Great Basin Gold: A Prime Acquisition Candidate

Introduction

This is the second part of a two part article on Gold mining acquisition. In the first part, we explored some ideas of Gold production and the replacement of reserve ounces that were mined. For the large capital gold stocks (referred to as “Big Gold”), the most viable route is the acquisition of Gold Juniors to replenish their gold ore reserves. In this concluding part, we will examine a Great Basin Gold as a prime candidate for acquisition.

Prime Acquisition Candidates

Following is a compiled list of Emerging Gold Producers circa 2007, from the Gold Stock Strategist website. These soon to be producers are the most viable and least risky candidates for Big Gold to acquire.

Emerging Gold Producers

1. Alexis Minerals Corp. (AMSMF.PK)
2. Anatolia Minerals Development Ltd. (ALIAF.PK)
3. Apollo Gold Corp. (AGT)
4. Atna Resources Ltd. (ATNAF.PK)
5. ATW Venture Corp. (ATWVF.PK)
6. Aurelian Resources
7. Aurizon (AZK)
8. Axmin Inc. (AXMIF.PK)
9. CGA Mining Ltd. (CGAFF.PK)
10. Crystallex International Corp. (KRY)
11. Dynasty Metals & Mining Inc. (DMMIF.PK)
12. European Goldfields Ltd. (EGU)
13. European Minerals, Inc. (EPMCF.PK)
14. Gabriel Resources Ltd. (GBRRF.PK)
15. Jaguar Mining, Inc. (JAG)
16. Gold Reserve Inc. (GRZ)
17. Gold-Ore Resources Ltd. (GREXF.PK)
18. Gold Resource Corp. (GORO)
19. Golden Queen Mining Comp. (GQMNF.PK)
20. Great Basin Gold Ltd. (GBG)
21. Hawthorne Gold (HWTHF.PK)
22. International Minerals Corp. (IMZLF)
23. Jinshan Gold Mines Inc. (JINFF.PK)
24. Kinbauri Gold
25. Lake Shore Gold Corp. (LSGGF.PK)
26. La Mancha Res. (LACHF.PK)
27. Luna Gold (LGCU)
28. Metanor Res. Inc. (MEAOF.PK)
29. Minco Gold (MGH)
30. Minefinders Corp. Ltd. (MFN)
31. Moto Goldmines Ltd.
32. Nevsun Resources Ltd. (NSU)
33. New Guinea Gold (NGUGF)
34. NovaGold Resources Inc. (NG)
35. Orezone Resources Inc. (OZN)
36. Pacific Rim Mining Corp. (PMU)
37. Petaquilla Minerals Ltd. (PTQMF.PK)
38. Rusoro Mining Ltd (RMLFF.PK)
39. San Gold Resources Corp. (SGRCF.PK)
40. Starcore International (SHVLF.PK)
41. Tara Gold (TRGD)
42. Timmins Gold Corp. (TMGOF.PK)
43. Western Goldfields (WGW)

Source

In the two years since the list was compiled, many names on this list have been acquired. Kinross (KGC) has purchased Aurelian Resources in summer of 2008. Kinbauri Gold has been acquired by Orvana Minerals (ORVMF.PK) in August 2009. Anglogold Ashanti (AU) and Randgold (GOLD) fought off Redback Mining (RBAK) to takeover Moto Goldmines October 16, 2009. Lake Shore Gold and West Timmins Mining completed their business combination on November 6, 2009. The writer considers Great Basin Gold (GBG), #20 on this list as a star candidate that fits a typical takeover profile.

Recent Gold Acquisitions

Goldcorp acquires Canplats for $227Million USD

Goldcorp (GG) on November 16, 2009 announced their acquisition of Canplats Resources Corporation (CPQ, trading on the TSX Venture). Goldcorp will assume ownership of Canplats' Camino Rojo Project, located approximately 30 miles southeast of Goldcorp's existing Penasquito mine in Mexico. The deal valued at $227 USD Million will add 1.7 million ounces of reserves to Goldcorp’s resource base. The calculated value for this transaction is $133 USD per gold ounce of reserve for Canplat’s property.

Eldorado merger with Sino Gold valued at $1.8 Billion USD

Eldorado Gold (EGO) on August 2009 announced a friendly merger with Sino Gold that would create a $6.4 Billion dollar top mid tier gold miner. The deal values Sino Gold at $1.8 Billion USD. Sino Gold has their flagship Jinfeng mine and three smaller properties in China. This transaction is expected to close in December 2009. The value for this transaction is calculated to be $352 per gold ounce of reserve for Sino Gold’s mines.

Company Make Over

In another life the writer was consulting for a startup telecom technology company. There was much feverish work in the days prior to a team from Nortel coming to visit. Extra people such as I were brought in to round out the staffing. Empty crates were brought into the warehouse and stacked as if production was in high gear. Telecom test gear was brought in and setup in the labs so as to appear quite busy. Overall the company was given a quick makeover for the possible suitor. Eventually the telecom company was purchased by UT-Starcom (UTSI).

Great Basin Gold as a Takeover Candidate

This writer completed a recent report on Great Basin Gold that is posted on Seeking Alpha. Great Basin has two new mines that are just starting up production. Hollister in the Carlin Trend in Nevada is a high grade underground epithermal type deposit. Burnstone is a Kimberley Reef underground mine in the Witwatersrand Basin in South Africa. Great Basin shares a lot of similar attributes with Sino Gold, which was in the business combination with Eldorado Gold described earlier. A comparison of some key statistics are in the table following.

Great Basin Gold with Sino Gold Comparison
	# of Mines	Gold Production - K Oz.			Gold Resources - M oz.
		2009	2010	2011	Reserves	M & I	Inferred
Great Basin Gold	2	110	245	380	5.3	12.4	5.9
Sino Gold	4	220	270	350	5.1	8.3	n/a

Table 2: Comparison of Great Basin Gold with Sino Gold. Note the similar production levels and Reserves and Resources.

Great Basin is very similar in size of operations to Sino Gold. The reserves and resources are similar sized and their projected production levels are closely matched.

Great Basin Gold just completed an offering announced on November 1, 2009, $110 Million convertible debenture. As Ferdi Dippenaar, President and CEO, stated: “The sale of convertible debentures is the preferred option with fewer encumbrances on Great Basin Gold's balance sheet, no requirements to hedge gold production and, on a relative basis, comes at a lower cost of capital in a rising gold price environment.” Reading between the lines, this is code talk for cleaning financial house, in order to provide a neat and clean package for Big Gold’s consideration when they come calling.

Conclusion

The timing is right for Big Gold to bolster their depleting reserves. World markets are pushing the precious metal prices ever higher. Big Gold is flush with the high valuation of their stock prices. Their mined out reserves need to be replaced. Their own exploration will not be able to replenish the stock of minable ore bodies. The Big Gold companies are opening their Gold pouches and have their financial minions furiously calculating Gold Junior companies’ valuations. The bull market for precious metals has created a window of opportunity for astute investors. There are large and quick gains to be had, if you can find the right companies that are being targeted by Big Gold.

One company that is a target and favored by the writer is Great Basin Gold. Goldcorp established a benchmark of $133USD per Gold reserve ounce in their acquisition of Canplats. This was for Gold reserves on a property that only has a Preliminary Assessment completed for a possible open pit mine. Great Basin’s 5.3 Million ounces of reserves are in two ready to go mines that has infrastructure built with $334 Million in capital expenditures. Using the same valuation figure of $133 USD per reserve ounce times 5.3 Million reserve ounces gives $704 Million USD in value. Adding the $334 Million in mine infrastructure expenditures, the total becomes $1038 Million USD for the valuation of Great Basin. The current fully diluted shares outstanding is 437 million. Great Basin’s current stock price is $1.57 giving a market capitalization of $686 Million USD fully diluted. That means there is a possible 50% upside for Great Basin’s shares in this scenario.

For a second scenario, from Table 1, Great Basin is comparable with Sino Gold in valuation metrics. Should a business proposal appear, for valuation purposes, one may consider the $1.8 Billion valuation of Sino Gold as being applicable to Great Basin. If one considers the current debentures increasing the share float to 500 million, then the value per share would work out to be $3.60. Again there is a significant 100% + upside for Great Basin’s shares in this second scenario.

So Gold Junior, get your financial house in order, the “Gold Sugar Daddy” is coming!

Disclosure: The writer holds a long position in Great Basin Gold (GBG).

Comments

[Chancer]

WGW was already acquired by New Gold (NGD).

2009 Nov 23 01:18 PM

[Marco G.]

Hi Chancer,

That's one that I should have caught, as I followed the acquisition and watched NGD double because of it.

Thanks.

2009 Nov 23 01:29 PM

[Beach Bubba]

I have been accumulating GBG for a couple of years..Cried some tears, but still have it all and will buy more, as I feel this author is spot on.

2009 Nov 23 04:16 PM

[User 275302]

Doesn't location have a lot to do with mine acquisitions? GBG is scattered. Are its mines located near any other Major Miner.

2009 Nov 23 09:36 PM

[Marco G.]

Right you are and an easy answer too.
GBG has two operating mines. See my previous article for details:
seekingalpha.com/artic...

Hollister on the Carlin Trend in Nevada is surrounded by the many mines of Barrick, Newmont and one each from Kinross and Yukon Nevada. Link to map: www.greatbasingold.com...;pg=29
Burnstone in South Africa is in the Witwatersrand Basin surrounded by Harmony, Goldfields and Anglo Gold. Link to map:
www.greatbasingold.com...;pg=28;


On Nov 23 09:36 PM User 275302 wrote:

> Doesn't location have a lot to do with mine acquisitions? GBG is
> scattered. Are its mines located near any other Major Miner.

2009 Nov 24 12:31 AM

[West Coast Commentator]

As a 2002 investor in GBG I have only a year ago seen the $2 again (briefly topping $3.50), before falling hard to $1 again! Even with a great CEO (Ferdi Dippenaar) they ran into all kinds of temporary trouble and had to dilute us out of the window with the recent bottom-scraping share offering. A fool who suspects coincidence!

The conclusion is that even with the best properties and management track record you get f...... as a small investor in gold juniors! Any buyout below my intermediate target of about $10 / share (2-3 years, at full production, and with 3-4 other high grade mines past the feasibility studies - Tsetsera Property in Mozambique, properties in Tanzania and Iturup (Kurils) Islands (Russian Federation), and partly-owned Kryso's Pakrut gold project in Tajikistan) would be a crime and mean that we again got f..... !

Buyers beware - ans holders don't sell below $5 / share!

2009 Nov 25 02:47 PM

[Marco G.]

Found this information from May 08 article about buyouts of smaller gold miners:
www.dailyreckoning.co....
"But rumour has it that Barrick and Newmont are in talks with Great Basin. Apparently, they want to acquire Hollister to boost their reserves. "

2009 Nov 27 12:45 AM

[roger leon]

How about AMNP? They have discovered Gold right next to the big guy. GOLDCORP.

2009 Dec 01 12:48 AM

[Nadia Kageff]

I am with Eldorado Gold: (EGO)merging with Sino Gold.
Every Emerging Mrkt . is buying gold.
My (IAU) is also doing great. Life is good.

2009 Dec 01 05:44 PM

[Nadia Kageff]

P.S. Barrick Gold is going to distroy a couple of "GLACIERS" in the border of Chile and Argentina to mine for gold there. They will ruin the wild life and the Purest of waters. This area is Virgen territory, THINK ABOUT IT. This Project is called "Pascua Lama PROJECT".
Look it up, it shows maps and the info that everyone in Ar. and Ch. are in an uproar. The govt. is looking the other way, $$$$$$.
Barrick does not care . they will forever ruin this beautiful , untouched ,natural streams of water and all that surrounds it.SIC.
I will not buy into Barrick, there is alot of other mines in south Amer.
they can find gold in.

2009 Dec 01 06:02 PM

[Beach Bubba]

Nadia Kageff:

What an Idiot....You gonna spank big bad Barrick and not buy their stock. Your buying of their stock has nothng to do with with Barrick profitibility. What's gonna happen is, what's gonna happen. It is certainly not immoral to make a buck or two from it....Oh, and you know what? Glaciers come and go, they have done that for millions, perhaps billions of years. Don't eat the yellow snow.

2009 Dec 03 08:35 PM

[Marco G.]

Jan 8, 2010: in the ensuing contest between GoldCorp and Penmont for Canplats, they have driven the valuation of Canplats up approximately 1/3 from this article.

That means they now value the Canplats undeveloped Gold reserves now at about $175 per reserve gold ounce, up from the $133 in the original offer.

This bodes well for future gold company takeovers.

Jan 09 10:13 AM