NEW YORK (TheStreet) -- Not everything that glitters turns out to be gold. Companies in the gold mining sector know this better than anyone. But this may now be changing.
Much of the last two years were characterized by falling production, asset writedowns and share price declines to complement a lower underlying gold price. The New York Stock Exchange's Arca Gold Bugs index composed of shares of all leading North American listed gold companies fell to a five-year low late last year and even a small bounce since has left this index well below the average levels seen over the last few years.
Mention the gold mining sector to most investors at the start of 2014 and the response unsurprisingly would generally have been indifference at best. News in the sector has gotten much more interesting over the last few weeks, with three of the largest North American gold mining companies -- Newmont Mining (NEM) Barrick Gold (ABX) and Goldcorp (GG) --[ all being involved in potential deals.
Many headlines over the weekend concerned a potential Newmont Mining and Barrick Gold merger. Neither company has covered themselves in corporate glory recently with writedowns, mining disputes, cost over-runs and a real struggle to expand mining production. Barrick Gold even announced a share issue in November last year to help shore up its balance sheet.
The rationale for the proposed Newmont-Barrick deal is very clear -- the hope that purchasing and administration synergies will allow efficiency gains sufficient to materially boost profits.