There has been considerable buzz in the gold mining industry this week. Two very significant merger announcements have suddenly shone a spotlight on M&A activity in the sector.
Both were announced Monday, May 11th. Dynamic Wealth Research has covered each story.
First we reported on the merger of SSR Mining Inc
(US:SSRM / CAN:SSRM) and Alacer Gold Corp
(CAN:ASR / US:ASRPF). This will create a large intermediate gold producer (~780,000 of annual gold-equivalent production) with robust cash flow and a strong balance sheet.
In turn, we noted that this immediately makes this new gold mining company a take-out target itself.
Then we reported on the proposed three-way merger between Gran Colombia Gold
(CAN:GCM / US:TPRFF), Guyana Goldfields
(CAN:GUY) and GoldX Mining
(CAN:GLDX / US:SSPXF).
This would create an intermediate Latin America gold producer with roughly 20 million ounces of gold resources. Arguably, it would also become one of the most undervalued mid-tier gold producers in the world today. Another obvious take-out target.
The complication? Guyana Goldfields already has a definitive agreement in place with Silvercorp Metals
(US:SVM / CAN:SVM) to be acquired by Silvercorp. Gran Colombia’s proposed merger is unsolicited.
We explained why M&A activity in the gold mining industry can be expected to be especially intense going forward.
It’s not just the fact that gold is one of the hottest sectors at present. The other driver for take-outs is the need of the senior producers (in particular) to replenish their depleted gold reserves.
As major new gold discoveries continue to dwindle, the competition for (and value of) major gold deposits is soaring.
With this in mind, we thought we would present investors with 5 “high profile” take-out targets in the gold mining space.
Below are five gold mining companies ranging from juniors up to emerging senior producers that will be especially attractive to the intermediate and senior gold miners.
Gran Colombia Gold (CAN:GCM / US:TPRFF)
We’ve talked about M&A activity heating up in the gold mining industry. Gran Colombia Gold epitomizes this. In fact, Gran Colombia currently represents three
potential take-out scenarios.
We’ve already discussed the recently proposed three-way merger. Investors who want more details on that take-out scenario should review the previous article.
However, Gran Colombia by itself is a very interesting take-out candidate. It produces over 200,000 ounces of gold per year with a rising production profile and declining costs. Its flagship Segovia Mine is currently one of the highest grade gold mines on the planet with head grades of ~16 g/t Au.
Then there is its Marmato Project. This is a 7+ million ounce gold deposit with limited existing gold production. Large enough by itself to be of interest even to the senior producers.
Yet Gran Colombia is trading at a current P/E multiple of only 3.3, according to recent data from Thomson Reuters. In contrast, the entire S&P 500 is presently trading at an ultra-frothy multiple of 20:1 forward 12-month earnings.
It has a very lean market cap of only US$250 million. Real value, both for gold mining investors and other gold companies.
The third take-out scenario here? Marmato itself.
Gran Colombia’s management have spun out Marmato into a separate entity: Caldas Gold
(CAN:CGC). Gran Columbia retains an approximate 75% interest in Caldas Gold, so it still controls the asset.
But the separate corporate entity makes it even easier for Gran Colombia to vend the Marmato Project to a larger third party. The senior producers in particular may be more interested in putting Marmato into production than in acquiring the Segovia Mine (and thus Gran Columbia itself).
(US:SSRM / CAN:SSRM) (and Alacer Gold
(CAN:ASR / US:ASRPF))
Again, we’ve already discussed the attractiveness of this new, merged entity in a recent article. So investors wanting more details can refer to that piece.
In short, the strength of the new company (and rationale for the merger) is that it will create a larger gold producer, with a very strong balance sheet (~US$700 million in cash and marketable securities) and robust exploration/development potential.
The price-tag? The announced merger will create a new entity with a combined market cap of ~$4 billion.
Cardinal Resources (CAN:CDV / US:CRDNF)
Whether a current gold producer or a gold exploration/development company, there are two factors that principally drive both stock price and a company’s attractiveness as a take-out target.
a) High grades
b) Large deposits
In the case of Cardinal Resources Ltd
(CAN:CDV / US:CRNDF / AUS:CDV), it’s definitely more the latter than the former.
The Company’s flagship Namdini Gold Project
has a 5.1 million ounce gold reserve
, as modeled in its 2019 feasibility study. But it has total gold resources at Namdini (in all categories) of ~7 million ounces.
Management firmly believes that the current deposit is only scratching the surface, both with Namdini itself and with respect to other gold targets on its enormous African gold properties.
Cardinal’s massive Bolgatanga Project is a 734 km2 district-scale land package in Northern Ghana (bordering Burkina Faso). For gold in Africa, Ghana is “elephant country”.
Ghana has a long history as a major gold producer, with some monster-sized deposits. This includes the famed Obuasi Gold Mine – one of the ten largest gold mines on the planet.
Neighbouring Burkina Faso (to the north) is Africa’s fastest emerging nation for significant new gold deposits. But the country is currently plagued with internal strife. Ghana is one of Africa’s most stable democracies.
Cardinal’s Namdini Project is already appetizing bait for larger gold mining companies. Additional gold discoveries on Bolgatanga would dramatically increase the attractiveness of the company – but also the price-tag. Cardinal presently has a market cap of only ~US$115 million.
Gold producers eager (desperate?) to add new reserves may want to bid on this project (or company) sooner rather than later.
Kirkland Lake Gold (US:KL / CAN:KL)
Kirkland Lake would have likely made this list on the basis of its ultra high-grade/high-margin Fosterville Gold Mine in Australia. Head grades at Fosterville in 2019 averaged an amazing 34.3 g/t Au.
However, in November 2019 Kirkland Lake acquired large Canadian gold producer Detour Gold
. Detour’s Detour Lake open pit gold mine is a low grade, massive tonnage operation – with over 25 million ounces in total gold resources.
This boosted Kirkland Lake’s overall gold reserves by more than 15 million ounces. It also takes Kirkland Lake close to the 1-million ounce per year gold production threshold that would elevate it to senior producer status (and likely a higher multiple).
With a current market cap of US$10.81 billion, Kirkland Lake is out of reach of most – but not all – gold mining companies as a take-out target.
The blockbuster take-out of Goldcorp
by Newmont Mining
(US:NEM / CAN:NGT) in April 2018 was a $10 billion acquisition. That was at a time when overall conditions in the industry were much more depressed and valuations were extremely compressed.
The rising gold price has dramatically boosted cash flow for the Seniors. This means the capacity to finance significantly larger acquisitions.
Great Bear Resources (CAN:GBR / US:GTBDF)
Great Bear Resources is a much smaller take-out target than Kirkland Lake. Thus it is more in the sights of the intermediate gold producers or larger juniors. But it is no less appetizing.
Great Bear is responsible for one of the most exciting gold discoveries in recent years: very high grades with extended intercepts at its flagship Dixie Gold Project
Located in the famed Red Lake Gold District in Ontario, the Dixie Project is still pre-resource, meaning no formal calculation of the ounces-in-the-ground has yet been estimated. But some massive numbers in its drilling intercepts have convinced many analysts and investors that this Project is the real deal.
- 8.70 meters @ 48.67 g/t Au
- 17.25 meters @ 10.65 g/t Au
- 5.10 meters @ 33.30 g/t Au
Within these intercepts are some ultra high-grade intervals, including:
- 3.75 meters @ 112.15 g/t Au
- 2.00 meters @ 194.21 g/t Au
- 0.50 meters @ 759.38 g/t Au
From the time of its first big discovery hole at Dixie, Great Bear generated as much as an 18-bagger
for investors who got in early.
However, with a current market cap of only CAD$548 million (US$385 million) it is still affordable to a broad cross-section of gold mining companies.
As investors shop for gold mining stocks for their portfolios, gold mining companies are also shopping – for new gold deposits and projects to add to their production pipelines.
In any mining rally, the majority of profits come from:
i) Rising metals prices
ii) Organic growth
iii) New discoveries
However, M&A activity can also generate substantial gains for investors – literally overnight.
It’s fun to play the “next take-out” game. It can also be profitable.
DISCLOSURE: The writer holds shares in Cardinal Resources.