Mining for Winners in Any Market

Posts Tagged ‘mergers acquisitions’

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Major Miners Acquiring Undervalued Juniors In 2012

In Market Analysis, Stock Movers on September 12, 2011 at 7:54 am

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Recently two mining giants – Goldcorp(GG) and Barrick Gold (ABX) — published their bullish earnings reports showing increasing margins due to a rising gold price. Here is a perfect example of a report that’s trying to tell us something. The hidden message in these glowing statements is of great significance to gold traders. What is the other side of the story?

The fly in the ointment may be that the majors need new blood. They are having difficulty making progress with their next generation mines; experiencing delays and shortfalls. There is a sense of urgency in their pronouncements of increasing the capital they are going to spend on exploration and development of two key emerging assets.

Goldcorp specifically identified the El Morro Project in Chile, where it’s partnered withNew Gold (NGD), and which has the largest potential increase in reserves. New Gold has had a major breakout at $12 and phenomenal month of August.

Read the writing on the wall. The future of the majors lies not so much in glowing statements but in their hidden meanings. These companies, as measured by the Market Vectors Gold Miners ETF (GDX), are getting more mature and are facing diminishing reserves and a rising gold price. This may be the reason why their share prices are underperforming – they are sitting on large cash positions and must either increase dividends or look for growth through mergers and acquisitions.

My firm’s area of specialization is in researching promising explorers, as measured by theMarket Vectors Junior Gold Miners ETF (GDXJ), which will grow increasingly attractive as acquisition targets for the older majors. For example, the acquisition by Newmont Mining(NEM) of Fronteer.

Also witness the recent move by Agnico Eagle Mines (AEM) in investing $70 million dollars in a young promising company Rubicon Minerals (RBY), which had recently sold off to the downside. Also look at Aurico Gold’s (AUQ) takeover of Northgate Minerals (NXG) at valuation levels not seen in more than seven years. I realize that miners have been trailing bullion for several months and am convinced that their day is yet to come. Rubicon had recently published a decrease in resources, sending shares plummeting. Agnico seized the opportunity to make a very advantageous investment. In the Summer of 2008, Agnico had taken interest in Gold Eagle Resources at bargain prices. It didn’t take long for Goldcorp to buy the entire company, giving Agnico a significant profit. This may be exactly the template that other hungry majors will be looking to emulate as they buy emerging properties at discounted prices. As the price in gold bullion advances many situations increase in value. GST is always on the hunt for assets in the earth which are the mother lodes of the eventual bullion.

When the day of the junior miners comes, the profits will far outstrip those of bullion. From a technical standpoint, often times mergers and acquisitions are not readily discernible in chart patterns. Indeed, Fronteer had quite a nasty correction before it was acquired by Newmont. Suffice it to say that momentum traders rarely benefit from mergers in the making.

I’ve noticed that equity prices will fall below a rising 200 day moving average only to eventually break through on the way up. Interested parties might find juniors at irresistible bargains right now in comparison to gold bullion.

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Uranium Miners Hit New Highs

In Market Analysis, Stock Movers on December 1, 2010 at 3:42 pm

In 1883, a historic cataclysm of 10 days shook the world and vaporized Krakatoa, an island between Java and Sumatra. An umbrella of ash rose 50 miles high and sent sonic reverberations seven times around the world. Deaths numbered 120,000. Scientists of that time were awed by the magnitude of nature’s forces that were being unleashed. They speculated that one day ways would be found to harness this energy. Even the Bible concurred with the physicists, that all inert matter contained particles of energy that if harnessed could provide inexpensive and abundant energy to replace the coal, steam, and oil that fueled the industrial revolution of that era. Now, if Faraday and Boyle could return to 2010 they could witness the fulfillment of their most visionary dreams with the advent of The Nuclear Age.

International demand for uranium is rising. Knowledgeable investors who made a killing when uranium reached $136 a pound in June 2007 are once again in the accumulation mode. The Russians, Koreans, and particularly the Chinese are investing in joint ventures all over the world to gain control of future supply.

In fact, our contract with Russia to dismantle nuclear warheads expires in 2013, not far away. This will further exacerbate the supply and demand deficit. China is likely to purchase offtake agreements with uranium miners who don’t have any.

It’s important to find the miners who are in the driver’s seat. This is the miners’ market to catch a solid bid at higher levels. Certain miners who are close to production with uranium that’s not yet purchased are set up to reap the benefits of this hot sector. Recently, uranium hit a 24-month high of $61 a pound. Typically, when uranium begins to make its upward move it does so with atomic force, giving large profits to the lucky holders.

It’s interesting to note that only eight mines in the world yield more than 50% of global production. Moreover, in reality, there’s not a lack of uranium deposits, but there is a lack of assets that possess production potential. Already in the United States there are a 104 plants with more coming. China has 11 plants and is constructing another 28 reactors. This doesn’t include the facilities existing in France, Germany, Japan, Iran, among others. Today’s nuclear plants are sophisticated, safe, and efficient, far removed from the fossils of yesteryear.

As gold got overbought in October, and I saw a coming rally in the US dollar, I focused on the junior uranium miners in Wyoming as many miners were expected to receive licenses. Some of the miners out of Wyoming have made huge percentage gains — such as Uranerz (URZ), Cameco (CCJ), and Uranium One (SXRZF.PK) — as mines have begun to receive permits to begin operation. Earlier, Uranium One received its NRC license on its Moore Ranch Project and recently Uranerz received its draft license on its Nichols Ranch project.

(Click to enlarge)

Uranerz has doubled in the past month. Once miners receive their licenses their shares should be rerated by Wall Street. Wyoming produces the largest amount of domestic uranium with Cameco’s Smith Ranch Mine, which is also the largest US facility. Not all of these mines will move to production and only a select few have no local opposition and other key permits.

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Breakout in Precious Metals, Pay Attention to High Quality Explorers

In Market Analysis on August 31, 2010 at 6:38 pm

The global debt crisis and the war on deflation by the Federal Reserve is causing precious metals to approach a key resistance level.  Gold is nearing a 52 week high while silver is close to breaking $19.  A break above these levels on high volume could be the beginning of a major move higher.

Gold and silver has been a safe haven asset.  Many concerns were expressed if miners would collapse in a weak equity market.  However, since the last Federal Reserve meeting, gold and silver has shown impressive relative strength compared to the overall market. The Federal Reserve discussed the increase of treasury purchases to keep interest rates artificially low. They also made it clear that every attempt will be made to prevent deflation.  This low interest rate environment and weak economic outlook which may continue for some time has encouraged investors to move money out of equities into safe haven assets such as gold and silver.  Gold and silver is also gaining interest as investors are realizing bond yields are too low and may be risky at these level.

The Fed’s greatest fear is deflation, high unemployment and a move into new lows in equities before the election.  If the S&P continues to deteriorate and unemployment data comes in negative, I expect an announcement of more central bank interventions to reflate the economy.  This next round of quantitative easing could cause a massive rush into gold and silver.

Many are concerned of the safety of fiat currencies during a global debt crisis.  The global economy is built on spending and investing.  Many investors were concerned if a downturn in the equity market would drag down junior miners.  These past couple of weeks have proved that is not the case.  Junior miners have made major moves higher.  A breakout into new 52 week highs in the miners is highly probable especially as the price of bullion breaks out.

The saucer (cup) and handle pattern is the chart reader’s favorite pattern.  Great performing stocks tend to have a strong base before an extended move.  Gold’s (GLD) pattern is very rare and this setup tends to be very profitable.  Similarly to what we saw in September of 2009, I expect a major breakout.  Is this pattern showing investors that a major event may be brewing?  Time usually tells the tale as news or events are announced after the breakout.

High quality gold and silver explorers are making major moves already.  It is important to pay attention to the gold and silver junior miner sector as we may be setting up for peak gold and silver.  High quality explorers with mineable assets should be followed as gold and silver discoveries are rare and producers are paying a premium for these properties.  These miners tend to have great leverage to the price of bullion especially if we see more government interventions and quantitative easing.

Yesterday, Fronteer Gold, a stock that I have recommended to my readers bought out Auex Ventures to control completely the Long Canyon Project.  The Long Canyon discovery is high grade and open pit. Fronteer is consistently coming out with impressive results from this project.  Long Canyon represents continued resource growth as it is expanding and open in all directions.

A major move in bullion could cause these explorers to make large percentage gains.  If you haven’t researched high quality junior miners yet, now is the time before a major move.

Disclosure: Long Gold and Silver Miners