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If you got burned in the past at junior mining investments by overly positive newsletter writers, sell side analysts or other (paid) sources which more often than not avoid to mention (hidden) risks or critical flaws, The Critical Investor goes a few steps further, and might provide a fresh,... More
  • Brent Cook Asks The Most Important Question For Gold Producers 0 comments
    Apr 26, 2014 5:31 AM
    Investment Banker Pressure, Safe Operations Powering Senior M&A Bids - Brent Cook

    By Alex Létourneau of Kitco News
    Thursday April 24, 2014 1:48 PM

    (Kitco News) - Senior gold producers have garnered many headlines in 2014 with mergers and acquisitions bids powered by pressure from investment bankers and the need for safe, known operations.

    Founder, Editor Exploration Insights

    Brent Cook, geologist and editor of the Exploration Insights newsletter, told Kitco News that he thinks a push from investment bankers is one of the main drivers in M&A talks from seniors.

    "I think every investment banker is looking for something to push, so any company with a decent balance sheet, or share price, is being hustled by investment bankers to buy something," Cook said. "The motivation of the seniors for M&A right now is to get operating assets in safe jurisdictions."

    Goldcorp Inc. (TSX:G)(NYSE:GG) made waves in early January, launching a hostile bid for Osisko Mining Corp. (TSX:OSK), with the main motivation being the company's Canadian Malartic mine operating in Quebec.

    A bidding war ensued with Yamana Gold Inc. (TSX:YRI)(NYSE:AUY) putting in a C$3.4 billion bid at the beginning of the month, which then led Goldcorp to put in a C$3.6 billion offer. Yamana and Agnico Eagle Mines Ltd. (TSX:AEM)(NYSE:AEM) replied with a C$3.9 billion bid, which was accepted by Osisko management on April 16, with Goldcorp shortly announcing they were stepping aside.

    Goldcorp's pursuit of Canadian Malartic made sense to Cook.

    "You look at Goldcorp, and their big investment down in Argentina, Cerro Negro, and we're talking billions of dollars - that's getting pretty dicey with what's happening in Argentina," Cook said. "So for Goldcorp, picking up another asset in Quebec made a lot of sense.

    "The important point is that it was built and running so basically they know what they're getting. The hiccups were fixed, so it made sense for them," he added.

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    What doesn't make much sense to Cook is the merger talk between Barrick Gold Corp. (TSX:ABX)(NYSE:ABX) and Newmont Mining Corp. (NYSE:NEM).

    "They've been dating off and on for a couple of years and have not been able to seal a deal to a large degree because Peter Munk wants to stay in control," Cook said. "I can see some synergies, especially in Nevada, but other than that, the companies are largely scattered across the world, so it's hard to see the synergies.

    "I guess the question is where do the synergies come from, and I guess they come from likely laying off a lot of the middle management people that get a paid a decent wage. There are no new ounces added per se to production, it's just a financial move," Cook said. "Once you're as large as that combined company would be, where do you go for your next deposit? Bigger isn't necessarily better, especially when you're a gold mining company desperate for new ounces."

    Cook sees big companies missing a golden opportunity to get some good development stage deposits right now.

    "There are a half a dozen projects out there that I think are good deposits that they're not going after because the market's negative on that right now," Cook said. "But further down the road, next year or the year after, they're going to need these deposits. They're missing an opportunity not going after development projects.

    With mining earnings getting started, Cook doesn't expect any big surprises as companies have reigned in costs, to a degree. But he cautioned that the types of cutbacks miners undertook may hurt in the not-so-distant future.

    "I think we'll see earnings more or less in-line with expectations," Cook said. "Input costs have come down some, there has been some high-grading and remodeling of mine plans that will help costs and they certainly cut way back on exploration and development, so we should see some sort of improvement.

    "But what happens next year, or the year after? That's the real question," he continued. "If they've high-graded their deposit, they've gutted it and have lower grades, they laid off their exploration and development teams so there's nothing new coming in - that's when it gets interesting."

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

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