As expected in this space last week, the announcement of gold mining behemoth Newmont Gold’s (NEM) attempt to acquire Newcrest Mining Ltd. (NCMGY), the 6th largest bullion miner, has spurned more miner M&A for a second consecutive Monday.
As the precious metals equity sector continues to consolidate an over 50% upside move from September into the first week of this year, mid-tier miners have now begun to covet undervalued juniors while generalist investors continue to ignore the space.
Just as central banks have recently taken advantage of excessive retail selling in gold ETFs to begin the largest buying spree in 55 years at depressed prices, mid-tier miners began to do the same in the undervalued junior mining complex this week. The second mega-miner merger proposal announced over the past several months has filtered down into the junior space, with two smaller proposals announced this Monday.
Canadian mid-tier gold miner B2Gold Corp. (BTG) has agreed to acquire Canadian developer Sabina Gold & Silver (SBB.TO) in an all-stock deal worth C$1.1 billion (US$823.66m). As per the agreed terms, B2Gold will issue 0.3867 of a common share for each Sabina common share held, at C$1.87 per Sabina Share on a fully diluted basis. The consideration marks a 45% premium to the 20-day volume weighted average prices of B2Gold and Sabina each, as of 10 February 2023, on the TSX.
The purchase is expected to diversify B2Gold’s assets, located mostly in Tier Two jurisdictions, with access to the Tier One district of Nunavut, Canada. Sabina’s high-margin, fully permitted and under construction Goose gold development is the most advanced project in the area.
Also on Monday, Canadian junior gold miner Victoria Gold Corp. (VGCX.TO) announced an attempt to acquire early-stage Yukon micro-cap junior neighbor ATAC Resources (ATC.V). But the all-stock offer at a severely depressed price of C$0.12¢ per share, implying a value of C$25 million, was immediately declined by ATAC’s board. The rejection prompted Victoria on Tuesday to extend the offer to Feb. 17, for further consideration by ATAC.
Then on Thursday, Newcrest Mining formally rejected Newmont Corp’s $16.9 billion bid. But the senior gold miner left the door open for a better offer, as the company logged profit announced this week that surged past analyst expectations and paid out a special dividend. Newcrest stated its board had unanimously determined to reject the proposal, which it said did not offer sufficient value to shareholders, but also mentioned it would open its books for the world’s largest gold miner.
Meanwhile, when considering ATAC once boasted a C$1 billion market cap at the peak of the previous gold stock bull market in 2011, the boards rejection of Victoria’s opportunistic bid is easy to understand. At the beginning of a previous 7-year precious metals stock mining cycle in 2008, ATAC made a significant high-grade gold discovery at its Rau property in central Yukon, Canada.
The stock proceeded to climb from a low of C$0.07¢ per share in late 2008, to over C$10.00 by the cycle’s peak in mid-2011. But with the junior gold stock complex experiencing aggressive capitulation into Q4 2022, the stock had eventually came down full circle to below C$0.10¢ per share once again 14 years later.
Although the company has drilled out the Tiger deposit to the tune of 4.5 million tonnes grading 3.19 grams gold per tonne for 464,000 oz. in the measured and indicated categories at Rau, the junior has plenty of company on board the S.S. Depressed Junior at present.
In fact, the ATAC story is a poster child for the extreme valuations precious metals juniors can experience during both major tops, and significant bottoms. After a significant 7-year gold stock cycle bottom was reached late last year, incredible gains are likely to be experienced in select quality juniors once again during this cycle’s peak in 2025-26.
The Barrick/Randgold merger announcement in September of 2018, followed by Newmont Corp.'s subsequent acquisition of Goldcorp Inc. a few months later, became the catalyst that sparked a wave of M&A in the junior space throughout 2018 – also a time when the mining sector was being ignored by generalist investors as it is currently.
As producers are struggling with higher operating costs, declining output, and harder-to-mine resources while new deposits are more difficult to find, M&A will be a topic of conversation among industry executives during the upcoming conference season beginning at the end of the month.
BMO Capital Markets will host its Global Metals & Mining Conference from February 28 to March 2, 2022 in Hollywood, Florida. This major industry event will be followed by the annual PDAC 2023 Convention – the world's premier mineral exploration and mining convention will take place from March 5 – 8 in Toronto, Canada.
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