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Finding the Next Generation Gold Company

11 December 2014

Watch Time 5:32

"Gold companies must create value in order to be successful, and there are several ways that a gold company does this. The most effective way is through discovery."

Finding the Next Generation Gold Company

TOM BUTCHER: Hello and welcome to Van Eck Outlook. I'm Tom Butcher, your host. I have with me today Joe Foster, Portfolio Manager of Van Eck Global's active gold strategies and the firm's Senior Gold Analyst. Joe is an acknowledged authority on gold, having spent more than ten years in geology and mining with some of that time spent as a gold geologist in Nevada. Our focus today will be on finding the next-generation gold company. 


Joe, welcome. Could you please give us a little background on what is involved in selecting a next-generation gold company

JOE FOSTER: Like many companies, gold companies must create value in order to be successful, and there are several ways that a gold company does this. First, they can create value through discovery, which is finding a gold deposit in an area where nobody has looked before: a brand new discovery. The second way is obtaining what we call a "company-maker" property, which perhaps has some sort of legacy; maybe there was mining there in the past or it’s a property that was never developed because of social, geopolitical, or technical issues. The company can come in with new ideas and develop that property successfully. If it's big enough and robust enough, that can be a company-maker for the company. The third way a gold company can create value is through a merger of equals, in which several companies merge together to create a larger company — one with production, access to capital markets, and the ability to move its projects forward. The fourth way is through acquisitions. There are hundreds of exploration companies scattered all over the world looking for gold deposits. A few of those have the skill and the luck to be successful, and they become acquisition targets for the larger producing companies.

BUTCHER: Which manner of creating value do you think is the most effective and why?

FOSTER: The most effective way is through discovery. This is finding a deposit where nobody has looked before. There are no acquisition costs associated with discovery. In a new area there is always the potential for finding more discoveries in that same area because it has probably been underexplored. Additionally, companies come in with new geological ideas and thus have the potential to make more discoveries as they develop the property.

BUTCHER: Which is the most common?

FOSTER: The most common is via acquisitions. Discoveries are very hard to make. They're very far and few between. However, there is a steady stream of acquisition targets: companies that have been successful at finding gold deposits but that lack access to capital. Furthermore, they might not be big enough or robust enough to develop those properties on their own; they require assistance and they become acquisition targets. Hopefully, the acquiring company doesn't spend too much on the acquisition and is able to create value by developing the property and mining those ounces successfully.


BUTCHER: Joe, thank you very much. With Joe's views on acquisitions, we come to the end of this edition of Van Eck Outlook. Should you wish to read Joe's monthly commentary on the gold market, please visit the Van Eck website.