In the most recent mining merger and acquisition
(M&A) activity, Goldcorp Inc. (G:TSX; GG:NYSE) acquired Kaminak Gold
Corp. to get its hands on the Coffee project in Canada's Yukon Territory, and
Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) is in the
process of acquiring Goldrock Mines Corp. (GRM:TSX.V), whose flagship asset
is the development-stage Lindero heap-leach project in Argentina.
As gold and silver prices seem to be holding their
ground-resulting in increased target prices for both precious metals-it would
be normal to expect more M&A transactions to occur in the second half of
the year, as the midtier and senior producers wouldn't want to miss out on
any deals.
Of course, one should never invest in a company purely
based on buyout speculation, but sometimes there are plenty of arguments to
be made about why a company could be on the short list of their larger
competitors.
In the past 12-24 months, companies have not only been
focusing on cutting costs, but also on making a run toward "safer"
assets. Higher-risk projects have been sold, and practically all new deals
were in regions with an acceptable geopolitical risk as companies refuse to
invest hundreds of millions (or billions) in assets located in higher-risk
countries where the returns are only marginally higher.
Today I will focus on some logical buyout targets in the
Americas.
Junior exploration companies with an existing joint
venture (JV) agreement are on top of the list. Not only does the existence of
a JV deal confirm the company's asset has drawn the attention of other
companies, but also those larger companies usually don't want to deal with
minority partners on a project basis.
An excellent example would be Nordgold N.V. (NORD:LSE), which
dislikes having minority partners on any of its projects. Even if there's a
lot of opposition from the shareholders of the targeted company, Nordgold
pushes through and usually secures 100% ownership of the asset it wants to
get its hands on. That's what happened with High River Gold Mines several
years ago-Nordgold wanted to own the Taparko-Bouroum and Bissa projects,
rather than having High River Gold as a minority partner-and that's what
might happen to Columbus Gold Corp. (CGT:TSX;
CBGDF:OTCQX) as well.
Nordgold is earning a 50.01% stake in Columbus' Paul Isnard gold project in
French Guiana, but it's not unreasonable to think Nordgold will want to own
the entire asset. As the after-tax NPV8% of the project is almost half a
billion dollars (using a gold price of $1,300/ounce), Columbus Gold is
trading at justone-third of the NPV, and making a deal on Paul Isnard might
create a win-win situation for both parties involved.
We see a similar situation in Argentina, where Silver Standard
Resources Inc. (SSO:TSX; SSRI:NASDAQ) is mulling over entering into a
joint venture agreement with its neighbor Golden Arrow
Resources Corp. (GRG:TSX.V; GAC:FSE; GARWF:OTCPK). Silver Standard needs
to do "something" as the Pirquitas mine will very likely have to
close in the near future. There's an agreement on the table where Silver
Standard can earn a 75% stake in Golden Arrow's Chinchillas silver-lead-zinc
deposit, but Silver Standard rarely deals with joint venture partners, and it
might want to simplify the ownership structure by acquiring 100% of
Chinchillas to make sure it can mine and operate both projects as efficiently
as possible.
Staying in the silver sector, Southern Silver
Exploration Corp. (SSV:TSX.V; SSVFF:OTCQB; SEG1:FSE) has also undergone a
true metamorphosis. This company was trading as low as $0.03 per share
earlier this year, but its share price has increased sixteen-fold (!) before
catching its breath in the mid-$0.30s, where it is now. Southern Silver's
Cerro Las Minitas in Mexico is shaping up to be larger than originally
thought as the current resource estimate already contains 113 million
silver-equivalent ounces. Southern Silver's official exploration target is
200 million silver-equivalent ounces, but after seeing the most recent drill
results, that target seems to be relatively conservative.
Freeport McMoRan Copper & Gold Inc. (FCX:NYSE) was earning a stake in
Cerro Las Minitas but walked away, not because Cerro Las Minitas is
worthless, but because Freeport was (and still is) searching for large base
metals (copper) projects and not for silver-lead-zinc systems, which
typically attract a different crowd of companies. With the potential to
discover in excess of 200 million silver-equivalent ounces (of which 60-90
million are "real" silver ounces), Cerro Las Minitas has
undoubtedly popped up on a lot of radar screens.
But you don't have to go to Latin America to find
potential takeover targets, as Canada also has some interesting prospects. Integra Gold Corp. (ICG:TSX.V; ICGQF:OTCQX) is one of the first companies that come to mind as the
mineralization at its Sigma-Lamaque project continues to expand. An updated
preliminary economic assessment (PEA) should be released after the summer,
and the NPV of the project will probably at least triple. The PEA was
originally expected to be released before the summer, but after encountering
some exceptional drill results just a few hundred meters away from the
Triangle Zone, Integra's management decided to postpone the PEA so it could
potentially add the ounces from this No. 4 Plug to its resource estimate and
incorporate it in a mine plan.
Practically anyone could be a suitor for Integra, as the company offers an
excellent combination of high-grade gold mineralization in a mining-friendly
region. Eldorado Gold already is an important shareholder, but just any
midtier and senior producer could be interested in Integra Gold, as the
company is now aiming to become a 200,000 to 250,000 ounce producer.
And, of course, there's more than just precious metals in the world, and
the recent uranium discoveries in the Athabasca Basin could definitely be
described as world class. NexGen
Energy Ltd. (NXE:TSX; NXGEF:OTCQX) blew all expectations out of the water
with a maiden resource estimate containing in excess of 200 million pounds
(200 Mlb), but neighbor Fission Uranium Corp. (FCU:TSX; FCUUF:OTCQX; 2FU:FSE) is
located within wheelbarrowing distance from NexGen, and both companies
combined will very likely have in excess of 400 Mlb uranium.
Fission's Triple R deposit contains almost 110 Mlb uranium-and this is
expected to increase toward the 150 Mlb mark as Fission is now trying to
connect the mineralized systems at the different target areas-at an average
grade of approximately 1.75% U3O8. However, there are higher-grade zones
located within this resource estimate and Triple R has 45 Mlb in the
Indicated resource category at an average grade of 18.22% U3O8.
All of the companies I've discussed here are buyout
candidates, and their market capitalizations are still attractive for larger
companies wanting to boost their project pipelines.
Thibaut Lepouttre is the editor
of the Caesars Report, a newsletter and mining
portal based in Belgium that covers several junior mining companies with a
special focus on precious metals and base metals. Lepouttre has a Bachelor of
Law degree and two economics masters degrees that have forged his analytical
approach to the mining sector. Considered a number cruncher, Lepouttre
focuses on the valuations of companies and is consistently on the lookout for
the next undervalued mining company.
