TORONTO (miningweekly.com) – A new report by auditing house PricewaterhouseCoopers (PwC) has found the gold price is expected to increase in 2013, driving increased spending on exploration and merger and acquisitions (M&A).
The ‘2013 global gold price report’ found more than 80% of gold executives expect to see a rise in the price of gold, and an analysis of the 46 largest TSX- listed gold mining companies pointed to more than 20 of these gold companies having cash reserves greater than $500-million.
"Gold miners are adamant about proving to the market that they're once again a good investment - not just for the interim, but for the long-term. Receiving investors' approval will involve establishing cost-effective management strategies, increasing dividend payments and responsibly investing in production growth - all on the back of a strong gold price," PwC mining leader for Canada and the Americas John Gravelle said.
He added there has been a shift in focus with gold executives concentrating on the bottom line – specifically focusing on the rate of return for every ounce produced.
According to the report, the long-term price of gold used by gold miners has increased by 6% from last year and 29% from two years ago, to $1 400/oz.
The report found all of the senior gold companies used cash for development and exploration spending and they plan to do the same for the upcoming year. Further, 89% of mid-tier gold companies will use cash for project development and 83% will use cash to fund exploration activity in 2013.
"Larger mining companies may be more watchful with their spending, but they haven't forgotten about their exploration budgets. Expect increased exploration spending next year by senior and mid-tier miners, and well-funded juniors," says Gravelle.
"While senior gold producers will use their cash to fund recently increased dividend commitments, they will carefully invest in projects that will produce superior rates of return," he said.
Some senior gold miners may also use their cash for strategic M&A activity. Twenty percent of senior gold companies plan to spend their money on acquisition related activities in 2013, while 33% of junior/mid-tier companies expect to spend their cash on acquisitions – this is double the number of companies that spent money on M&A activity during this year (14%).
"The equity market for junior gold companies appears to have finally reached the point where there is more upside than downside. Junior gold miners should therefore anticipate increased M&As," says Gravelle.
Meanwhile, while Canada tops the list with the most active gold buys this year, with 243 transactions worth $4.8-billion, the report found China continues to keep an eye out for gold mines to acquire.
In 2011, four of the top gold deals were acquired by Chinese buyers. This year, China was again responsible for four out of the top ten gold deals announced.
"Chinese state owned entities remain interested in expanding their gold mining assets outside of China to secure steady access to gold in the future," says Gravelle.
In the last few years, China has heavily invested in the African mining industry. "There are a number of examples of controlling investments by Chinese and Indian companies into gold, coal, and other commodity projects in Africa. Chinese investors come with significant financial support, facilitating the development of capital intensive mines," Gravelle said.