-- Posted Tuesday, 4 May 2010 | Digg This Article | | Source: GoldSeek.com

Investment banks are predicting a wave of mergers and acquisitions in the precious metal mining sector over the next year as the major players position themselves for higher and higher gold prices.

News that the Australian investor’s favourite Newcrest Mining has agreed to buy local rival Lihir Gold for $8.8 billion to create the world’s fifth-biggest producer should be seen in this context.

M&A down

This comes at a time when the mergers and acquisitions market is at a very low ebb around the globe. In most industry sectors companies are guarding their cash position and do not feel bullish enough to take out their rivals now. The finance is also much harder to find.

Things are very different in the precious metals sector. Yesterday gold hit a new all-time high in sterling. The fear among the big players is that they will miss the boat to expand if they do not move quickly enough.

This danger is real enough. Gold share prices rise in a leveraged fashion against the gold price. For manufacturing and extraction costs are relatively fixed so the impact of rising prices on profits is proportionately higher than the actual price gain.

The message for investors ought to be clear. Newcrest has an excellent record of well timed investments and shrewd management. It is probably not getting its timing wrong on the gold price.

Gold buying signal

But then again it is always a comfortable position to follow rather than anticipate the big beasts in the jungle. There is therefore much to be said in seeing this as a signal to buy gold. Whether it is time to buy gold equities is harder to judge.

The downturn in the global equity rally is unlikely to be very discriminating, and in late 2008 gold stock owners got a nasty shock as their shares fell along with everything else. If precious metal prices hold up better this time it could be a bit different but that leverage to the price of precious metals also works to the downside.

That said these are going to be exactly the equity class to buy after a major sell-off that cannot be far away. Yesterday’s rally in US stocks on the back of almost non-existent percentage gains in two economic indicators is a rally on its last legs. The weakness in Asian stocks on Chinese retrenchment is far more significant.

-- Posted Tuesday, 4 May 2010 | Digg This Article

About Peter Cooper:
Oxford University educated financial journalist Peter Cooper found himself made redundant by Emap plc in London in the mid-1990s and decided to rebuild his career in Dubai as launch editor of the pioneering magazine Gulf Business. He returned briefly to London in 1999 to complete his first book, a history of the Bovis construction group.

Then in 2000 he went back to Dubai to become an Internet entrepreneur, just as the dot-com market crashed. But he stumbled across the opportunity to become a partner in www.ameinfo.com, which later became the Middle East's leading English language business news website.

Over the course of the next seven years he had a ringside seat as editor-in-chief writing about the remarkable transformation of Dubai into a global business and financial hub city. At the same time www.ameinfo.com prospered and was sold in 2006 to Emap plc for $27 million, completing the career circle back to where it began a decade earlier.

He remains a lively commentator and columnist as a freelance journalist based in Dubai and travels extensively each summer with his wife Svetlana. His financial blog www.arabianmoney.net is attracting increasing attention with its focus on investment in gold and silver as a means of prospering during a time of great consumer price inflation and asset price deflation.

Order my book online from this link

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