Why miners are leaning towards mergers and acquisitions – David Garofalo on the “shrinking cookie” of the resources sector

(Kitco News) – As money flows into mining increases, it will push dollars toward younger players, said David Garofalo, president and CEO of GoldRoyalty.

Garofalo has a decades-long career running large mining companies. He was CEO of Goldcorp before its sale to Newmont for approximately $10 billion in 2019. He was also the CEO of Hudbay Minerals. Garofalo currently works at GoldRoyalty (NYSE:GROY), a streaming and royalty company. Some of its key assets include the Odyssey mine, the Cote gold project and the Borborema project. The company forecasts revenues of around $15 million by mid-decade, tripling that amount by 2029.

Garofalo spoke to Kitco Mining on May 21. He said that despite gold hitting several all-time highs this year and copper futures hitting their own record last week, gold stocks continue to perform poorly.

“We are starting to see profitability and margins increase,” Garofalo said. “But the biggest problem for producers is the fact that reserves have been constantly decreasing for several years. We have not seen the impact on the gold price that equity capital should provide.”

Garofalo said a broader focus on resources is needed to make the sector healthy again. He believes strong second-quarter results from major gold mining companies, driven by high metal prices and better cost control, could lead gold mining companies to return to the sector.

“I know the juniors are waiting for the seniors,” Garofalo said. “We hope that (we) will see some general capital come into the space and buy the most liquid names. If this happens, specialists who are somewhat hidden among the large companies will start to move down the food chain and start investing in juniors.

Mining needs more money into the sector, he said.

“Specialists went into hiding because they were under significant redemption pressure, so they had to stay under big, liquid names,” Garofalo said. “But when the generals start coming in and pushing them out, we’re going to start to see some risk, capital has put jobs in young people, and that’s an existential necessity for this industry.”

Garafalo said the increase in mining mergers and acquisitions points to weak project pipeline.

“Young people have very unequal access to capital, and they are the ones doing all the hard work when it comes to grassroots exploration,” Garofalo said. “They make the most important discoveries. Larger producers build and operate these mines but do not discover them. This has resulted in a 40% decline in gold reserves over the last dozen or so years. So we have a shrinking pie and it has led to cannibalization. This led to a merger.