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Gold Outlook: Equities, Miners and ESG

Ed Coyne: Sprott Gold Outlook 2020

Remy Blaire of The ETF Show interviews Ed Coyne, Senior Managing Director of National Sales at Sprott Asset Management, and gets Coyne's insight into Sprott's outlook for gold bullion, gold equities and how ESG impacts miners.

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REMY BLAIRE: 2019 is turning out to be a stellar year for many asset classes. In a late cycle environment, the outlook for gold tends to shine bright. Ed Coyne of Sprott Asset Management joined me to talk about the outlook for the precious metal and also to take a closer look at senior and junior miners. Ed also weighed in on the ESG considerations when it comes to gold.

Momentum among Gold Miners

 ED COYNE: The last couple of years have been dominated by the large-cap story, or a senior mining story, where senior names were buying other senior names mostly at fair market value. There weren’t huge premiums being paid for those companies. If you take it even a step further, these deals via stock transactions. There was not much cash changing hands. That was the first phase of what we thought was a prolonged bull market, not only in physical gold but gold equities.

More recently, we've seen a couple of transactions where larger-cap companies are starting to acquire mid- to smaller-cap companies. There's no secret that many of the large-cap gold mining companies are running out of gold reserves, and they need to replace those assets. They can either do it through new discovery and development or via acquisitions. It's much cheaper to acquire an existing mine than it is to discover and build a new gold mine.

What we see now is that the market is starting to move down cap into the mid- to small-cap space. We’re very encouraged by this because the most recent transactions have not been purely for stock. They've been for stock and cash, and more importantly, they're now at premiums. One of the most recent deals involved a 25% premium. We think we're in the early stages of large-cap miners trying to acquire smaller-cap names. From an M&A standpoint, we believe that significant value creation can happen in the next couple of years, particularly in the junior mining space.

Gold Mining and ESG (Environmental, Social, and Governance)

 ED COYNE: When people think of gold, in particular gold equities, they think that building a mine is simply digging a hole in the ground, and from an environmental standpoint, you're doing a lot of damage to the environment. But what's interesting is that most people don't appreciate how gold mining companies can significantly benefit regions that typically don’t have tremendous employment opportunities and economically are very difficult places to live, particularly in the developing world.  

Developing a precious metal mine requires the building of infrastructure that can greatly benefit the local population, including providing transportation, electricity, water, schools and hospitals, depending on the scope of the mining project.

What’s interesting about ESG and the mining sector, is that the social component is quite active and very supportive of improving the quality of life for the local people in that particular part of the world. The environmental side dictates that mining companies behave responsibly, and this has been improving dramatically for several decades. From a governance standpoint, you cannot be a successful mining company without putting ESG at the forefront of your policies.

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