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Posts Tagged ‘mergers and acquisitions’

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Mergers And Acquisitions In Mining Stocks Heat Up

In Market Analysis, Stock Movers on August 31, 2011 at 9:18 pm

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The brouhaha over the debt ceiling has generated upward moves, particularly in gold bullion. This is a primary example of a news driven market skewing orthodox technical measurements. Now it is entirely possible that the scare headlines are generating a caffeinated move to surpass resistance areas, especially in gold. The debt farce can end precipitously and so may the risk trade. What the market giveth exogenously is what the market taketh away with the resolution of the underlying media hype. The risk off trade may boost mergers and acquisition activity in the mining sector.

Six weeks ago, I became aware of a major divergence between the miners and the underlying metal. This juncture represented a buying opportunity. On July 13, 2011 Barron’s wrote that my firm was a solitary voice in indicating that miners would outperform gold bullion, saying “…One contrarian to that view is Jeb Handwerger, editor of Gold Stock Trades. He points to technicals that favor miners, although he remains bullish on prospects for both types of precious metals ETFs.”

Subsequently, miners did bottom in mid June. In fact, we have witnessed parabolic moves in the gold sector, completely overlooking some undervalued miners such as Goldcorp (GG),Barrick (ABX), and Newmont (NEM). These are some of the fastest growing stocks in the market with increasing profits and margins.

It is precisely gold’s linear bull trend as opposed to a geometric blowoff which indicates the longevity of this millennial move in gold. As the metal surpasses resistance we anticipate and welcome the customary healthy pullbacks on this rising arc. The risk off trade will transfer capital from the extended gold price to the undervalued mining equities.


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Meanwhile, the debt debates serve to provide fuel for these sectors as the “Washington Square Dance” was resolved by a nip and tuck procedure when major surgery is really required.

My firm senses we are on the road to additional economic stimulants by whatever guises necessary, probably in the next few weeks. They may surface under different names but the basic principle should be the de facto desirability of accumulating wealth in the ground assets of precious metals, uranium, and rare earths.

The Market Vectors Gold Miners ETF (GDX) recently advanced above its 200 day moving average and is not nearly as overbought as its underlying metal. A bullish golden cross of the 50 dma above the 200 dma is occurring now. Up to now the crises over both European and American monetary problems have marked bullion as a safe haven. It appears that the metal has become overextended relative to the miners.It’s time for the miners to come to the ball.

We are seeing some major, cash loaded miners diversifying into copper and now into significantly discounted uranium miners. My firm has long been focusing on this trend. For example:

  • Newmont took a stake in uranium miner Paladin.
  • Barrick bought copper miner Equinox.
  • Stillwater (SWC), a palladium miner, expanded into copper with the acquisition of Peregrine.
  • Anglogold Ashanti (AU) acquired First Uranium Corporation (FIU.TO).
  • China’s Hanlong made a hostile bid for Bannerman Resources on the bargain counter at $.60 a share, representing what may be an increasingly obvious straw in the wind.
  • Now this week we hear of Cameco’s (CCJ) hostile bid for Hathor’s Roughrider Deposit. Could this be the catalyst the sector has been looking for?  Click Here to access my daily service.

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Fronteer Bought Out By Newmont, Readers Up Over 120%

In Market Analysis, Stock Movers on February 3, 2011 at 10:00 pm

Even though January of 2011 brought a lot of profit taking to mining stocks and precious metals, the leadership of Newmont (NEM) has used this pullback to purchase one of my long term favorite recommendations Fronteer Gold (FRG) for a 37% premium.  I believed Fronteer was a great candidate for a takeout and mentioned it on thestreet.com over a month ago.  My premium readers have gained 120% since my 8-4-10 buy signal.

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Gold Mining Mergers And Acquisitions In 2011

In Market Analysis, Stock Movers on December 7, 2010 at 8:37 pm

Video Interview With thestreet.com on some of the potential targets for majors in 2011.

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Buying U.S. Junior Gold Miners During A Dollar Debasing

In Market Analysis, Stock Movers on November 4, 2010 at 8:51 pm

There have been some exciting mergers and acquisitions (M&As) within the junior mining sector over the past few months. As gold and silver settle from the previous move, many projects will be re-rated and acquired by majors that are struggling with decreasing resources. I believe the industry is undergoing consolidation and we’re seeing the beginning of a major international race to control future gold and silver ounces in the ground. The bull market in gold and silver is intact, and though we may see some short-term pullbacks in bullion prices, the junior mining sector will continue to outperform.

Investors are aware that the sector is ripe with takeover candidates as the junior miners outperformed bullion since the late-July rally began; not until mid-September did they underperform. Now it seems like the previous uptrend is continuing after finding support at the 50-day moving average. Junior explorers are gaining interest as investors transfer their strategically devalued fiat currencies into valuable precious metals resources in the ground.

As the dollar collapses to three-year lows, I expect more companies to acquire projects or consolidate to gain control of and leverage their exploration assets. The Federal Reserve has been quite vociferous about its goal of pumping the economy with more cash. And it appears the US is leading the race to devaluation, as many emerging markets have been critical of the Fed’s dovish actions. This is creating a domino effect wherein other countries are now forced to devalue their currencies in order to prevent the collapse of their own economies. A devalued currency helps an economy by making its products cheaper domestically and increasing exports.

The recent surge in M&A activity suggests the mining industry is predicting the price of gold will continue to appreciate for the foreseeable future. High-quality projects with high-grade mineralization and low cash costs are receiving a premium. As the price of gold rises, high-grade deposits with good assets will be accelerated into development and production.

I expect aggressive miners to buy out partners to gain 100% control of projects in order to expedite resource and reserve growth. When a miner controls the project completely, it can be more aggressive with resource expansion and development of a discovery. It also has leverage to the expansion of the resource. Particularly in an industry that’s interested in growth stories, companies are hungry for large open discoveries to replenish their reserves.

One company that’s taken a 100% control of a discovery is Fronteer Gold Inc. (FRG). The company bought out AuEx Ventures, Inc. for a premium due to the upside leverage to the expansion of the Long Canyon Project. The Long Canyon Project in Nevada has great potential for expansion because it’s completely open in all directions, is high-grade, and has exceptionally low cash costs. The cost to get this project into production is very low because it’s a heap-leach operation.

The $100 million cost is well within Fronteer’s ability to finance the development completely. With its asset base in Nevada, Labrador, and Northwestern Turkey and its current cash position of over $140 million, there should be no dilution to shareholders. This is a rare situation in the junior mining sector where investors constantly face share-dilution risk when companies need to raise capital to fund exploration or develop projects.

Long Canyon has been compared to an early stage version of Newmont Mining’s (NEM) Midas Gold Mine, which is a huge Carlin deposit. Carlin deposits continue to expand because they usually have deep, underground sulfide roots. Fronteer has not yet discovered these at Long Canyon. Both Fronteer and AuEx believe Long Canyon and West Pequop may be connected by a huge sulfide root system. And both believe what’s been found to date on both sides of the mountain is on the periphery of the main deposit. The closer the company gets to the center of the mountain, the higher the grades. Fronteer is now looking for the sulfide roots as it’s expanding a near-surface, high-grade oxide and trying to fast-track the project into production.

It seems Fronteer is getting a better view of where the high-grade stuff is located in Long Canyon. I believe the Pequop District could be Nevada’s next major mine with multimillion ounces of high-grade gold. A new resource estimate, expected in early 2011, will take into account the progress of the 2010 drilling program, which has expanded the project’s size and grade. I expect further drill results to continue to drive cash costs down and bring further recognition to this world-class discovery.

One company that I’m convinced is catching the eye of majors is International Tower Hill Mines Ltd. (THM). The company has resources of more than 10 million ounces (Moz.) gold on its Livengood Project in Alaska. As gold has made a significant move in 2010, International Tower Hill Mines has consolidated. Now, with the recent volume surge and break of the upper resistance line, I believe International Tower  Hill Mines could continue the 2009 price trend and outperform bullion as the company develops different mining options that drive down costs.

I believe the company has the best development project in Alaska. In my opinion, it has the greatest chance of becoming a successful and operational mine. International Tower Hill Mines has what many of its competitors are struggling for: a favorable permitting and infrastructure situation. The mine is close to infrastructure, right off a central highway, and doesn’t have the same permitting issues as other major mines being developed in Alaska.

After many years of investing in mining companies and seeing the downfall of many mining investments, I’ve realized these two features are key to success. The Livengood Project is on an all-weather highway in a major mining center. The state of Alaska is also proposing a natural gas line that would connect and provide power to the mine. And there are no native claim issues. In addition, the project is in the top 2% of gold discoveries with more than 10 Moz. gold. The big producers are looking for large deposits to expand their resource bases, but they don’t want the risk associated with projects that have permitting issues or that lack infrastructure.

Down the road from Livengood is Kinross Gold Corp.’s (KGC) Fort Knox mine, which produced more than 260,000 ounces of gold in 2009. It’s only natural to assume that when a suitor comes to make an offer for Livengood, Kinross — with the infrastructure and labor force already there — will make a counter offer. The Fort Knox mine life will be nearing completion as Livengood begins.

International Tower Hill Mines has come to long-term trend support and broken to the upside. Major volume is moving in, and the second uptrend may be beginning. As it moves closer to a prefeasibility study and improves the project economics, the share price should receive a premium.

The global credit crisis and the low-interest-rate environment facilitated by central banks are causing more producers to find ways to utilize cash positions to gain resources with huge growth potential. This fiscal environment of currency devaluation and quantitative easing, which may continue for some time, will force the producers sitting on large cash positions to acquire more assets. There’s a lack of major discoveries, and companies showing impressive, high-grade results have seen huge share appreciation.

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Gold Miners On Verge Of Major Breakout. Cup and Handle Pattern/Ascending Triangle.

In Market Analysis on August 27, 2010 at 7:09 pm

The global debt crisis and the war on deflation by the Federal Reserve is causing more producers to find ways to invest their cash.  This low interest rate environment which may continue for some time will force producers whom are sitting on large cash positions to acquire more reserves.  Mergers and acquisitions in the mining sector have increased over this past year due to a lack of major discoveries as well as supply and demand changes in emerging economies.

We have seen a trend of investments from Asia to purchase stakes in mining companies.  In 2009 the Chinese Investment Corporation, a state owned company, took large ownership positions in Teck Cominco and Penn West Energy Trust. Recently in June, China National Nuclear signed a contract with Cameco to supply 23 million pounds of uranium.  Hanlong Investments took a large stake in General Moly, one of the leading North American molybdenum developers.  Korea Electric Power signed a deal with Denison Mines another uranium developer. Sojitz bought a 25% interest in the Taseko’s Gibraltar Copper Mine. Then recently we saw BHP Billiton trying to make a deal with Potash Corp. and Kinross, a large producer buying Redback, an exploration company.  This trend should continue through 2011.

Investors should be studying the companies that are receiving premiums and position themselves accordingly to make potentially large profits. Junior mining companies that are sitting on large assets that are still relatively cheap or overlooked should be considered.   There are still many companies with strong assets that are trading way below value.  This is an exciting and highly profitable time for the companies with assets close to production in the mining sector.

For producers it is more efficient to acquire explorers to replace their reserves rather than rely on their own exploration team.  I am focussing on the junior mining sector whom are close to production rather than the large producers as they will receive large premiums on their assets.

Following the mining sector on a daily basis the evidence of keen interest to acquire resources is apparent.  There is a search for real assets and natural resources.  Foreign countries are looking for natural resources to diversify their holdings and supply their emerging economies. Large mining producers are searching for replaceable reserves of gold, silver and industrial metals.  As the U.S. attempts to reflate their economy at all costs, precious metals and natural resource assets should receive a premium.

The Gold Miners are close to a major cup and handle breakout.  It also appears to have set up an ascending triangle pattern.  A breakout from this pattern could lead a major move into new high territory.

The strong trend in gold miners is signaling that interest rates will stay low as the Federal Reserve makes every attempt to reflate the economy.  Precious metals prices should stay high which would make producing mining companies highly profitable.

Disclosure: Long Gold and Silver Mining Stocks