We could be about to see a sharp pickup in corporate wheeling and dealing in the gold space as Australia’s largest listed gold miner gave its strongest hint yet that it’s on the prowl for assets.
Executives from gold mining companies are starting to feel a lot more confident about sticking their necks out and taking risks and a newly created “chief development officer” role at Newcrest Mining Limited (ASX: NCM) shows how far fortunes in the sector have turned.
Newcrest has appointed Michael Nossal to the new position with one of his responsibilities being “to focus on growth opportunities within our existing portfolio and other opportunities”.
Shares in Newcrest rallied 3.8% in afternoon trade to a near one-year high of $14.87 and Credit Suisse thinks Nossal’s appointment is a significant bolstering of the gold miner’s merger & acquisition (M&A) capabilities and indicates that it’s looking to its next phase of growth.
The news coincides with a strong turnaround in Newcrest’s performance following the dark days of 2013 when it faced accusations that it was disclosing sensitive information to a select few and was struggling against a slumping gold price.
A year ago the miner was keeping its head down as it focused solely on maximising operating efficiencies but now sentiment toward the precious metal and the sector has recovered strongly as the yellow metal managed to keep its head comfortably above $US1,000 an ounce at a time when the Australian dollar has fallen sharply.
This will bolster translated earnings and pad margins of locally operated mines and the gold price doesn’t need to trade anywhere close to its 2011 record high of $US1,900 plus an ounce to sustain the positive sentiment.
EVOLUTION FPO (ASX: EVN) recently bought La Mancha’s Australian operations and Evolution’s chairman admitted in an interview with Bloomberg today that it is still keen on accumulating gold assets given that asset valuations have fallen as much as 70%.
But potential acquirers in the sector know that things won’t stay cheap for long given how gold miners have been significantly outperforming the broader mining sector. The clock is ticking.
Mining investors better be paying attention. What’s happening in the gold space is likely to happen to iron ore (and other industrial metals for that matter). I don’t think we need to see the steel-making ingredient retake the $US100 a tonne mark for bullish sentiment to return.
I am not saying you should expect takeovers in the iron ore sector in the short term given that the big boys of the sector, such as Rio Tinto Limited (ASX:RIO) and BHP Billiton Limited (ASX: BHP), are too focused on their internal issues right now to participate in any industry consolidation.
But as the gold sector experience shows, sentiment tends to change much quicker than one would expect.
The clock is always ticking.
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Motley Fool contributor Brendon Lau owns shares in BHP and Rio Tinto. Follow me on Twitter - https://twitter.com/brenlau
The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.
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