Six mining companies to watch as mergers and acquisitions heat up
July, 26th 2016
In the most recent mining merger and acquisition (M&A) activity, Goldcorp Inc. acquired Kaminak Gold Corp. to get its hands on the coffee project in Canada's Yukon Territory, and Fortuna Silver Mines Inc. is in the process of acquiring Goldrock Mines Corp., whose flagship asset is the development-stage Lindero heap-leach project in Argentina.
As gold and silver prices seem to be holding their ground—resulting in increased target prices for both precious metals—it would be normal to expect more M&A transactions to occur in the second half of the year, as the midtier and senior producers wouldn't want to miss out on any deals.
Of course, one should never invest in a company purely based on buyout speculation, but sometimes there are plenty of arguments to be made about why a company could be on the short list of their larger competitors.
In the past 12–24 months, companies have not only been focusing on cutting costs, but also on making a run toward "safer" assets. Higher-risk projects have been sold, and practically all new deals were in regions with an acceptable geopolitical risk as companies refuse to invest hundreds of millions (or billions) in assets located in higher-risk countries where the returns are only marginally higher.
Today I will focus on some logical buyout targets in the Americas.
Junior exploration companies with an existing joint venture (JV) agreement are on top of the list. Not only does the existence of a JV deal confirm the company's asset has drawn the attention of other companies, but also those larger companies usually don't want to deal with minority partners on a project basis.
1. "Making a deal on Paul Isnard might create a win-win situation for both Columbus Gold Corp. and Nordgold."
An excellent example would be Nordgold N.V., which dislikes having minority partners on any of its projects. Even if there's a lot of opposition from the shareholders of the targeted company, Nordgold pushes through and usually secures 100% ownership of the asset it wants to get its hands on. That's what happened with High River Gold Mines several years ago—Nordgold wanted to own the Taparko-Bouroum and Bissa projects, rather than having High River Gold as a minority partner—and that's what might happen to Columbus Gold Corp. as well.
Nordgold is earning a 50.01% stake in Columbus' Paul Isnard gold project in French Guiana, but it's not unreasonable to think Nordgold will want to own the entire asset. As the after-tax NPV8% of the project is almost half a billion dollars (using a gold price of $1,300 per ounce), Columbus Gold is trading at just one-third of the NPV, and making a deal on Paul Isnard might create a win-win situation for both parties involved.