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Gold Industry Outlook for 2019

Uncertainty over global growth, trade wars, the Federal Reserve's cautious outlook on interest rates and recent M&A deals have lifted interest in gold and gold mining companies. Gold mining equities' market capitalization has halved since 2012. This devaluation and a push for consolidation has increased M&A activity, with majors capitalizing on the reduction in enterprise values.

As the gold price began to decline after hitting its peak in 2011, gold mining companies began shifting their focus to maximizing value over volume, with greater emphasis on delivering returns to stakeholders than on increasing production. Recent M&A deals tie into this theme as companies look to unlock synergistic cost savings through lower average costs and increased value. This shift has seen gold production remain relatively constant among the top 30 gold mining equities between 2014 and 2018, at about 43 million ounces per year, with a 3% increase expected in 2019.

Enterprise values have recovered significantly from the recent lows of 2015, which were driven by a decline in market capitalization, despite growing gold production and falling all-in sustaining costs.

The majors have been focusing on returns to shareholders. Higher earnings have led to dividend payouts increasing 103% to US$2.0 billion in 2017 from US$1.0 billion in 2016 and remaining at about US$2.0 billion in 2018.

Acquisitions and investments made during the price peaks around 2011 have since required significant impairments due to reserve and cut-off grades being overinflated due to the high gold price at the time. This has led to over US$15.9 billion of goodwill impairments since 2012. Recent transaction shave highlighted a more cautious and capital-conscious industry. The Barrick/Randgold merger was a nil-premium takeover, as was Barrick's attempted takeover of Newmont.

S&P/ASX Small
rdinaries Resource
s Index

Source: Investing.com, 10 May 2019

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15-Year Gold Price

Performance (AUD/oz)

Source: goldprice.org, 10 May 2019

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