Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Stocks Bull Market Smoking Gun - 25th May 24
Congress Moves against Totalitarian Central Bank Digital Currency Schemes - 25th May 24
Government Tinkering With Prices Is Like Hiding All of the Street Signs - 25th May 24
Gold Mid Tier Mining Stocks Fundamentals - 25th May 24
Why US Interest Rates are a Nothing Burger - 24th May 24
Big Banks Are Pressuring The Fed To Losen Protection For Depositors - 24th May 24
Another Bank Failure: How to Tell if Your Bank is At Risk - 24th May 24
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Gold Corp Huge Gains Are at the End of "Acquisition Trail"

Commodities / Gold and Silver Stocks 2014 Feb 06, 2014 - 12:52 PM GMT

By: Money_Morning

Commodities

Peter Krauth writes: A few weeks back, Goldcorp Inc. (NYSE: GG), a top gold producer, made a hostile $2.6 billion offer for Osisko Mining Corp (TSE: OSK).

It was one of many signs that top gold producers are on the acquisition trail.

And another strong signal that gold prices may be heading upward.


But, by watching early, we have a terrific opportunity to stay ahead of this acquisition and take advantage of the gold and commodities opportunities that are about to come our way...

We Spotted These Deals Early

Recently I told you about a group of mining titans, including a major private equity player, who are looking to acquire a large Peruvian copper mine.

Just two months prior to that, I'd mentioned that the former CEO of Xstrata, Mick Davis, had raised $1 billion to hunt for resource sector deals.

These are early signs that sophisticated industry insiders see the slew of major write-downs, slashed capital expenditures, and asset sales as a glaring opportunity. They realize that has set up the commodities space for some seriously profitable deal making going forward.

Goldcorp's move is another clear sign of that... and Osisko knows it.

Management has already recommended that shareholders reject Goldcorp's $5.95 per share offer, and no one's really surprised. A few years back Osisko rejected a $12 per share offer from...Goldcorp. As recently as 2010, Osisko traded as high as $16.

To be sure, Goldcorp's eyeing a bargain.

But if you look more closely at what they're trying to buy in Osisko, you'll better understand what's really motivating Goldcorp.

A Key Window into Gold's Direction

Osisko has a few projects but right now its crown jewel - what Goldcorp's really after - is one big mine.

Their flagship asset, the Canadian Malartic mine in Quebec, was explored, financed, and built for $1 billion. It currently produces 475,000 gold ounces annually, but it's expected to average between 500,000 and 600,000 ounces per year over its 16-year mine life.

However, more significant than anything else in Goldcorp's pursuit of Osisko is management's outlook on the gold price.

Here's what I mean...

Malartic's gold ounces are close to industry average grades, and its all-in cash costs near $1,000/ounce are also typical. At $1,250 gold, profit margins are OK, but not outstanding.

On the other hand, Malartic has 10 million ounces in reserves (the highest quality of resources), and it's located in Quebec, one of the top mining jurisdictions worldwide. And it's a producing mine.

Recent and previous bids have already been rejected. But Goldcorp's courted Osisko so aggressively, it's clear they really want to add Malartic to their suite of projects and help grow production.

If Goldcorp succeeds in its bid for Osisko, it's going to have to pay considerably more than $5.95 per share.

Combining Osisko's current production would instantly add nearly 20% to Goldcorp's annual output.

So in pursuing Osisko, Goldcorp has to believe that gold prices, at least in the medium and long term, are going to go higher - a lot higher. That's because there are only so many synergies and economies of scale to be had from joining operations and sharing overhead.

Consider the fact that the average gold grade for producing mines is 1.06 grams/ton, but only 0.66 g/t for undeveloped deposits. That means future mines will supply 37% less gold for every ton of rock extracted and processed.

But it's much higher gold prices that are going to make each and every ounce coming out of the ground at Malartic throw off a ton of cash for Goldcorp. And they know it.

That's why Goldcorp really wants Osisko.

Lining Up with Goldcorp: More Bullish Mergers

We don't need to look far for examples of recent buyout deals.

New Gold Inc. (NSYEMKT: NGD) completed its takeover of Rainy River Resources back in October. New Gold got 4 million ounces in a good jurisdiction (Ontario) and paid less than book value.

As well, Primero Mining (NYSE: PPP) bought Brigus Gold Corp (USA)(NYSE: BRD) for $220 million, and Asanko Gold (NYSEMKT: AKG) is acquiring PMI Gold Corporation (TSE: PMV).

More such deals are coming, since bargain-priced gold equities have made M&A irresistible.

Barclays Plc's Paul Knight, vice chairman and co-head of global metals and mining, told Bloomberg, "Majors who have done portfolio optimization will look at some of the juniors and say, 'Here's a chance for us to acquire a potentially better asset than we've sold and to mitigate the loss of production.'"

According to Bloomberg data, gold miners are near their cheapest relative to book value in over 20 years.

Rick Rule, Chairman of Sprott Global Resource Investments Ltd., said of their recently announced investment mandates with large institutional investors that these deals indicate the sector is undervalued, and these investors are using the sector's weakness to position themselves for future returns.

In the past few years, subscribers to my research service Real Asset Returns have done very well in acquired plays in the mining sector, including precious metals.

A great example was when Minefinders was taken over by Pan American Silver Corp. (Nasdaq: PAAS) in 2012. We earned 56.54% on the sale of a first tranche (before the takeover offer), then 42.12% on the balance of the position once PAAS announced the takeover.

Given the strong outlook, we've recently added new holdings poised to benefit from this trend.

The takeaway from my analysis is that Goldcorp's management - a team with deep experience building, running, and yes, acquiring mines - want Osisko's ounces because they're going to be worth a whole lot more before too long.

And we're going to keep a close eye on it for you so you'll know right when it's ready to pop...

Source : http://moneymorning.com/2014/02/06/huge-gains-end-acquisition-trail/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a finan

cial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in