Does This Buy Mean An End to the Gold Bear?

It’s no secret sentiment in the gold market has been horrendous of late. But at least one high-profile player seems to be taking this bear market as an opportunity.

That’s major producer Goldcorp. Who last week initiated some of the first M&A action we’ve seen in the gold space for a long while.

The firm tabled a takeover offer for Quebec gold producer Osisko Mining. A major one–with Goldcorp offering $2.6 billion in cash as part of the transaction.

Of course, this price tag isn’t as big as it would have been a few years ago. With Osisko’s share price having declined nearly 70% since 2011–to $5, down from $15.

That discount is likely what’s enticing Goldcorp into the market. But even on the cheap, this is is still a major spend for the company. Especially given the pressure gold producers have been under lately from investors–to forget about expansion, and concentrate on optimizing operations in the current low gold-price environment.

But it appears Goldcorp is one of the first firms to once again start looking to the future. Likely a sound move, given the apparent bottoming we’ve seen in the gold price and gold stocks over the last few months.

As I’ve discussed, the risk of a further drop in gold is today much reduced. Current prices around $1,250 per ounce are perilously close to the industry’s average cost of production. Meaning any further fall would probably see low prices curing low prices, as uneconomic mines begin to shut down.

These numbers make it apparent this is as bad as things should get (minus possible short-term dips in the market). Making this an opportune time for acquisitions.

The Goldcorp-Osisko deal is the first indication that anyone other than a handful of analysts have started thinking that way. Perhaps signalling the start of a shift in wider sentiment throughout the gold space.

Here’s to getting the timing right,

Dave Forest

dforest@piercepoints.com / @piercepoints / Facebook

 

Add a Comment

Your email address will not be published. Required fields are marked *