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Opportunity in precious metal junior take-over candidates

Commentaries & Views

Last week in this column, I mentioned the likelihood of a correction in the precious metals complex continuing this week. After testing overhead resistance levels during an extreme overbought situation in the sector, we witnessed a sharp decline in both gold and silver on Thursday, which may usher in a healthy three to six-week correction phase.

A sustained correction during the early stages of this new precious metals bull market would be a welcome buying opportunity for generalist investors who remain underweight the sector. If we are indeed on the threshold of a bigger correction, there is strong support at the $1480-$1500 region in December Gold, along with the $28 level in the GDX. But I would not rule out a quick test of $1420 in December Gold and the $25-$26 region in the global miner ETF, as corrections can be short and sharp during precious metals bull markets.

However, the good news is a sharp correction would give late-comers to the sector a chance of better entry positions in the best in breed junior developer/explorers, as I expect M&A to begin heating up shortly after the upcoming industry only conferences taking place in Colorado next week. With most big money traders, fund managers, and industry professionals returning from their respective summer holidays, these conferences will be buzzing with excitement over the recent breakout in the gold space.

Beginning on September 10th, the 9th annual Beaver Creek Summit will bring together institutional investors, sell-side representatives and corporate executives from senior precious metals companies to meet and network with some of the most prospective junior producers, explorers and developers from around the globe. The conference has been extended to four days this year and is my personal favorite to attend. One on one meetings have been scheduled with most of the juniors I own/cover in my subscription service, while taking place in a spectacular venue.

The Denver Gold Forum, which begins directly afterwards on September 15th, is the world’s oldest and largest gathering of precious commodity equities. This independent, conflict-of-interest free platform conference presents precious metal producers, developers, and explorers to the world’s leading fund and portfolio managers, sovereign wealth funds, institutional investors, and equities analysts. Presented every year since 1989, the conference now showcases seven-eighths of the world’s publicly traded gold and silver companies when measured by production or reserves.

Immediately after these conferences took place last year, the Barrick/Randgold merger was announced, which was closely followed by the Newmont/Goldcorp merger a few months later. Leading into this year’s Colorado gatherings, we have the gold price in the process of possibly building a new floor above $1500 after breaking out of a strong 6-year base below $1375 in June.  

Meanwhile, juniors who are attractive take-over candidates have begun to be sought out by speculators searching for the next buyout. Global miners are in dire need of replacing ounces and if they wait too long before pulling the trigger on an attractive acquisition target, another Australian major may beat them to it.

As global North American miners have been consolidating and announcing near-term divestments of projects recently, Australian global miners have been snapping up Canadian juniors who control large, high-margin projects with blue sky potential.

If you have been patiently waiting for a sustained correction before taking positions in the hottest sector in the marketplace, I advise accumulating a basket of developer/explorers who have 100% control of large projects which are at, or near, the finance stage and meet the criteria of more recent acquisitions. Weakness in the best in breed junior developers during this correction will be an opportune time to begin building, or adding to, long-term holding positions in take-over candidates.

At some point in the near-future, we will see the juniors begin to outperform the GDX in a big way once speculative fever hits the entire precious metals complex. Over the past few years, I have positioned Junior Miner Junky subscribers in the best in breed precious metal juniors well ahead of this latest surge higher in both gold and silver. If you would like to receive my research, newsletter, portfolio, and trade alerts, please click here for instant access.

Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.