In a cyclical industry such as gold mining, it seems simple to practice the concept of “buy low, sell high”. However, it always seems that M&A activity in the gold sector mirrors the gold price, peaking when prices are highest. Of course, buying low is not as simple as it sounds, as when gold is in a bear market, cash flow tightens, debt financing becomes harder to obtain and conservatism creeps into strategic forecasts.
When gold enters a bull market and companies have the money and motivation to acquire new assets, M&A roars back to life. With gold potentially at the early stages of a bull market, now is a good time to revisit the mistakes of the previous bull market a decade ago. More often than not, deals done during that bull run crippled companies in the recent bear run, with estimates of at least $85 billion in write-downs after the last bull market, according to research from Paulson and Co.
