12. November 2020 | 09:23 CET
Newmont, SolGold, Anglo American: When does the takeover carousel turn?
Commodities have been an exciting asset class again for a few months now. Despite the pandemic and the economic setbacks, the prices of commodities such as industrial metals or oil developed positively. The gold sector also picked up significantly, thanks to the support programs of the states, and the measures of the central banks. As the large gold companies, in particular, have shrunk healthily in recent years and worked on their cost structures, the ruble is rolling. Commodity giant Newmont reported a free cash flow of USD 1.3 billion in the third quarter alone, and free funds are also bubbling up at Barrick Gold. In an ordinary world, such figures lead to takeover speculation. But the pandemic is making travel and detailed due diligence on commodity projects difficult.
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ISIN: GB00B0WD0R35 , GB00B1XZS820 , US6516391066
Companies like Newmont are swimming in money
Companies such as Newmont sometimes find it challenging to scrutinize even existing projects and must rely on local partners. So far, this has only had a minor impact on day-to-day business, as the reliable figures for the past quarter show, but the trend is preventing obvious takeovers of smaller companies. This situation can be an opportunity for shareholders in these companies - after all, it gives them time to make values transparent and to leverage potential.
SolGold could become a takeover target
One such Company could be the Canadian Company SolGold. Although still unknown to many investors, SolGold's market capitalization has already passed the billion mark and is no longer considered a small-cap. Nevertheless, the Company has excellent growth potential. SolGold has already secured properties in Ecuador several years ago and is exploring several projects in parallel. All properties are located in the Andean Copper Belt and are being investigated for copper and gold deposits.
Since SolGold is pushing several projects at the same time, the Company shines with a constant news flow. SolGold has sufficient funds in the cash box to continue the current drilling program until the end of 2021. Recent results have been very well received by the market. After the Company announced details of the economics of its flagship Alpala project a few weeks ago, the share price rose dynamically, but recently corrected somewhat. SolGold could be particularly interesting for large companies that want to tap into new potential in Ecuador. The large number of projects could also bring synergy effects in the event of future production.
Anglo American: Without gold in search of smart returns
While Companies like Newmont are currently swimming in money and smaller Companies like SolGold can do their jobs in peace because of the pandemic, there are also commodity companies that have already completed takeovers in 2020. One example is Anglo American and the acquisition of the fertilizer specialist Sirius Minerals. The takeover shows that Anglo American is in a different position from Newmont; for example, gold is not essential to the British. Instead, they have iron ore, copper and diamonds on offer.
Platinum is also part of Anglo American's business
Anglo American focuses on smart mining where the use of human labor will be reduced, even more than it already has. The Company is investing heavily in this area and has high hopes for the long term. However, there is little sign of this fantasy on the stock market - the share price is trading at around the same level as a year ago. In the summer, the Company even cut the dividend, much to the displeasure of shareholders. Given the lack of focus on gold, the Company does not currently appear to be very interesting. The economic recovery may falter once again, so the Company's focus on industrial raw materials is associated with risks.
Established Companies need new momentum
The outlook for the Newmont share looks good: On a one-year horizon, there is a return of at least 65%. The bulk of this return is due to development in the first half of 2020. It seems that Companies of this caliber need new purpose. With the return to normality after the pandemic, acquisitions could provide this momentum. Companies like SolGold already offer all the ingredients for exciting takeover races.