Contributed Commentaries
M&A Heats Up - Here are a Few More Takeover Candidates
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Earlier this week, ASX-listed St Barbara Ltd. announced it was buying smaller Canadian rival Atlantic Gold Corp (AGB.V) for C$802 million, in the latest of several mergers and acquisitions targeting mostly the gold sector taking place since mid-2018. The all-cash deal represents an attractive acquisition cost per ounce of reserves of C$428/oz in addition to a premium of 39% over AGB’s closing price on Tuesday. The transaction excludes Atlantic’s 36% interest in Velocity Minerals Ltd. (VLC.V market value C$9 M), which will be spun out to existing Atlantic shareholders following the completion in July.
Most notably, this is the fourth sizable all-cash deal to take place during this merger cycle, which also included South32's US$1.3B deal for Arizona Mining, Orion's C$537M bid for Dalradian Resources, and Zinjin Mining’s friendly offer to acquire Nevsun Resources for US$1.41B. I am especially encouraged to see all-cash deals continuing to happen in the space, as these arrangements become an instant pay day for speculators at the offered price.
Most of the global miners, whose margins on gold production have not kept pace with the rise in the gold price over the last 12 years, are looking for low-cost projects. Global miners need to replace their reserves and resources and are in search of high-margin projects with the right combination of grade, size, and infrastructure.
Back in September of last year in this column, I penned a missive (Gold Mining Stocks: Top 3 Junior Take-Over Candidates) suggesting three junior gold stocks for speculators to consider and Atlantic Gold was second on the list. With many quality juniors being discounted the past few months, mid-tier and major miners may continue to be in a buying mood, so here are a few more possible near-term takeover candidates to consider.
Marathon Gold (MOZ.TO): Marathon is a Toronto based gold exploration company rapidly advancing its district scale sized and 100% owned Valentine Gold Camp located in Newfoundland, Canada. The project is a 240 sq. km, 30 km long gold system which currently hosts four near-surface, mainly pit-shell constrained, deposits with measured and indicated resources totaling 2,691,400 oz. of gold at 1.85 g/t and inferred resources totaling 1,531,600 oz. of gold at 1.77 g/t.
The updated PEA, released in October 2018, is based on an initial 12-year mine life and produced an after- tax Net Present Value (NPV) of US$493 million using a 5% discount rate. The financial model shows an after- tax Internal Rate of Return (IRR) of 30% and a capital payback period of 2.5 years. The company is advancing the project towards a Preliminary Feasibility Study (PFS) by Q1 2020.
While Marathon is continuing to prove up one of the most attractive open-pit deposits in the world, they have done so with minimal share dilution. Discovery costs are just $10 per open pit ounce of gold, along with $14 per underground ounce. The company has just under 172 million fully diluted shares and earlier this year sold a 2% NSR to Franco Nevada (FNV) for C$18 million. The deal not only cashed up the junior well into 2020, it also further legitimized the project to the market.
Earlier this week, the stock reacted very favorably to positive testing results by SGS, which showed that both the Leprechaun and Marathon deposits are amenable to heap-leaching. Phillip Walford, President and CEO of Marathon Gold commented in the press release: “These very good heap leach test results more than justify the consideration of heap leaching in our development plan and have improved the project economics. Heap leaching of low-grade gold material is a potential enhancement for the project in recovering gold that may otherwise go on a stockpile or waste dump. The results from this SGS program show that significantly higher heap leach gold recoveries can be expected than the 59% used in the last PEA.”
Moreover, drilling results so far this year out of Leprechaun, the southernmost deposit in the project, have been significant, with increases in grade coupled with an increase in true width. The most recent drill results from last week include hole VL-19-681 intersecting 4.27 grams per tonne gold over 126 meters, and VL-19-686 intersecting 3.02 grams per tonne gold over 153 meters. These grades are between 35% and 90% higher than the current pit shell for measured & indicated resources of 2.25 grams per tonne gold.
The company is rapidly approaching a 5 million-ounce total resource that is located in a tier-one jurisdiction, which is a goal few junior developers have been able to obtain. I would be very surprised if Marathon is not taken out by a global miner within the next 12 to 18 months.
Premier Gold Mines (PG.TO): Premier is a North American focused junior miner that has successfully transitioned from explorer to gold producer and holds a portfolio of projects, ranging from early exploration to production.
The company’s flagship producer is the 2000 tonnes per day underground gold-silver Mercedes Mine, located in the State of Sonora, Mexico and is solely owned by Premier. Production guidance for 2019 is 75,000-85,000 ounces of gold, along with 225,000-250,000 ounces of silver with AISC of $900-$950 au.
On April 3rd, Premier acquired an option to purchase a 100% interest in the San Felipe Property, located 55 km from the Mercedes Mine. After the deal was made with Americas Silver (USA.TO), President and CEO Ewan Downie stated “San Felipe represents a strategic asset, adding resources and providing a near-term development opportunity in close proximity to an existing operation. We will assess options to bring San Felipe to production to complement existing production in Mexico”.
Premier also has 100% control of three advanced stage projects that are located in world-class mining districts, along with a 50:50 joint venture partnership with Centerra Gold (CG.TO) in the Greenstone Gold Project. Greenstone is located in Northwestern Ontario and has probable open pit reserves of 141.7 million tonnes grading 1.02 g/t gold for 4.6 million contained oz. Both the indicated and inferred estimates contain underground as well as open pit resources.
The company holds a 40% interest in the South Arturo Property in Nevada with Barrick Gold Exploration Inc., a wholly-owned subsidiary of Barrick Gold Corporation (GOLD), owning the remaining 60% and is the fifth lowest cost gold mine in the world. Although Barrick, a logical suitor to possibly acquire Premier, stated last week that it intends to sell about $1.5 billion of assets through next year, CEO Mark Bristow added it also remains open to acquiring new projects.
Full disclosure: I owned shares in AGB.V, having sold them this week and also hold positions in MOZ.TO, PG.TO, and USA.TO purchased in the open market. I have also recommended all four to my subscribers.
If you require assistance in choosing the best quality juniors to invest, please stop by my website and check out the subscription service at http://juniorminerjunky.com/
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