Contributed Commentaries
More M&A and two junior take-over candidates to consider
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
With the mining complex attempting to create a sustainable bottom since the beginning of Q4, the M&A space also began to perk up recently. Once the high-profile Agnico-Eagle/Kirkland Lake Gold "merger of equals" deal was announced at the tail-end of Q3, I suggested the possibility of these issues being related in my October 1st column, along with sparking more M&A activity in the near-term.
Into the end of Q3, GDX broke below $31 on a monthly basis, but that breakdown appears to have been a bear trap. Prices have since recaptured this critical support level, and has the potential for a significant bottom with the global miner ETF likely closing above $31 after the monthly close of October later today. Further-out, a sustained breakout back above the 18-month moving average at $35.50 could signal the beginning of the next leg higher in the mining space.
Additionally, junior precious metal’s stocks have been outperforming the seniors, reflected by the GDXJ/GDX ratio moving higher since Q4 began. This is an important sign that a bottoming is taking place. Historically, a typical sign that capitulation selling has ended in the mining complex is when higher-risk juniors begin leading the way to the upside.
The high-profile Barrick/Randgold merger announcement in September of 2018 became the catalyst that struck a significant bottom in a deeply oversold mining complex during a comparable set-up in the mining space. With the sector trading at similar oversold levels into late September of this year, the high-profile Agnico/Kirkland deal may be looked upon as being instrumental in creating another significant bottom in the mining space exactly three years later.
We saw more junior sector M&A this week, when Calibre Mining (CXB.TO) announced it is buying fellow Canadian miner Fiore Gold (F.V) in a deal the company says will create a diversified, Americas-focused mid-tier gold producer. Terms of the deal state Fiore’s shareholders will receive C$0.10 in cash and 0.994 of a Calibre common share for each Fiore share they own, for an implied price of C$1.80 per Fiore common share, and a 36% premium based on the 20-day volume-weighted average price of both companies.
Over the past three weeks, cashed-up junior speculators have been bidding up deeply oversold precious metals junior take-over targets in anticipation of more M&A taking place in the near-future. One-by-one, many high-quality junior developers have been breaking out of 14-month bullish falling wedge chart formations.
Once capitulation tax-loss selling concluded in their respective stocks, listed below are two such juniors’ share price which recently made significant lows in this fashion. With the mining sector becoming short-term overbought, both of the following junior developers at the finance stage are attractive future take-over targets to consider accumulating on weakness.
Bluestone Resources (BSR.V): In January of 2017, this junior gold developer acquired 100% of the high-grade, brownfields Cerro Blanco Gold Project in Guatemala for US$18 million in cash, Bluestone shares and a 1% net smelter return royalty. The firm will also pay Goldcorp (now Newmont) another US$15 million after the mine is in production for six months, which should be offset by a VAT credit.
Cerro Blanco is a classic low-sulphidation epithermal gold-silver deposit comprising both high-grade bonanza-style vein and low-grade disseminated mineralization. Goldcorp and Cerro Blanco’s other previous owner, Glamis Gold, had spent US$170 million developing the fully permitted project. Another US$60M has now been spent to date on the project by the serially successful Lundin Group, who manages the firm, including 3 km of underground development.
Then in June of this year, Bluestone announced a significant upgrade in the mineral resource to 3.1M oz of gold and 13.4M oz of silver after completing an extensive drill program. To date, 158,303 meters of surface and underground drilling have been completed by Bluestone and previous operators (766 drill holes and 580 channel samples). Measured resources have almost doubled from an earlier PEA estimate and now comprise 75 percent of the total ounces, providing a very solid foundation for the open pit reserves calculation and an optimized mine plan currently underway.
With US$28M in cash, Bluestone is fully funded until a finance package can be negotiated once an amended mining permit is expected to be issued, along with a Feasibility Study, by mid-2022. The company has already initiated discussions regarding a 60-65% debt/equity ratio package, which would be roughly US$300-$350M debt and US$100-$150 of equity. Here is the latest company presentation.
Bear Creek Mining (BCM.V): This seasoned developer has spent the last 15 years de-risking its 100% controlled and world-class Corani Silver-Lead-Zinc Project to the finance stage. Corani is one of the largest fully permitted silver-polymetallic deposits in the world, containing Proven and Probable Reserves that will support average annual payable metal production of 9.6M oz of silver, 98M lb of lead and 69M lb of zinc over a 15-year mine life.
The project has been granted all key permits including an approved ESIA, construction permits and accreditation of water availability. Corani was also the first industrial project in Peru to undergo the state-run "Consulta Previa" process for which it received 100% community support.
But until recently, a toxic combination of harsh in-country Covid-19 restrictions, along with Peruvian political concerns during a period of relentless mining sector selling, had made it difficult for the company to negotiate a financing deal. Earlier this month, after Covid restrictions had eased, management re-opened their office in Lima and re-engaged with banks regarding a US$525M debt/equity package, which would likely include a 10-15% equity raise.
Moreover, newly elected leftist president Pedro Castillo recently stated that the Peruvian government will support the development of Corani in order to bring the project to fruition. At a formal meeting of community representatives on October 15th, the new Peruvian leader stated he "will take Corani as an example for future investment desires."
While Bear Creek continues pre-construction initiatives and community programs to maintain permits and social license, the company is well-capitalized with US$30M in cash until a finance package is expected to be secured by mid-2022. Here is the latest company presentation.
The Junior Miner Junky service provides full transparency into my trading activities and teaches investors how to navigate this high-risk/high-reward sector. Subscribers are provided a carefully thought-out rational for buying individual stocks, as well as an equally calculated exit strategy. If you require assistance in accumulating a basket of undervalued M&A candidates, and would like to receive my research, newsletter, portfolio, watch list, and trade alerts, please click here for instant access.
Full disclaimer: I own shares in CXB.TO, BSR.V & BCM.V and have recommended all three stocks to Junior Miner Junky subscribers. Please do your own due diligence before considering the purchase of any junior resource stock.
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