Investment dealer Haywood Securities has just made public an industry report where it states that junior and mid-tier gold producers such as Alamos Gold, B2Gold Corp, and Endeavour are leading the way when it comes to strong balance sheets and cash-flow generating potential. Such potential is the result of asset purchases and organic growth, the latter being a consequence of the very recent gold price increase.
The Canadian firm explains that a sector reshaping that is seeing asset sales, refocused capital development, and mine plan modifications has created an environment that benefits small and mid-size companies.
In contrast, senior producers trying to reshape their balance sheets and operational figures are showing stagnant production profiles. “We believe this evolution in production profile combined with limitations on exploitable assets for future development will again lead to further upward consolidation as mid-tier and senior gold producers look to maintain and/or grow further production,” the document reads.
In detail, Haywood Securities explains that the downward movement in commodity prices has led companies of all sizes and in most jurisdictions to adopt cost control and moderation at their operating mines. “This newborn stewardship (by most operators) has taken a number of years to bring cash costs down, and on average, costs appear to have reached a through.”
In the past three years, corporations have also decided to embark on asset sales, equity dilution, reduction in dividend payout and capital expenditures, and strict oversight of operating margins. These decisions have allowed them to deleverage and shore up balance sheets, which has led to a “radical lowering” in debt levels, the study says.
In particular, senior gold producers have led the way in terms of both debt reduction and transfer of production and assets. They’ve achieved this by selling smaller operations and deposits to their junior/mid-tier counterparts, private equity firms, and state-operated companies.