Exploration slashed, takeovers ahead - but who will get premium bids?
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
I dislike using such a shopworn phrase as “perfect storm,” but that’s exactly what may be brewing for certain junior resource companies: gold and silver plays with takeover potential.
I see three powerful forces combining to make this so:
These three factors bring me to one clear conclusion: successful explorers will have assets that larger companies will be very keen to acquire in the post-COVID-19 world.
Why does this matter?
Because takeover bids are usually at a high premium for shareholders of the company being bought. In a bear market, this can turn a loss into a last-minute gain. In a bull market, it can turn a somewhat positive outcome into a spectacular win.
Most takeover offers seem to range from a 30–50% premium. For example, Wallbridge Mining just paid a 46% premium for Balmoral Resources. But sometimes it’s much higher:
Great—for those who get in before the takeover offer.
This means we need to know…
What makes for a good takeover target?
I covered this in an article I wrote in February, just before COVID-19 stopped the world in its tracks.
I said then that a tsunami of takeovers was coming, but not right away. We had time to build positions in the right stocks. I was right.
I tip my hat to those who bought great takeover targets during the March meltdown—I think you’ll do very, very well.
Today, I still wouldn’t say my expected wave of takeovers is urgently imminent.
That’s a good thing, because it means we still have time to buy with discipline, if we start now.
When might pay-day arrive? Well, the best of these stocks will go up with gold and silver anyway. But with many producers having slashed their exploration budgets, I think the surge in takeovers is coming closer. The perfect storm will be all the more powerful when it arrives.
In saying this, I’m speaking of the gold and silver space. But in due course, producers will need to acquire companies with major new discoveries in the industrial mineral space as well.
I should mention that takeover potential is something I include when I cover stocks in My Take. That’s our growing database of summary analyses of companies in the news or requested by readers.
But this strategic consideration—preparing now for a massive increase in M&A activity—is all yours, free of charge.
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