Wall Street Is Throwing Billions at Once-Shunned Gold Miners
A year ago, you couldn’t get Wall Street to touch most gold miners’ stocks. Today, it’s throwing billions at the industry.
Precious-metals miners once seen as too leveraged and high-risk for the typical investor raised $2.4 billion in secondary equity offerings during the second quarter, data compiled by Bloomberg show. That’s the most since 2013 and seven times more than the funds they raised a year earlier.
With the Covid-19 crisis threatening economies worldwide and gold prices soaring on the heels of monetary and stimulus programs, precious-metals companies have become the darlings of the investment community. The sector, which once largely drew the attention of specialist funds, is now attracting a broad base of investors.
Going for Gold
Equity investors pour into precious metal miners' Q2 secondary and private offerings
Source: Bloomberg data
“All of a sudden we’re seeing real interest from generalists,” said Bryan Slusarchuk, chief executive officer of Fosterville South Exploration Ltd., whose company plans to dig for gold in Australia. “If this continues, it could just be the start of an incredible bull market for gold equities.”
The market for gold miners has been dominated by the top two giants, Newmont Corp. and Barrick Gold Corp., with investors shying away from many of the others. That’s either because balance sheets had too much leverage or companies had too few mines and projects to spread out the risk. Many also remember the writedowns that followed the gold price slump of 2013.
But junior miners are now starting to benefit. Take the case of American Pacific Mining Corp., an exploration and gold-mining firm with market capitalization of less than $20 million. The company raised $3 million in the second quarter, six times more than it had initially planned. Interest was so big that it had to turn away offers for more, said CEO Warwick Smith.
“The big boys play first, and then that money trickles down to the smaller companies, exploration companies,” he said.
Revival Gold Inc., a Toronto-based exploration company, said Tuesday it was increasing its previously-announced public offering by C$3 million ($2.2 million) amid “strong demand” from investors. Spot gold prices rose 1.3% Tuesday to $1,841.94 an ounce, trading near the highest level in almost nine years.
READ: Gold Giants Battling to Lure Back Investors Who Fled Industry
The reasons that boosted the appeal of gold miners are the very same pushing investors away from companies digging for metals like copper or lithium, which are more dependent on economic growth. Base and industrial metals firms raised just $34 million in the second quarter, data compiled by Bloomberg showed. Thats a 40% decrease from the same period a year earlier.
Tale of Two Sectors
Base and industrial miners miss out on larger secondary and private deals
Source: Bloomberg data
Battery metals projects are also struggling to lure investors.
Clean TeQ Holdings Ltd.’s Sunrise nickel-cobalt-scandium project in Australia is a prime example. The company said in mid-June it wasn’t able to commit to a final investment decision on the $1.5 billion project as the pandemic presented “challenges for funding.”
“Bankers don’t like risks,” said Andrew Bowering, a director at American Lithium Corp., which has an exploration project in Nevada. “That means you need to strike a long-term offtake agreement so they have guaranteed production from the mine, and right now you’ve got no big buyers.”
The allure of gold companies comes even as the coronavirus makes mining harder, with a higher risk of infections in tight, closed spaces. Barrick last week said it continued to benefit from strong prices even as the pandemic shuts down mines.
The prospect of profits has already prompted hedge fund Crescat Capital LLC to launch its first activist-investing campaign in gold and other precious metals equities, with a focus on junior exploration companies.
“We really think the timing for gold mining stocks is just incredible right now, especially going down into the junior space, and all the way into the junior exploration side of things,” said Kevin Smith, the founder and chief investment officer of Crescat, which manages about $75 million in assets.
Investment in the sector is also coming in the form of mergers and acquisitions. Deals heated up in the second quarter, with 12 transactions valued at $2.86 billion being announced, according to Bank of America. That’s nearly double the first three months of the year.
“With mines being closed and things tightening up, the C-suite are all in the boardroom, and they’re talking to other companies about M&A,” said Smith of American Pacific. “They’re talking to their bankers, they are reaching out to have these conversations, and deals are getting done.”
— With assistance by Joseph Richter, and Danielle Bochove
(Updates Revival Gold offering in eight paragrah, investor comment in 14th.)