Should you buy these 2 stocks right now?
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Based in South Africa fields of goldone of the largest gold mining companies in the world, recently entered into a definitive agreement to purchase Gold Yamana. The resulting entity would climb the ranks of mining companies in gold production (third – by 2024) and market capitalization (third).
This acquisition will further consolidate the sector, but on its own it will not change the dynamics of the industry (as a whole) much.
However, it could also be an indication – a sign of things to come. If major players in the industry start looking for M&A opportunities, we could see more deals like this.
But what are the implications for investors? Shares of acquired companies or those that acquire other companies may move in unprecedented ways, creating both short- and long-term opportunities. Short-term spikes, like the double-digit one Yamana experienced when the news broke, can be helpful. But the long-term impacts of a successful merger can be more powerful.
A mining giant
If you are looking for “buyers” in an industry that is going through a consolidation phase, giants like Barrick Gold (TSX:ABX)(NYSE:GOLD) should be on your radar. Barrick already has an impressive and geographically diverse portfolio of operating gold mines and is engaged in several exploration projects. Diversification helps the business expand and slightly lowers the total cost of operation.
The company made a hostile $19 billion bid for Newmont in 2019 but later retired. Instead, it pursues joint ventures with the competitor. That doesn’t mean the company can’t act on smaller players, especially those in distress who might welcome Barrick’s resources and financial strength.
And if you anticipate such a merger in the near future, buying now when the yield is quite close to 2% would be wise. Because if it starts trading at a new high, you’ll have to wait for a dividend drop or rise to lock in a similar return.
A mid-cap mining company
Centerra Gold (TSX:CG)(NYSE:CGAU) isn’t small on its own, but with a market cap of $2.9 billion, it seems the gold miner type is most likely to be acquired by a company larger than the acquisition itself. However, Canterra has made several acquisitions since its inception; the two most recent date back to 2016 and 2018.
Its geographically wide portfolio nevertheless makes it an interesting acquisition. But considering its healthy finances, almost no debt and the proven reserves of its portfolio, it seems that the company will not lean towards an acquisition. And if an offer is made that values all of Canterra’s strengths at its current value, it can trigger a major short-term price spike whether or not it materializes.
Although gold stocks cannot be classified as cyclical stocks by traditional standards, most have an uneven growth pattern. With such actions, news about acquisitions and mergers can become the triggers for upside and downside moves.