gold Inc. this year, while St. Barbara Ltd. is examining potential deals that could include the U.S. Evolution Mining Ltd. and Northern Star are among other companies with the firepower to move on poorly performing North American miners in the short-to-medium term, Argonaut Securities Ltd. said in a note last month.
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