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speedybure (< 20)

Consolidation Among The Gold Miners

Recs

6

May 04, 2009 – Comments (5) | RELATED TICKERS: GLD , JAGGD , ABX


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

GOLD 

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? 

Goldcorp- Yes  

 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 

Mid Tier

 *Lihir

 *El Dorado 
                 

5 Comments – Post Your Own

#1) On May 04, 2009 at 6:07 PM, XMFSinchiruna (27.35) wrote:

speedy,

This is a phenomenal analysis and a great service to the community!

I agree with almost every single one of your potential consolidation targets and your list of buyers as well. You nailed the likely list of buyers.. they're the majors whose production levels leave them no choice but to replace reserves through acquisitions. I suspect that Barrick and Newmont will both make major acquisitions during 2009 or 2010. Goldcorp could opt to invest in exploration and acquisition of exploration properties, since they remain engaged in massive organic growth with open exploration potential at places like Red Lake, Penasquito, etc.

I disagree about Seabridge... I don't think the company will be bought outright, but rather that the company will execute its business plan to develop exploration properties to the point of feasibility studies and then sell the projects seperately. This is a niche service to the intermediate / major miners that Seabridge intends to fill.

I also can not envision a Taseko takeover... certainly not a friendly one anyway. I think Taseko fully intends to grow into its own on the strength of Gibraltar, and would expect the company to fend off a takeover attempt with everything they have.

I agree that Kinross will continue to seek aggressive acquisitive growth, but eventually their debt levels will begin catching up to them until operations are optimized for a time.

I still have never looked at Redback Mining... somehow they just never came across my radar screen. I'll take a look one of these days.

Here are some related articles:

When JV is Cooler Than Varsity - An article from last year discussing what the mining consolidation phase might look like.

Behold the Titans of Gold - A recent look at Newmont and Barrick

Gammon sure would look delicious to me if I were a major.

The two growth models for intermediates - organic or acquisitive.

Newmont's Boddington purchase was the gold purchase heard 'roud the world, and in my opinion will prove to have re-awakned the gold consolidation trend.

A look at Teck Resources' gold asset sales.

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#2) On May 04, 2009 at 7:04 PM, speedybure (< 20) wrote:

TMFSinchiruna

Great links. The reason i brought up seabridge was because i was at a casey investment conference, with a bunch a gurus, geologists,etc. They basically said they didn't know what was going to happen. None of them could imagine seabridge going at it alone because of the initial cost outlay. They discussed the problem with KSM running into one of silverstandards mine in a way that would make mining difficult. Like you mentioned they want to go about themselves but they also said they may be open to offers, but didn;t specify what type.

It's funny you put tech's gold assets toward the bottom, I was going to post what I thought silver wheatons next move might be. My best guess is to buy a royalty for tech's silver mine in alaska. I know they are on the hunt even with the silverstone purchase.

Redback is traded in canada, it the cheapest relative to its peers, ev/reservers, P/NAV, P/CF. It's like the agnico of the junior-mid miners.

Always nice talkin to ya! BTW did you hear BofA Earnings, if you subtract out all the one-time gains from asset sales they lost somewhere between 1-2 billion. I'm about ready to go short the financials. 

 

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#3) On May 04, 2009 at 10:41 PM, speedybure (< 20) wrote:

TMFSinchiruna:

Just read your comments about Agnico-Eagle, and agree with you 100%. If I were CEO/CFO, I would keep substancial reserves as inventory(at least as much that a company can warehouse) If i knew gold prices were headed to the moon.

I'm most bullish on those who plan to hit full stride around in  2011-2013 as I suspect that when gold will make the biggest moves. Agnico and Yamana could reach 1.8-2.m oz at about the same time now. 

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#4) On May 04, 2009 at 10:49 PM, soycapital (< 20) wrote:

speedy, Great post on mining. Have you done any homework on platinum miners? I am interested but don't know the territory. Let me know if you see anything interesting. Thanks Dave

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#5) On May 05, 2009 at 12:51 AM, speedybure (< 20) wrote:

soycapital:  I like where you head is at my friend but platinum is rarely found as pure ore. The largest platinum reserve is in south africa which as you know has its troubles.I know anglo-ashanti is active in the Bushveld complex,S.A. This complex has two rare mineral deposits containing platinum and palladium (and rhodium mentioned in the following paragraphs).

If you can find a miner near the sudbery basin in Ontario, Canada. A large reserve of platinum as a bi-product of nickel Ore is located there. If such a miner exists, it is likely a base-metal company, as the large quantity is due to the huge nickel ore deposit. If i can remember accurately platinum makes up .48 parts per million of nickel(more simply said as you have to mine an enormous amount of nickel).

I attended a hard asset conference recently, and learned a great deal about some important metals.  For example Rhodium is an unknown metal that plays an important role is the world. It is found in platinum Ore, thus the largest supply in south africa mined by anglo. In, Short Anlgo is the best way to play to this, they supply the most platinum, rhodium and a fair amount of palladium (another important metal). I'm no mining expert so I could be wrong.

You may be interested in Uranium. China has a huge contract with BHP Billiton, as they plan to import uranium starting either in 2011-2012.I can only imagine this will have its own bull market as it the most viable source of energy in my opinion. Additionally this metal has also been crushed, providing a good entry point for those who are interested. I have done some homework on this and would happy to share if your interested.

-Cheers 

 

 

 

 

 

 

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