Consolidation Among The Gold Miners
Gold is going higher, much, much higher over the next several years. How high? Who knows? I believe a wave of consolidation will hit the industry in 2009 and 2010.
This a list of potential aquisition targets and the potetial buyers. Takeover Candidates
* For diversified- Taseko Mines and Northern Dynasty
MineFinders - They recently emerged from the exploration stage to an emerging junior producer, which make it a potential buyout target. Buyers are more likely to buy smaller producing miners due to the fact they can usually execute a successful buyout below the Intrinsic values of these companies. Juniors tend to be largley ignored by the market i.e mutual funds, etfs, money managers, thus shareholders are more likely to go along with it. Their rather weak financial position (no not like tech conmico was) is another reason a Bid is more likely to be accepted. On the other hand Their flagship mines aren't is the best place (geopolitically speaking). I have never been a huge fan of Mexico, but at least its not russia.
Jaguar Mining- A Junior Gem with production growth (32%) 5-Year Cagr, with enormous upside potential. I almost never hear any talk of this miner, making me wonder if i'm missing something. 2009 should be illustrated by 200-225k oz production, more or less spread evenly around their 3 key mines in Brazil. In other words they have 3 mines with 75k/oz production, which will increase to 3 mines producing 200-230k by 2012 or 2013. What impresses me is the continual quarterly production growth since 2007. They also sport extremely low cash costs for a junior miner, in addition to being very well financed for the capital investment for mines expansion. I would have imagined JAG would have been aquired by now, especially with the suprising availability of capital in this industry (oversubscribed equity auctions, revolving debt, etc.
Redback Mining- Among the Small-Mid Cap producers, redback has unparralled growth over the next 2 to 3 years. They are hitting stride just in time for the next leg of the gold bull market. So whats the problem? It could only be the fact their mines are located in West Africa. Although their locations aren't as risky as one might think, they are still in Africa!
Gammon, New Gold, Western Goldfields- enough has been said and rumored among these companies that I will just omit my thoughts. Aurizon Mines- One of the best positioned geopolitically, The Flagship Mine lies along one of the richest gold belts located in canada. Casi Berardi is their only operating mine, whose current production exceeds 150k oz per annum. It has only reached 75% of capacity based on proven reserves, but they will likely announce an increase at some point. They have on-going explorations, although one in the early stages. Their joanna gold project is expected to come-online in the near future, and The gold indexed royalty from the Perron Mine is not far off either. To sum it up they have One mine in operation which should produce 200k oz in 2010, One on-line gold indexed royalty, One mine nearing Production as well as another royalty.The are net-cash positive, a rarity in the junior miners.
Lihir Gold- Yes I am including a 1.2m oz producer in this category. Lihir has a stigma attached to it from their past operating problems. They have resolved their flagship Mine production problems of the past seen through consistent pruduction increases for over a year. Most recently producing 300k. In addition they have the Bonriko mine and the ballarat mine which has has problems from the start . The NAV of this mine is valued by the market around 12m. Lihir has always traded at a discount, but is a turn around story that is obviously going unnoticed. I'm didn't expect them to resolve the ballarat mine until the were able to operate lihir island effciciently. This being said, the share price has yet to reflect any of this which is likely making shareholders frustrated, leading me to the conclusion that shrareholders would actually welcome the Idea. Not to mention the fact that China is on the hunt for gold miners to buy in Australia.
Buyers: Kinross tops my list, as their reliance on russia is overhanging the share price. They are adequately financed and I believe mgmt and shareholders thinking the same.
Barrick- They are very well capitalized and need to find growth somewhere.
Newmont- I think newmont would jump at the chance to buy if the opportunity presents itself. Why? With their mine in Peru, The best of class Boddington in Australia, They might take this opportunity to be known as the worlds largest gold producer. At the moment, they are lagging barrick by a significant margin but when boddington produces 2m/oz year in 2010 they should draw much close, and with the right aquitisition, coudl surpass barrick. Lihir Maybe?
My Top Picks to be bought: *Jaguar *Aurizon *Minefinders *Redback * SeaBridge- Yes, SeaBridge, although the KSM project is among the best mines in the world. There are a few problems, that I believe would delay a Bid for a while. Heavy Financing! Very heavy as in 2,3,4,5 Billion. I have read an array of estimates, though I tend to favor the lower. KSM runs into one of silverstand resources mines. That issue will have to be resolved and could be very complicated, again I have read conflicting estimates. At somepoint this will have to be bought, or perhaps heavily financed via royalty streams while SeaBridge does the mining