Gold Merger and Acquisition Targets - Denver Gold Companies

A profitable investment strategy in the Gold & Silver mining market, as in many, can be to identify prospective merger and acquisition targets.

For wide ranging due diligence of major and mid tier gold miners and the larger established gold explorers, developers and emerging producers the annual Denver Gold Forum is a major industry event.
At the bottom of this post is a spreadsheet of the companies' prices and market caps and a link to the Denver Gold company presentations.

The "universe" of big developers and mid-tiers which will be merger and acquisition targets seems likely to come mainly from these quality deposits.

Some explorers move very fast and do get taken over at an earlier stage, e.g. Richfield Ventures was bought by Newgold who have now consolidated the Blackwater gold district also buying Silverquest and Geominerals.

Quite often acquisitions come after a major has built up a stake in a junior so we should also look at companies where a major gold miner is a shareholder of a junior explorer or developer.

The effect on acquiring companies is interesting, and may offer discounts to investors. As Pan American Silver (PAA.TO) (PAAS) announced a $1.5bn offer for Minefinders (MFL.TO) on 24th Jan 2012 Pan American shares fell 10%. The increase for Minefinders was 22%.
PAA.TO now shows a market cap of $2.3bn, so combined market cap will be around $4bn targeting 50m oz silver production by 2015.
As with Kinross the market doubts the wisdom of expensive acquisitions in this sector but if the Junior Gold and Silver miners are as undervalued as many think then there will be great rewards as these companies build resources in the ground and fund development through increasing cashflows from currently producing assets. Pan American for example holds the Navidad project in Argentina, targeting 20m oz silver production pa. Minefinders is one of those gold miners described  as "accidental" silver miners, often in Mexico, with high silver-gold co-production.

If a true bull market or mania is seen in precious metals and their miners it seems likely that valuation metrics will change and ounces in the ground, any ounces in any ground, will become a justification of value especially if supported by immediate earnings and a growth profile.

Excellent History of Gold Merger & Acquisition Activity and prices paid here at Minefund
2011 Gold Merger & Acquisition activity summarised P.16 here by PWC

Discussions of Potential Gold Sector Merger & Acquisitions Targets in 2012

I like the high grade deep Canadian miners and developers, and see value since 2011 price set backs. The more popular production model does seem to be large open pits. We shall see the degree to which "Good Jurisdiction" affects valuation this year.
  • Rubicon (RMX.TO), - Presentation Jan 2012
    • Red Lake Large exploration - Goldcorp model very rich deposits.
    • 100 sqmiles 
    • 2010 drilled 250,000m
    • PEA study 180oz pa production @ $1500/oz NPV = $930m. Questions about grade cut offs. Moving forwards how many mines would the area support.
    • Deep vein deposits do not show all resources through exploration, e.g. Campbell Mine, Goldcorp continue production and prove a few years resources ahead.
    • Exploration open in all directions. Exploring below 1200m where grade seen at 30g/T
  • Lakeshore (LSG.TO) and Presentation Jan 2012
    • Disappointed during 2011 with concerns raised over progress into production, like San Gold.
    • This appears to offer Canadian assets in a "Safe Jurisdiction" at sale prices.
    • Stock fell from >$4 to $1. Feb-2012 $1.50 gives market cap at $600m
    • Recent financing and royalty deal with Franco Nevada, $35m for a 2.25% NS Royalty and a $15m stake at $1.49/share. I view FNV as smart investors.
    • Doubled gold inventory in 2012 over multiple deposits to 6m oz
    • 2011 Production 85k oz from mill capacity of 2,000 Tpd
    • Expanding capacity to 3,000 Tpd by late 2012 for $60m capex. Scaleable to 5,500 Tpd
    • "Prospectivity" and future exploration and development potential seems extremely high. Lakeshore paid $300m in 2009 for West Timmins Mining, a Darin Wagner company. At this time WTM had hit one of the best drill holes in Canada on the Thunder Creek property at 83m at 12.75g/m. WTM controlled "the district" they were exploring in Timmins, 112sqkm (see more including interview at Darin Wagner Post on this blog)
    • The "Fenn Gibb" deposit appears to have large open pit potential. 
    • Have entered an agreement with Revolution Resources (ex Underworld Team) to explore their enormous Mexican holdings acquired with West Timmins. Could take >10% stake in RV which has other good projects.
    • Casa Berardi JV with Aurizon "highly prospective" 50% interest 11,000 Ha around Casa Berardi mine not systematically explored.
  • San Gold (SGR.TO), - 2000 Tpd mill, tracking increased tonnage path.
    • 100k oz tgt production 2012. 
    • Presentation - undertaking 300,000  of drilling, in 2011. Resource may grow "exponentially", per Jay Taylor radio interview. 
    • Unhedged. 
    • Have seen "bumps on the road" as they moved into production, and share price of a previous investor favourite has suffered. This shows the volatility of the sector. 
    • An interesting graphic on the SGR presentation shows comparable cash costs for other Canadian deep mines, these are up towards the $1000/oz level. While there is any concern that gold will revisit these prices these companies are exposed, but is $1500/oz is seen as a firm base price and advances on $2,000/oz these companies should see the classic leveraged profit improvement and resource valuation. 
    • Also hold stake in SGX Resources (SXR.v) for "exploration outreach" and hold joint ventures and land in the "under-explored" belt - 200Kmsq prospective land.
  • (perhaps Brigus (BRD.TO) - Sandstorm financed, formerly Apollo, Linear)
  • Goldcorp or Agnico look likely buyers in Canada and Agnico has a key stake in Rubicon. However Agnico stock fell hard in 2011 due to closure of a mine and may, like Kinross, be a very large target. 
  • Queenston Mining (QMI.TO) and Kirkland Lake Gold (KGI.TO) (presentation) who are developing the south mine complex together and may have to merge first before being bought out where again Goldcorp or especially Agnico seem likely buyers. Agnico holds a stake in Kirkland. A note here on Mineweb from Scotia Capital on Queenston being a likely acquisition target. Kirkland are largely institutionally owned.
  • Romarco (R.TO) in the US, N.Carolina slate belt seems cheap if a buyer can get the political nod around environmental permits. Certainly recent large $92m funding implies significant confidence from some investors that this deposit can become a mine.
  • Premier Gold (PG.TO)  >40% Institutional ownership.
    • Presentation Jan 2012 - Q1 2012 will announce NI 43-101 for it's Hardrock Deposit where they bought out partners Goldstone (formerly Ontex) who in turn had bought out partners Roxmark  in the Geraldton Beardmore camp. Now have 50km trend. This looks like it will be a relatively high grade large open pit in a safe jurisdiction with infrastructure. (As an aside - Kodiak Gold (now merged into Prodigy gold) were having great exploration success in this area a few years ago but never seemed to put a deposit together and moved onto the Golden Goose merger asset at Magino where they published a resource and NPV. Given land holdings at Geraldton would they restart exploration?) 
    • Premier Gold also have large projects in Nevada US near Newmont and Jan 2012 have announced a deal which should see them move into production using Newmont's facilities mining the Rain/Saddle deposits. 
    • Premier Gold also have JV interests at Red Lake Canada near Goldcorp where new Goldcorp infrastructure should open up potential access to PG resources.
    • This was a very strong stock from the 2008 bottom $2 to $8, halved into the base Dec 2011, has bounced 50$ to $6 at Jan 2012
  • Osisko - (OSK.TO) - Very Large Canadian Malarctic Open Pit Deposit entering Production
  • Detour Gold (DGC.TO) - Very Large Canadian Open Pit Deposit preparing for production.
  • International Tower Hill (ITH.TO) - Very large low grade open pit deposit drilled and explored in Alaska. Is near Kinross' Fort Knox mine nearing the end of it's life, will Kinross' problems prevent acquisition?
  • Rainy River (RR.TO) - Open pit low grade deposit in Canada - drilling - ~ 5m oz.
  • Allied Nevada (ANV.TO) - Growing gold and very large silver producer. 
    • Have to think this is a target for Newmont or Barrick. But Newmont just bought Fronteer. 
    • Presentation "waking a giant" shows 20m oz gold resource, 700m oz silver resource. Plus 63 exploration properties in key Nevada areas over 400sqmiles. 
    • In production already can fund until someone is prepared to pay the right price? After further investments they see 2015-2024 annual average 600k oz gold production, 25m oz silver production which is ahead of many current major silver producers.
    •  Highly geared to silver which in a true bull market for precious metals may perform more aggressively than gold. 
    • Prospectivity across the exploration properties also seems enormous. But market cap >$3bn would be a significant acquisition even for a major. 
    • This has been a very strong stock even during the 2011 correction. 
  • Lydian (LYD.TO) - Amulsar in Armenia, ex Newmont JV, is often recommended by Brent Cook as a likely takeover.
Second Round Effects Of Mergers & Acquisitions
After merger proposal news we often see movements in stock prices of similarly positioned companies and on occasion upgrading of regional prospects.
For example Extorre Gold (XG.TO) is often seen as a likely takeover candidate and very similarly positioned to Andean Gold bought out by Goldcorp, with high grade veins in Argentina. 
If Guyana Goldfields were bought out, which of the Guyana explorers would benefit? Sandspring, Guyana Metals?

Smaller Company Acquisitions Targets and Activity

  • The Merger of Gold Ore Resources and Elgin Mining was announced in early February 2011. Elgin is an interesting company with a strong board. Discussed on the "Old Gold Mines - New Exploration Page" on the blog.

The Virtuous Circle of Merger and Acquisition activity on Junior Gold Valuations

With more key bids we could see a snowball effect from the months of due diligence which have likely been seen during 2011 as junior mining valuations tumbled. A virtuous circle

  1. A large quality junior becomes a bid target
  2. Possible counter bids for the key best assets.
  3. Revaluation of other junior miners and similar bid targets
  4. An immediate revaluation of reserves on the acquiring major's books as single company risk is eliminated
  5. Rising gold prices strengthen major's profitability and share price value to fund acquisitions.
  6. The shareholders who have sold to the acquisition re-deploy capital within the junior sector where the pool of quality companies become depleted after several rounds of acquisition, the pool of potential junior investments becomes ever smaller.
  7. Mounting speculation over potential acquisition targets
  8. "Area play" / "similar style " companies are bid up
  9. Explorers emerge as high potential candidates for investment as known deposits are acquired, gold in the ground is revalued upwards through the acquisition cycle.
  10. The market is not big enough for large pools of capital, price goes up, unless Bay Street and Howestreet can run their stock certificate presses at full tilt. As noted by Brent Cook there are already too many projects and too few geologists.

The majors own depleting, wasting, assets and need to replace each years production to remain viable.

If we see anything approaching mania in gold then valuation methods for miners will likely change to justify higher valuations, as in any mania, like dotcom values per click or per user.

Reserves will become valuable, even without an immediate means of extraction.
The "optionality" value, even of low grade deposits which may not be immediately economic, will increase.
Whereas currently standard NPV/IRR/DCF valuations look only at capex and cashflow from projected production levels one can begin to see valuation focus on a $/oz of reserves basis. "Anyone can spend $ to build a mine to get the gold out". Equally if a mine has been built already with "depreciating currency" and a fresh new deposit is waiting, especially with high prospectivity in the area, then again high valuation should be seen.

If we enter an inflationary environment then instead of discounting future cashflows gold can be viewed as moving in line with inflation and therefore the discounting rate can be changed relative to other businesses.

We should see major acquisitions and discoveries drive reversion to the mean in Gold : Miners ratios and then Miners : Junior Miners ratios.

Eventually any true mania will focus on the "prospectivity", the hope of the next big discovery.
Eventually Moose Pasture.

The Denver Gold company lists linked >> here 

Also Many company presentations linked here at the Denver Gold Forum

Below is a spreadsheet of the companies' market capitalisations and stock price movements


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  2. New trend will be merger of equals to reduce administration costs, get closer to critical mass. Majors are not in acquisitive mood for obvious reasons.

  3. In your company's last acquisition, were specific performance targets published and widely known? While goals such as "become accreted within a year" are quantitative enough, they must be broken down into a set of initiatives and accompanying performance measures in order to be useful. Justin Floyd from JCF Capital Advisors, JCF Capital Markets Advisors The best companies understand not only what the top-level goals are in quantitative terms, but also what specific actions will be taken, by whom, and by when, to achieve that desired result.

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