Who are the best management teams creating growth companies against the background of a secular bull gold price.
The end of this bull market would see these growth leaders idolised and over-valued.
Are these currently the strongest stocks, or do they appear over-stretched and marked down by the market? Acquiring company prices can be punished if the (short termist?) market does not agree with the direction taken. Eldorado for example has been a high flying growth gold company but as at Feb-12 is valued near it's annual lows after announcing the European Gold acquisition. At the same point Argonaut looks to be trading near its highs as the growth objectives see progress.
Often one great mine can fund dramatic growth for a company if the management team is ambitious and capable and if the market wants growth, which it usually does, (especially near the top!)
True Capability in depth may be hard to find during a bull market which followed a devastating commodity down-cycle during the 1990's, any combinations will have to bring a number of quality teams together, as one development is completed core mine-building teams can move onto the next.
Whilst a financially backed / hedge-fund manager backed vehicle may emerge it will need enormous mining experience in key positions.
However Hedge-fund figures like Thomas Kaplan are joining the boards of some juniors, e.g. Novagold.
Is this for more than quick-flip investments?
Or have the big money been and gone? Jim Sinclair used to discuss the well connected Carlyle Group as very involved in this space through hedging deals.
I have seen little about this lately; are the deals in position to reap continued benefits or is the fact that most miners are now unhedged evidence that these early investors have been paid by the mining industry to buy out of the hedge-contracts? I struggle to see the end of the gold bull market without a blow-off in the miners.
Robert Gallagher, Director at New Gold gave a great interview in Feb-2010 on Mineweb discussing these themes for growth mid-tier producers, New Gold's share price has moved from $4 to $14 and back to $12 since then. I quote, my re-ordering, my emphasis,
"Emerging mid tier gold producers by far represent the best investment opportunities. Right now this space is more or less empty as previous intermediate gold companies have moved on to become major mining companies. The most recent examples would be Kinross and Agnico Gold Eagle. And Goldcorp and Barrick Gold are great past examples."
Gallagher concedes that his company still has a long way to go before reaching the much-envied status of a well-established mid-tier producer, which represents the Holy Grail for all emerging gold producers. That's because the mid-tier status offers major strategic and competitive advantages, he says.
"There's a space in the gold industry that we call an intermediate space which are producers in the half million ounce to two million ounce range. What's special about that intermediate space is the big potential for growth," Gallagher says.
"By comparison, large gold companies seem to struggle to maintain production and to maintain their reserve base. Also, smaller companies generally are not of much interest to most investors due to a lack of liquidity. So, where growth and value are best offered is in that intermediate space where you can continue to grow."
exponential growth is resonating very favourably with the investment community.
"Our share price has doubled since our transaction with Western Goldfields. So our financial ratios have gotten much, much stronger which means that there are a much broader number of potential targets that we can acquire," Gallagher recently told BNWnews.ca
"Growth is good as bigger companies tend to receive better valuations than smaller companies but the real growth comes when you can acquire an undervalued asset. So your growth on a per share basis is accretive (it acquires greater value per share). That's what we're targeting. And we accomplished that in a huge way with Western Goldfields. But we'll continue to pursue other opportunities out there when we find the right assets."Ultimately a large number of miners and mining groups are predator and prey in a game of acquisition pacman, big fish eaten by bigger fish.
An interesting graphic from an Avion presentation, below, shows the valuation benefits of growth, although of course the company valuations are discounting future growth not just current production.
(As an aside - The stand-out here for low valuation is serial-disappointer Golden Star, I am going to add a high production low valuation page for potential turnarounds. If the gold price accelerates enough even the high cost low profit producers would become profitable with high volume producers benefiting most.
The Larger Miners
- Mostly struggling to sustain current resources rather than positioning as growth companies. Referenced here as examples of companies growing on a core asset base.
- Goldcorp demonstrated dramatic growth from the solid core of Red Lake
- Barrick grew to take-over key companies, like Placer Dome, based on the riches of the Carlin Trend.
There are many potential contenders in this space, as companies enter profitable growth they may turn to acquisitions for further growth. I emphasise the companies who have shown an acquisitive streak to date or have "big" management teams who have travelled that path before.
- Iamgold - (IMG.TO) - Have been acquisitive, e.g. ex Orezone and Trelawney.
- Eldorado (ELD.TO) have been acquisitive and growth led. Acquire Sino Gold and European Goldfields
- New Gold (NGD.TO) - Million Oz Producer target. (Interesting warrants for investment - See Canadian Warrants Link)
- Aims to be the "Go To Consolidator" - Mineweb
- Very powerful Board of Directors - key industry leaders, Randall Olliphant, ex Barrick, Pierre Lassonde, Franco Nevada, Robert Gallagher, Placer/Newmont, Martyn Konig of European Gold Fields.
- Formed as a combination of multiple companies. Peak Gold, Metallica and New Gold.
- Acquired Western Goldfields and recently the Blackwater gold district deposit of Richfield Ventures and others.
- Aurico (AUQ.TO) (ex Gammon Gold) - Website - Numerous presentations there.
- Have made a number of acquisitions, Capital Gold, Mexico, and Northgate Canada, Australia..
- 9 mines & exploration.
- Northgate Young Davidson low cash cost mine.
- Core mine is silver rich - geared to precious metal bull if silver outperforms
- Alamos Gold (AGI.TO)
- Base in Turkey / Mexico
- Failed purchase of Aurizon
- Esparanza Resources purchase
- Orsa Ventures acquisition
- Senior leadership includes John McCluskey, ex Glamis, founded Alamos with Chester Millar.
- Osisko (OSK.TO) look to be ambitious to build on the 1m oz pa Malarctic mine, having acquired Brett Resources as a low grade large scale mine for their development team to move onto. Also acquired Queenston Mining in Kirkland Lake region. Abandon low grade Brett ? Large exploration target in Mexico's Guerrero gold belt.
- Semafo - (SMF.TO) - Look to have pursued organic growth, stalling share price, will they look to deploy teams to new acquisitions in West Africa ?
- Randgold Resources (RRS.L / GOLD:US) - Growth projects- have enough growth or looking for acquisitions? Jurisdiction concerns include Mali?
- I find this smaller market cap growth sector of most interest for investment.
Again a number of other established producers might become contenders but may not have shown an acquisitive inclination to date.
- B2 Gold (BTO.TO) - More risky jurisdictions? Presentation
- Ex Bema Gold mangers (Exited to Kinross for $3.5bn).
- Strategy to enter emerging mining jurisdictions early?
- Bought Central Sun in Nicaragua out of the depths of the 2008 slump.
- Auryx acquisition in Namibia
- Acquisition of CGA Gold in Philippines
- Proposed acquisition of Volta Resources in Burkina Faso
- Other projects, Costa Rica, Colombia. Uraguay.
- Argonaut (AR.TO) are developing multiple mines - Mexico
- Ex Meridian Management Team (Exited to Yamana for $3.5bn) - See a pattern?
- Bought Castle Gold in Mexico
- Bought Pediment Gold in Mexico
- McEwen Mining (MUX.TO) - Presentation linked
- Formed from merger of US Gold and Miner Andes
- No clear acquisitive history but see scale of ambition and past achievements below.
- Led by Rob McEwen who built Goldcorp into a major force. Holds large 25% personal stake, aligning interests with shareholders.
- Bill Cara has great belief in McEwen.
- Declared intention to enter S&P500 with a market cap >$5bn by 2015. McEwen sees gold at $5000/oz
- Sees 130k oz gold production and 8m oz silver production by 2015 and a much higher silver price. Looks to gold silver ratio at 16. Disputed control of large copper project.
- Exploration budget $36m in 2012. Includes drilling surrounding Goldcorp's Andean acquisition where they paid $3.6bn.
- Avion Resources (AVR.TO) - And Presentation. West Africa focus. SOLD TO ENDEAVOUR
- Part of the Forbes & Manhatten group of companies under Stan Bharti. Some suggest that this group is quite promotional but Avion seems to be making genuine progress in production? Will they take on Red Back's mantle as possible consolidator in West African Mining. Stan Bharti has indicated such ambitions. So far have grown organically. I see them as in competition from Endeavour.
- Multiple projects in / moving into production
- Target 200k oz production run rate ending 2012. 2015 indicate 400k oz.
- 70,000m exploration
- Endeavour Mining (EDV.TO) - and Presentation. Africa Growth Focus. Compare Avion valuation.
- Originally a mining "Merchant Bank" Model - seen as "smart money"
- Involvement of Frank Giustra
- Bought Etruscan in Africa
- Bought and Sold Crew Gold in Africa for $80m profit
- Bought Avion Resources (above)
- Completes Acquisition Adamus Dec 2011
- Large Exploration potential - 2012 will drill 200,000m. Projects cover > 10,000kmsq
- Current production will be 180k oz pa. Actively seeking to utilise current cash and cashflow for acquisitions.
- La Mancha (LMA.TO) - Presentation SOLD TO PRIVATE INVESTOR
- Stong share price near 52 week high - Feb-12. Have multiple mines
- Elgin Mining (ELG.v) - Gold Ore Resources Merger sees multiple mine potential - See Discussion on this blog page "Old Gold Mines - New Exploration". There seems to be a high powered management team here, the combination with Gold Ore Resources may be the start of more aggressive growth?