Valuation gaps create M&A necessities, says advisor

Liam Twigger, principal of PCF Capital. Photo by Paydirt 2019 Africa Downunder.

The principal of corporate advisory firm PCF Capital, Liam Twigger, said this week that the global equities pool for mining has divided into a two-speed market where survival will now depend on getting bigger through acquisition as the dearth of major new mineral discoveries limits opportunities to add mineable ounces and reserves.

Talking at the Paydirt 2019 Africa Downunder mining conference, Twigger said that nearly all gold, base metals, battery metals, mineral sands, diamond, rare earths, iron and phosphate players were in the search of capital.

Liam Twigger believes that all gold, base metals, battery metals, mineral sands, diamond, rare earths, iron and phosphate players are in the search for capital

“These players are certainly in the search for more buying as they have entered the 2020 financial year against a backdrop of a global trade war and a two-speed market,” the executive said. “This has now split into those with plus $500 million market caps – that are on the radar of the passive funds and exchange-traded funds (ETFs) – and those that aren’t.”

According to Twigger, for those on the wrong side of $500 million, it is probably one of the toughest markets they have ever experienced.

“This has created a big incentive to grow and get into the orbit of the passive funds and ETFs,” he said. “However, I believe the ETF model of buying mining stocks simply on the back of some set of specific buying guidelines or algorithms, will ultimately be a flawed one.”

In Twigger’s view, the inflow of funds to ETFs will ultimately push valuations over the top and eventually, there will be a run for the exits.

“In the meantime, bigger is better and it is creating a huge valuation gap between the haves and the have nots and this, in turn, is delivering excellent acquisition opportunities.”

The principal of PCF Capital predicted that whilst equity markets might continue to be fragile and fickle, the next 12 months will see a renewed push into M&A, as size and total market cap are now the real value drivers.

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