Last two bull markets saw smaller cap companies outperform. In the last two gold bull markets (2001-2004 and 2008-2011), the early stages saw gold companies of all sizes outperform together; however, as the bull market progressed, smaller companies ultimately outperformed (Figures 1 and 2). While we are in the early days of this new bull market, we anticipate that as it progresses, smaller companies are likely to outperform over the longer term.
M&A also favors smaller companies; activity likely to pick-up as the bull market progresses. One of the likely consequences of
a new bull market in gold is that senior companies, which for the most part have well documented declining production profiles, are likely to grow
via acquisition. In our view, this favors exploration and development stage companies, with scarce assets. In our opinion a scarce asset is of
size that matters to the acquirer, in a good jurisdiction, with robust economics and a high-likelihood that it can be permitted and built in a
reasonable time frame. While we have seen a slight increase in M&A activity, it is likely to pick-up as this bull market progresses.
While a rising tide floats all boats; investors should remain selective. As we have stated previously, not all mining companies are
created equal. In our view besides quality management and a good asset, companies should also fit into the three themes we highlighted last month:
1. Scarcity – quality projects/mines in good jurisdictions
2. Viability – Company is capable of demonstrating improved viability to the market
3. Catalysts – the company is capable of delivering good news
For more details see the full post here
our view it is important that investors are selective when picking small cap gold stocks, as this helps to mitigate the inherent risk of this type
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