(Bloomberg) – A year ago, Wall Street couldn’t be made to touch most of the gold miners’ shares. Today it throws billions into the industry.
Precious metal miners who were once viewed as too leveraged and high-risk to the typical investor raised $ 2.4 billion in secondary equity offerings during the second quarter, data compiled by Bloomberg shows. That’s the maximum since 2013 and seven times more than the funds they raised a year earlier.
With the Covid-19 crisis threatening world economies and gold prices rising after stimulus and monetary programs, precious metal companies have become favorites with the investment community. The sector, which once greatly attracted the attention of specialized funds, is now attracting a broad investor base.
“Suddenly, we see real interest from generalists,” said Bryan Slusarchuk, chief executive of Fosterville South Exploration Ltd., whose company plans to search for gold in Australia. “If this continues, it could be the start of an incredible bull market for gold stocks.”
The gold miners market has been dominated by the two main giants, Newmont Corp. and Barrick Gold Corp., with investors moving away from many of the others. This is because the balance sheets had too much leverage or the companies had too few mines and projects to spread the risk. Many also recall the writedowns that followed the fall in the price of gold in 2013.
Junior Miners
But junior miners are now beginning to benefit. Take the case of American Pacific Mining Corp., a gold exploration and extraction company with a market capitalization of less than $ 20 million. The company raised $ 3 million in the second quarter, six times more than it had originally planned. The interest was so great that he had to turn down offers for more, CEO Warwick Smith said.
“The big ones play first, and then that money goes to the smaller companies, exploration companies,” he said.
The reasons that fueled the appeal of gold miners are the same ones that keep investors away from companies looking for metals like copper or lithium, which are more dependent on economic growth. Base metal and industrial companies raised just $ 34 million in the second quarter, data compiled by Bloomberg showed. That is a decrease of 40% compared to the same period of the previous year.
Battery metal projects are also struggling to attract investors.
Clean TeQ Holdings Ltd.’s Nickel-Cobalt-Scandium Sunrise project in Australia is an excellent example. The company said in mid-June that it could not commit to a final investment decision on the $ 1.5 billion project, as the pandemic presented “financing challenges.”
“Bankers don’t like risk,” said Andrew Bowering, director of the American Lithium Corp., which has an exploration project in Nevada. “That means that they have to reach a long-term purchase agreement so that they guarantee the production of the mine, and at the moment it does not have big buyers.”
Gold charm
The appeal of gold companies occurs even when the coronavirus makes mining more difficult, with an increased risk of infection in confined and confined spaces. Last week Barrick said he continued to benefit from strong prices even when the pandemic closes mines.
Investment in the sector also comes in the form of mergers and acquisitions. According to Bank of America, deals were announced in the second quarter, with 12 transactions valued at $ 2.86 billion. That is almost double the first three months of the year.
“With the closure of the mines and the tightening of things, Suite C is in the boardroom and they are talking to other companies about mergers and acquisitions,” said Smith of American Pacific. “They are talking to their bankers, they are approaching to have these conversations and agreements are being reached.”
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