Contributed Commentaries
Gold Mining Stocks: Top 5 Development Stage Take-Over Candidates
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
As the precious metal miner sector continues to trade sideways this year, I would like to bring to your attention five development stage projects which I believe stand a very good chance of being acquired by a global miner within the next 12-18 months.
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While being up over 23% this year, the Developers have been the best performing group in the sector, followed by the Royalty firms which are up 17%. Exploration this decade is estimated to have only replaced one ounce for every three produced, making the best in class existing discoveries all the more desirable, as global miners must replace rapidly depleting reserves.
I believe holding a few Development-stage companies for a possible global miner take-over is the one of the best strategies in the gold space at this point in time. If chosen correctly, positioning oneself now in a developer that may be acquired later in the cycle could reap a very large return, or provide the investor with a much better cost basis on the company which eventually buys the stock.
Here are my top 5 picks to possibly be acquired before this new precious metal miner bull comes to an end:
Sabina Gold & Silver Corp. (SBB.TO): This company has been my number one take-over candidate since I mentioned it in my column back in April of this year. Since then, the company has discovered the new Llama Zone and the Umwelt Vault zone with grades that are significantly higher than the Back River average resource grade. These new zones not only present opportunity for extended mine life, but could also positively impact project economics on the Back River Project, which is already economic at $1150 gold. Please see the latest company presentation here.
Dalradian Resources Inc. (DNA.TO): Dalradian controls the Curraghinalt Gold Project, which is a very consistent, high-grade, narrow-vein deposit in Northern Ireland. The deposit has upside potential, shows good continuity, and has a good chance to be permitted by the local government. On October 10th, the firm announced it had entered into subscription agreements with each of Orion Mine Finance II LP and Osisko Gold Royalties Ltd pursuant to which Orion will make an investment of C$50 million and Osisko will make an investment of C$28.25 million into the Company by way of a non-brokered private placement, for gross proceeds of C$78.25 million. Please see the latest company presentation here.
Victoria Gold Corp. (VIT.V): I toured the firm’s Eagle Gold Project in the Yukon earlier this year. The management team has done an exceptional job of turning a lower grade deposit into an economic one at $1250 gold. Recent drilling below the Eagle Pit was successful in highlighting the growth potential in and around the Eagle Gold mine and the properties exploration upside. Unfortunately, the share structure has suffered the capital raise dilution consequences more than most Development-stage firms which are at, or near the start of construction. I feel this may limit the potential upside in the stock, while the company still requires an additional C$40m to be fully financed. Victoria is currently in Phase one of a C$40 million construction program which began in August. Please see the latest company presentation here.
Atlantic Gold Corp. (AGB.V): The firm has recently completed phase one of its high-grade MRC Open Pit Gold Mine in Nova Scotia, which poured first gold at the mine last week. Phase two, which incorporates two additional satellite deposits into the MRC Gold Mine, will be completed later in Q4 2017. The company has demonstrable upside with a “string of pearls” deposit strategy on a district scale land package which contains over 80km of strike length. Management is also in alignment with shareholders owning over 35 percent of the shares outstanding. Since the company will soon be cash flow positive, I would like to see a graduation of the stock to the TSX and a US AMEX listing, so that more funds would have access to the shares. Please see the latest company presentation here.
Falco Resources (FPC.V): This company has acquired one of Canada's most established VMS mining districts, the Rouyn Noranda Mining Camp, including the Horne Mine Complex area and 13 other former producers. The firm has 100% ownership of 74,000 hectares of the property, which represents 70% of the entire camp and is run by the management team responsible for the construction of the Malartic Mine. The company is currently in discussions with partner Osisko on the possibility of a C$150-$200 million streaming deal and the Quebec government supports the project. Please see the latest company presentation here.
Full disclosure: I own shares of SBB.TO, AGB.V & FPC.V which were mentioned in this article and purchased them in the open market. I have also recommended all three of these companies to my subscribers. I do not receive any monetary compensation, or stock options from any of the companies I invest in, or discuss in my Kitco weekly articles. Please do your own due diligence before purchasing shares in any of the companies mentioned in this article.
