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| Brought to you by The Oxford Club | Monday, July 4, 2016 |
Mining M&A Signals the Next Gold Rally
 Gold projects and whole companies are being scooped up left and right. And this mergers and acquisitions party is just getting started.
Why? Because during a 4 1/2-year-long bear market, the bigger miners stopped exploring. They stopped developing. And it takes years to get a project from open field to working mine.
And now... NOW... gold prices are ramping higher into a new bull market.
The bigger miners have been caught flat-footed. They can't wait to develop resources from scratch.
They have to buy them.
The good news is they are sitting on literal gold mines. They have cash to spare to buy up resources.
That's why we're seeing deals like...
Teranga Gold (OTC: TGCDF) bought Gryphon Minerals in an all-share transaction valued at $63 million. That was a 53% premium over Gryphon's share price. With that deal, Teranga scooped up the Banfora project in Burkina Faso. That has proven and probable reserves of 1.05 million ounces, and nearly 3 million ounces measured and indicated.
Thor Explorations (TSX-V: THX) bought the Segilola Gold Project in Nigeria from RTG Mining. The deal is valued at up to $8.5 million. Segilola has a resource base of 555,000 ounces of gold, with upside potential.
Goldcorp (NYSE: GG) bought Kaminak Gold Corp. and its Coffee Gold Project in the Yukon for a 40% premium. Kaminak contains about 2.15 million ounces of gold.
Seabridge (NYSE: SA) acquired SnipGold and its Iskut project in northern British Columbia at a 124% premium. Iskut is a gold-silver-copper project with measured and indicated resources of 2.16 million ounces of gold, 13.17 million ounces of silver, and nearly 502.7 million pounds of copper.
Fortuna Silver (NYSE: FSM) recently bought Goldrock Mines and its Lindero gold project in Argentina for a 58.2% premium. That project contains 1.15 million ounces of gold, with plenty of room for upside.
More and More Deals
This is just the tip of the iceberg. The number of mining acquisitions worth at least $1 million rose 14% last year to 192.
This year, in the first quarter, mining M&A deals hit 50. In the second quarter, we've seen 60 deals. That's the most since the fourth quarter of 2011.
And in case you've forgotten, 2011 was the year when gold surged to a record high of $1,921.17.
So far this quarter, according to Bloomberg data, the average premium on deals worth at least $1 million is about 42%. That's up from about 29% in the first quarter.
With those sorts of premiums, are gold miners getting too expensive? Not yet.
Historically, in a bull market, gold stocks outperform gold. But the ratio of the Gold Bugs Index (NYSE: HUI) to gold itself is less than half its historical average, according to data from Bloomberg and Sprott Asset Management.
The Gold Bugs Index currently consists of 16 large gold production companies. Resource investors often use it to gauge the gold mining market. Or here's another way to look at it. Despite the big rally, the value of gold miners compared to their gold reserves is 19% lower than it was a year ago.
So no, miners aren't expensive. Not at all.
Fast and Furious
Now for the best part. This race to snap up resources is likely to get even more fast and furious.
Gold gained nearly 25% in the first half of this year. That's impressive. What's even more impressive is this is gold's best first half of the year in more than four decades.
Fueling that move is a combination of things.
Combine the idea that global gold production declined 3% this year from last - what the industry calls "Peak Gold" - with surging demand from central banks and investors, and we have a near-perfect recipe for rising prices.
It could be rocket fuel for the metal.
Negative interest rates are another huge factor.
There are a whopping $11.7 trillion in total negative-yielding sovereign bonds outstanding worldwide. At the beginning of last year... there were none. Negative interest rates are high-octane fuel for gold because gold doesn't pay interest. That means there is a "carrying cost" to owning gold... normally.
But these aren't normal times. That's made gold the new high-yield asset.
These two ideas could send the shiny metal into uncharted territory.
So darned right, miners will buy more assets. They can see the tidal wave of demand building.
Sure, asset prices are going up. But thanks to the rising price of gold, miners have more cash flow and therefore more cash to acquire assets. So they'll pay up.
Now here's the interesting thing. Financial services group Macquarie just published the results of its survey of gold miners. About half the companies said they were now more likely to consider M&A than they were six months ago.
The primary obstacles were the availability of quality targets and high valuations.
That's where you come in.
A nimble researcher can find the good assets before Wall Street's fat cats. I'm not saying you should buy a company expecting it to be taken over. That could be a long wait.
I'm saying the idea should be one of the tools in your toolbox when you pick up miners, developers and explorers for the next leg of the rally.
Good investing,
Sean The Biggest Monetary Event... Since the Age of Jesus
A historic event will soon transform the world's money supplies. Dollar... yen... euro... ruble... yuan... One event will impact more than 70 major currencies. According to scholars, it will mark the biggest monetary revolution since the time of Jesus, some 2,000 years ago. When it hits later this year, some investors stand to get very rich. Others could lose their life savings overnight.
For details on how to navigate this historic event, please go here now. |
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