M&A was very robust in 2009 and will only accelerate over the next several years as the fiat money house of cards is falling down, making gold and silver miners eager to make deals while they are still affordable. The following is a list of several big acquisitions that took place in 2009 and Q1 2010
International Royalty Company
Kinross Gold (KGC) increasing ownership of B2 gold
As Gold prices have built support levels over $1,000/oz ( and the long term price headed higher as a result of worldwide monetary and fiscal malfeasance ), it makes financial sense to get lucrative deals done as fast as possible. I think numerous miners are in talks with each other, but I guess we will just have to wait to find out who the bidders and the potential targets. The following is my top candidates for potential takeover targets. In no particular order...
Bear Creek Mining (BCEKF.PK) - This small company owns extremely valuable assets including the Corani mine as well as Santa Ana. Thought Corani is still several years away from reaching production at Corani (6th largest undeveloped silver mine in the world), but already has 258 million in P&P reserves and an additional 71m oz of M&I silver resources. The company has a combined resource base over 425m oz between the two mines, making it one of the largest. But one thing in particular that stands out is the low all in operating cost per ounce of $1.54 for the first 6 years and approx $3.75/oz for the LOM ( 20+ years).
On the heels of raising production guidance (courtesy of its Tasiast mine), Red Back (RBIFF.PK) can now look at potential takeover targets (which the company is obviously looking for as the bid for Motomines last year). Red Back has low cap-ex requirements, cash costs and has over $150M in cash with no debt. I think Red Back may go after Avion Gold or Keegan Resources (KGN).
Avion Gold Corp (AVGCF.PK) - West African Gold Producer which produced approx 55k oz of gold in 2009, set to jump to 110k by 2012. But with a capacity upgrade, studies indicate production could be in excess of 200k by 2011. This would be beneficial to both parties, with red back supplying the financing for the upgrade.
Keegan Resources (KGN) - As opposed to Avion, Keegan would offer a superior long term growth profile. The Essase project already has 3.5m oz of I&I resources with drilling yet to commence at the Assumura mine. Though preliminary production figures have yet to be determined, it is worth noting these are both high quality mines with the Essase project located on the gold belt Asankrangwa in Ghana. Assumura's prospects are very bright as it also lies in a high quality region in close to proximity to the Ahafo mine (which has reserves of 12.2 million ounces).
Jaguar Mining (JAG) - Should Jaguar be acquired, it would provide immediate cash flow generation as well as best in class long term growth potential. Jaguar will go from producing 155k/oz in 2009 to approx 750k by 2014. This assumes production guidance isn't raised and the recent acquisition of the Gurupi project will contribute 50k oz. Jaguar only has a market cap of around 920m, giving shareholders tremendous upside in the case of an all cash buyout.
Revett Minerals- Although several years away from commercial production, Revett's Rock Creek project, like Bear Creek's Corani mine, is another world class silver mine. It is the 8th largest undeveloped silver deposit in the world. To date 229m oz of silver and 2m/lbs of copper have been identified. Based on a initial rough estimate of production once in operation, Revett has Rock Creek producing between 8-12m oz and between 50-60k/lbs of copper annually for 20 years.
Finishing off my top 10 takeover targets are:
- Romarco (RTRAF.PK)
- Tanznian Royalty Exploration (TRE)
- Kirkland Lake Gold (KGILF.PK)
- Virginia Mines (VGMNF.PK)
- Greystar Resources (GYSLF.PK)
Disclosure: Long: BCEKF.PK, JAG, RBIFF.PK, KGILF.PK