Do Falling Gold Prices Mean More Mergers Are in the Cards?

Gold touched its lowest level on July 24. Its price fell to $1,073.70. Miner ETFs have suffered more than gold prices themselves.

Meera Shawn - Author

Aug. 10 2015, Published 3:02 p.m. ET

uploads///Gold versus ABX

Assets diminish in value

As bullion prices are tumbling, precious metal miners have an added incentive to expand their mining capacities. COMEX gold and silver futures are trading at $1,090 and $14.67, respectively. These metals are down by 8.06% and 6.17%, respectively, on a 30-day trailing basis.

Gold touched its lowest level on July 24. Its price fell to $1,073.70. Miner ETFs have suffered more than gold prices themselves. The VanEck Vectors Gold Miners ETF (GDX), the VanEck Vectors Junior Gold Miners ETF (GDXJ), and the SPDR S&P Metals and Mining ETF (XME) have lost close to 24.93%, 20.19%, and 14.15%, respectively, on a 30-day trailing basis.

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Falling prices: A good time for mergers

As mining companies’ asset prices are sliding lower, mergers between mining companies are becoming the talk of the town. According to Bloomberg analysts, Zijin Mining Group—the biggest gold producer by market value—has continued adding merger and acquisition deals to its basket. Zijin likely has a strategy of globalization. It acquired mines in Papua New Guinea and the Democratic Republic of Congo in May. Zijin is also likely in discussions with Barrick Gold (ABX) for potential future opportunities.

The chart above shows the three-year performance of Barrick Gold (ABX) versus Randgold Resources (GOLD).

A three-day annual conference of gold producers was held on Monday in Kalgoorlie, Australia. According to data from the event, ~$4.5 billion worth of deals were either proposed or completed in the past year. Newcrest Mining (NCM) is also up for a tentative sale of its Telfer mine in Australia.

Friday proved to be good for most mining companies, as gold and silver surged. Randgold Resources (GOLD) and Goldcorp (GG) gained 1.76% and 2.78%, respectively. FNV, GG, NEM, NCM, and ABX together represent ~30% of the VanEck Vectors Gold Miners ETF (GDX).


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