Analyst Expects Rebound In Gold M&A In The Second Half Of 2021

Despite more than $6 trillion in U.S. government stimulus spending and rising fears about inflation, the SPDR Gold Trust GLD and many gold mining stocks have significantly lagged the SPDR S&P 500 ETF Trust SPY since the beginning of 2020.

Replacement Scramble: On Wednesday, BofA Securities analyst Michael Jalonen said lofty valuations and pandemic travel restrictions resulted in a relatively cool M&A environment in the gold space in the second quarter, but the analyst said he expects an uptick in deals in the second half of the year.

Related Link: 10 Gold Stocks That Could Be The Next Buyout Targets In Industry Consolidation Wave

The gold producers BofA covers collectively consume about 55 million ounces of gold annually after factoring in lost recoveries. Exploration typically replaces 70% of mined reserves each year, but producers still need to find a way to replace the other 30%.

Jalonen estimates gold producers will need to replace about 15 million ounces of reserves in 2021 and will look to do it via targeted acquisitions.

“Much like 2020, we would expect a renewed focus on bolt-on and regional transactions where travel is either not required or is limited,” Jalonen said.

How To Play It: He said investors should look out for senior and mid-tier producers targeting smaller producers. In addition, companies that have multimillion-ounce gold projects may be attractive targets for global gold producers.

Here’s a rundown of Bank of America’s ratings and price targets for senior gold producers:

• Agnico Eagle Mines Ltd AEM, Buy rating and $80 target.
• Barrick Gold Corp GOLD, Buy rating and $29 target.
• Kinross Gold Corporation KGC, Buy rating and $9.50 target.
• Newmont Corporation NEM, Buy rating and $80 target.

Benzinga’s Take: Buyout deals often generate huge overnight returns for the takeover target, but they are extremely unpredictable. Junior and intermediate gold miners as a group have historically been very high-risk investments, and buying a stock in hopes of a potential buyout is an extremely speculative play.