Merger and acquisition (M&A) activity in the gold mining sector is expected to continue into 2020 amid increasing consolidation and risk-sharing trends, a new report by Fitch Solutions Macro Research indicates.

Building on the major deals announced in 2018 and 2019, midtier producers in particular will pursue M&A transactions in the new year.

“While senior gold producers were at the forefront of mergers thus far, we expect midtier companies to follow suit and account for most merger activity going forward,” the latest ‘Global Industry Overview – Mining and Metals Key Themes 2020’ report highlights.

Fitch Solutions Macro Research expects senior producers to acquire smaller companies to increase the size of their portfolios as gold prices experience mild appreciation in the next few years.

“Underpinning this trend are falling reserves worldwide and the rising costs of gold exploration that make M&A much cheaper than expanding reserves of gold through exploration.”

This followed a busy year for deals, which included China’s largest gold producer, Zijin Mining, acquiring both Canadian miner Continental Gold and Freeport’s copper/gold assets in Serbia.

TSX-listed Titan Minerals also increased its yet-to-be- accepted takeover offer for TSX-V-listed Core Gold, while gold miner Northern Star Resources completed the takeover of Echo Resources.

Other deals included Barrick Gold’s $428-million acquisition of Acacia Mining, as well as its Randgold acquisition, while Newmont acquired Goldcorp.

Endeavour Mining has made a $1.9-billion bid for Centamin, Kirkland Lake Gold has set its sights on Detour Gold in a C$4.3-billion deal and Saracen Mineral bought Barrick’s stake in the Super Pit gold mine, in Australia.

Newswire Reuters earlier reported that gold miners had notched up transactions worth a record $30.5-billion in 2019 amid the “biggest M&A binge” since bullion prices peaked nearly a decade ago.

“Last year [saw] 348 deals worth more than $30.5-billion, including net debt,” Reuters quoted Refinitiv Eikon as saying.

In 2018, this stood at $10.8-billion. The previous high, in 2010, was $25.7-billion.

“Senior gold miners will continue to prioritise risk mitigation in 2020 and beyond, in terms of both political and financial risk, resulting in project development in developed markets and joint venture (JV) partnerships among top firms,” Fitch Solutions Macro Research says.

JVs will continue to dominate the industry going forward.

“The gold resource industry suffers from significant risks, including resource nationalism, labour strikes, extreme weather and increased environmental regulation, which make risk-sharing very important,” it says.

Barrick and Newmont Goldcorp have officially agreed on a JV for their respective Nevada mining operations in what is now the largest mining venture globally.

ASX-listed Genesis Minerals has entered into a farm-in and JV agreement with Kin Mining over the Desdemona South gold project, in Western Australia, while TSX-V-listed Altus Strategies has signed a definitive JV with Glomin Services for the Lakanfla and Tabakorole gold projects, in Mali.

“The preference for consolidation and risk sharing will continue, despite the operating environment for gold miners being at its most positive since the 2012/13 gold price collapse,” Fitch Solutions Macro Research explains.

Complementing the positive impact of these consolidation efforts on miner profitability, the gold price outlook is now improving.

“We forecast gold prices to average at their highest level in 2019 since 2013, at $1 375/oz, and to grind higher over subsequent years,” Fitch Solutions Macro Research says.

However, the group forecasts that most metal prices will average lower in 2020, relative to 2019, as macroeconomic headwinds continue to negatively impact sentiment for commodities, while subdued demand growth, primarily in China, loosens fundamentals.

A subdued price environment will place pressure on miners’ profitability and inhibit miners’ appetite to significantly expand capital expenditures (capex) over the year, despite a lower interest rate environment.

“Despite some major players expecting a slight increase in capex in 2020, current capex expectations still remain well below 2012/14 highs, and, given the mining sector’s focus on efficient capital allocation since then, we do not expect capex to return to these levels in 2020,” Fitch Solutions Macro Research concludes.