Paradigm Capital Analysts: More Gold Takeovers to Come

The action in the gold sector was fast and furious in the last couple of weeks with two big takeovers: Aurelian Resources Inc. (AUREF.PK) and Gold Eagle Mines Ltd. (GEAFF.PK).  In addition, according to Paradigm Capital analysts Don MacLean and Don Blyth, this could be just the start.

Thanks to weak credit markets over the last six months, the small-cap gold companies have had trouble raising money and their stock prices have plummeted. The big gold miners have performed much better, so the conditions are better for them to make acquisitions, the analysts noted in their "Takeover 20" report.

They pointed out that in the cases of Aurelian and Gold Eagle, Kinross (KGC) and Goldcorp (GG) picked up very large, economically robust projects, "yet the margins to the buyers are among the best that we have seen since we began the Takeover 20 analysis [in 2005]."

The "margin" refers the spot gold price minus the investor's total cost to acquire, build, and operate the assets. For their "Takeover 20" list of potential companies, which average margin, is now a whopping $303 an ounce. And the implied internal rate of return on these takeovers is above 10%. What that means is that it can be cheaper to buy ounces on Bay Street than go to the trouble of developing them yourself.

The analysts also listed their top five takeover candidates: Andean Resources Ltd., Andina Minerals Inc. (ADMNF.PK), Bear Creek Mining Corp. (BCEKF.PK), Detour Gold Corp. (DRGDF.PK), and Osisko Mining Corp. (OSKFF.PK). They were selected because they have strategic deposits that are attractive to a number of possible buyers, are potential "company-makers," and are in safe jurisdictions. Honorable mentions went to Guyana Goldfields Inc. (GUYFF.PK) and Rainy River Resources Ltd. (RRFFF.PK).

Comments

[gatersaw:]

Gold tracks global inflation. The inflation balloon in the US has been relieved by decreasing housing prices and falling equities prices. Countries hold their inflation in these two asset classes. If the largest economy in the world has let the air out of its inflation storage device then why would gold appreciate vs the dollar?
There was a pin prick of the inflation balloon in the UK in November 2007. EU felt the "pop" in April 2008. Inflation is going down now not up. We experience inflation at the grocery store at present because it's "baked in" to the economy and will take time to find it's way out as producers experience cheaper production costs.
There is no reason for a gold rally right now. We should revisit this thought in a year but most likely we won't be buying gold for 2 years.

2008 Aug 06 02:29 PM

[novice inve...:]

The article as usual is very helpful and informative.

TO: gatersaw, previous comment. I'm a novice
but I agree with buying gold now or very soon.
We will see by the end of this year I think.

2008 Aug 18 07:45 PM

[DizzySailor:]

Gee, I'd figure all the dollars coming out of Washington should have some effect on inflation. I mean 700,000,000,000.00 is not just pocket change is it? Don't be the last one to the party boys.

2008 Oct 10 10:49 AM

[gatersaw:]

I don't think anyone anticipated an extremist left wing president that would triple the national debt in 6 months! I'm getting in your buying gold boat but here is what I'm doing that is a little different. Gold is considered a currency until what happens? Until China decides it is not a currency. I'm buying silver which is an industrial metal as well as hard currency, copper, soybeans, corn because if the system really does fail food is going to be more important than metal for a while. My intention is to begin buying these things after the next drop in equity prices in the USA. I foresee a big drop coming thanks to corporate defaults and another wave of housing defaults. This wave of defaults will do the same as the first one. If you were not paying attention it will cause deflation again which raises the value of the dollar and deflates the value of equities and real estate. I see this happening very soon. So you gold buyers are going to have another 3-6 months to wait before going to the moon. Maybe another year but I doubt that.
financialworldmarketsm.../

To: Novice investor. Thanks for your opinion.


On 2008 Aug 06 02:29 PM gatersaw wrote:

> Gold tracks global inflation. The inflation balloon in the US has
> been relieved by decreasing housing prices and falling equities prices.
> Countries hold their inflation in these two asset classes. If the
> largest economy in the world has let the air out of its inflation
> storage device then why would gold appreciate vs the dollar?
> There was a pin prick of the inflation balloon in the UK in November
> 2007. EU felt the "pop" in April 2008. Inflation is going down now
> not up. We experience inflation at the grocery store at present because
> it's "baked in" to the economy and will take time to find it's way
> out as producers experience cheaper production costs.
> There is no reason for a gold rally right now. We should revisit
> this thought in a year but most likely we won't be buying gold for
> 2 years.

Jun 24 02:25 PM