Although gold companies may have turned a financial corner in 2016, spending will not return to the heights of the past decade and priority will be given to reinvestment in brownfield assets, rather than the development of greenfield projects, research firm Fitch Solutions has said.

Gold mining companies have learned the hard way when they splurged on ambitious deals and projects when gold prices surged to historic highs of $1 900/oz in 2011, only to face financial difficulty when prices crashed thereafter.

The price of the yellow metal has risen about 25% over the past 12 months to trade above $1 500/oz — about a six-year high —  as investors turn to safe havens, over concerns about slowing global growth, trade wars and US central bank easing.

But although the gold price is hot, Fitch says that gold miners will remain committed to capping expenditures to reduce their debt loads and will continue to pursue a strategy of operational and cost performance.

“Rather than a massive shift to growth, we expect greater dividends and a more conservative executive remuneration as prices head higher in the coming years,” the research firm says in an industry trend analysis on the gold mining industry, published this month.

Canadian non-for-profit Shareholders’ Gold Council, led by Paulson & Co, reports that gold miners spend significantly more on salaries and general administrative costs than their peers in copper and iron-ore. Fitch says the council claims that, if listed miners brought their spending in line with the rest of the mining industry, $14-billion could be unlocked for shareholders.

Midtier miners spend three times more on salaries and general administrative costs than miners of other commodities, while large listed gold miners spend twice as much.

Fitch argues nil-premium mergers of equals could benefit companies and shareholders by significantly reducing general administrative costs. The research firm believes that greater midtier consolidation is forecast for 2020.

With falling reserves and rising costs of gold exploration, mergers and acquisitions (M&A) have become cheaper than expanding reserves through exploration and will likely remain so in 2020.

Fitch believes that more M&A activity should filter through the industry, especially following the Barrick Gold-Randgold Resources and Newmont-Goldcorp mergers, which changed the dynamics of the industry by creating two colossal miners.

The gold mining industry remains fragmented, with the four largest producers, Barrick, Newmont Goldcorp, South Africa’s AngloGold Ashanti and Canada’s Kinross Gold accounting for only one-fifth of global output and the rest made up from midtier and junior production.

Fitch expects joint ventures (JVs) and sharing to remain rule of thumb for the gold industry, which suffers from significant risks, including resource nationalism, labour strikes, extreme weather and increased environmental regulation.

“Senior gold miners will continue to prioritise risk mitigation in 2019 and beyond, in terms of both political and financial risk, resulting in project development in markets and JV partnerships among top firms.”

Examples of notable JVs this year include Novo Resources and Sumitomo Corp’s 60:40 deal in the Egina gold deposit, in Australia, Gemfields and Mwiriti’s 75:25 deal in a greenfield gold project, in Mozambique, and Barrick and Newmont Goldcorp’s 62:38 deal in Nevada, in the US.

Fitch is forecasting the gold price to average at $1 375/oz this year, increasing to $1 450/oz in 2020 and to $1 500/oz in the years to follow.