M&A Heating Up

Financings have been flying and now M&A has started to heat up as per the following events:

• Newmont Corporation acquires GT Gold Corp. for C$456Million
  • https://www.globenewswire.com/news-release/2021/03/10/2190281/0/en/Newmont-to-Acquire-GT-Gold-in-Agreed-All-Cash-Transaction.html
• Evolution Mining Limited acquires Battle North Gold Corporation for C$343Million
  • https://www.newswire.ca/news-releases/battle-north-gold-corporation-to-be-acquired-by-evolution-mining-limited-818916984.html

Reflections:

The many financings (some upsized multiple times) and the M&A activity tells us that the smart money agrees that the junior miners are cheap relative to the value of the gold mining business at these gold prices. It also tells us that the majors are finally getting comfortable doing acquisitions and they have been making a lot of money the last couple of quarters which doesn’t hurt. What is interesting is how quickly the Evolution deal came to be after Newmont had taken the plunge. Maybe these two transactions will make more mid tiers and major mining companies comfortable with taking the plunge as well. Another thing to note is that both these transactions involved projects in Canada. Thus I continue to believe that Canada is probably the best place to be when it comes to discoveries since it looks like it the place where Majors are very comfortable with at the moment. I also think this M&A action will lead to even more buying in Canada focused juniors overall. With that said there is always a price where one might pay too much for a junior even if it should have a premium relative to similar juniors in worse jurisdictions.

Anyway, I have structured my portfolio to have a lot of exposure to Canada since several months, which includes but is not limited to:

1. Eskay Mining
2. Goliath Resources
3. Juggernaut Exploration
4. White Gold Corp
5. Prosper Gold
6. Labrador Gold
7. Enduro Metals
8. New Found Gold
9. Kuya Silver (Via the Silver Kings Property)
10. Kingfisher Metals
11. Signature Resources
12. Tombill Mines

Note that some are more de-risked than others and some have a resources already (like White Gold).

What we know is that the majors need to replenish their reserves just in order to stand still. We also know that discoveries are becoming rarer and rarer by the decade it seems. This is of course a very positive thing for junior investors since the majors will have no choice but to buy deposits since they don’t do much exploration work themselves anymore. I would also note that my ideal scenario is certainly not to have any of the juniors I own to be bought out at these levels even if it comes with a 40% premium. I mean the juniors are all incredibly cheap relative to the current price of gold/silver and I expect gold/silver to go a lot higher in the coming years. In other words I think Newmont and Evolution Mining are indeed smart money that are taking advantage of the lack of buying interest in the juniors (from retail in the open market). I would prefer to sell to “dumb” or “greedy” money, during sentiment highs, like when Kinross bought Red Back Mining for over C$10 B during the top of the last bull cycle. I guess what I am trying to say is that one should not be invested in this sector if one is cheering for a 40% return from very low levels given the risk we are taking on as investors. Furthermore, with cheap juniors getting bought out it also means we have less vehicles to ride this bull market in. The nightmare scenario would be for all high quality juniors to be bought out during this correction and there would simply be no juniors with multi bagger potential left (I think this is very unlikely to happen however). On a positive note it also means that there will simply be fewer juniors for investors to put their capital into given that Battle North Gold and GT Gold are being stricken from the board. On the other hand it also means that shareholders of said companies got an OK payday and will have more powder to put into to other juniors.

Note: this is not investment advice. Always do your own due diligence. I own all of the stocks mentioned in this article and some are banner sponsors. Therefore consider me biased.