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13:23 NY Time
Gold Mining Stocks: Top 3 Junior Take-Over Candidates
David Erfle
Friday September 14, 2018 09:24
Kitco Commentaries | Opinions, Ideas and Markets Talk
Featuring views and opinions written by market professionals, not staff journalists.
Although 2018 has been a rough year for junior resource equity speculators, there has been some positive M&A activity in the complex over the past few months. Most notably, we have seen a number of larger acquisitions including South32’s US$1.3B deal for Arizona Mining, Orion’s C$537M bid for Dalradian Resources, and just last week, Zinjin Mining’s friendly offer to acquire Nevsun Resources for US$1.41B. The most encouraging aspects of these transactions are that they were all-cash offers at a high premium to market prices.
I am especially encouraged to see all-cash deals happening again in the space, as these arrangements become an instant pay day for speculators at the offered price. With many quality juniors being discounted the past few months, mid-tier and major miners may continue to be in a buying mood. Most of the global miners, whose margins on gold production have not kept pace with the rise in the gold price over the last 12 years, are looking for low-cost projects. Global miners need to replace their reserves and resources and are in search of high-margin projects with the right combination of grade, size, and infrastructure.
Here is a list of my top 3 juniors developing projects which may be acquired by a global miner within the next 12 to 18 months:
Wesdome Gold Mines (WDO.TO): This Canadian focused gold producer/developer has 100% control of a pipeline of projects in various stages of development. The most intriguing being the brownfields Kiena Complex in Val d’Or, Quebec, which is a fully permitted former mine with a 930 metre shaft and 2,000 tonne per day mill. The new management team, which was restructured in September of 2017, has focused primarily on the exploration upside of the projects and the share price has benefitted from this strategy by out-performing the sector since that time. The stock bifurcation from the sector has been due primarily to the excellent results the company has been releasing from its ongoing drill program at Kiena, which is expected to be completed by the end of October. Wesdome has plans to release a resource update on the project by the end of this year. The market has begun to price in the company’s strategy of becoming a 150,000 – 200,000 oz per year producer in the heart of prolific gold camps in both Ontario and Quebec.
Atlantic Gold (AGB.V): This is another Canadian focused, growth-oriented gold producer, which is currently growing gold production in Nova Scotia. The company’s MRC phase one open pit gold mine declared commercial production in March 2018. Phase two of the mine expansion is planned for completion by 2021 and the company plans to ramp up gold production to + 200,000 ounces per year by 2022 at industry lowest quartile cash and all-in-sustaining-costs. The Phase three expansion drill programs, recently completed at the satellite deposits Fifteen Mile Stream and Cochrane Hill, targeted extensions of mineralization and defined/upgraded inferred resources not included in the 2018 PFS to measured and indicated categories. A phase four corridor regional program commenced in April 2018 and is systematically exploring the + 45km of prospective un-tested structure. The ongoing drill program is targeting disseminated style gold deposits amenable to open pit mining. The stock price has not suffered a harsh correction along with most juniors and management is aligned with shareholders by maintaining control of over 35% of the stock.
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Pure Gold (PGM.V): This Canadian developer is in the process of a definitive feasibility study for the 100% controlled Madsen Gold Project, which is contained in more than 47 square km of contiguous patented mining claims in the prolific Red Lake region of Ontario. Madsen contains a current indicated resource of 1,744,000 ounces of gold (6.24 million tonnes grading 8.7 g/t Au, at a 4g/t cut-off), with an inferred resource of 296,000 ounces of gold (1.16 million tonnes grading 7.9 g/t Au, at 4 g/t cut-off) and is situated close to existing infrastructure. In September 2017, the Company released a Preliminary Economic Assessment (PEA) for an underground mining operation which outlined a long life, high margin mine, with low initial capital requirements and an accelerated timeline to production. The company is currently in the process of metallurgical, infrastructure, and development studies and the results are expected in the fourth quarter of 2018, with environmental baseline and permitting updates in progress. Drilling and metallurgical results from satellite deposits Wedge, Russet South, and Fork will be incorporated into an updated resource estimate and initial economic study, on track for release in Q4 2018. These satellite deposits have the potential to positively impact the annual production profile at Madsen. The share price has held up extremely well during the recent capitulation in the gold stock complex and continues to trade well above its 200-week moving average. Management has been steadily buying shares in the open market since the middle of August.
Full disclosure: I own shares of WDO.TO, AGB.V & PGM.V and purchased them in the open market. I have also recommended all three of these companies to my subscribers. I do not receive any monetary compensation, or stock options from any of the companies I invest in, or discuss in my Kitco weekly articles. Please do your own due diligence before purchasing shares in any of the companies mentioned in this article.
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By David Erfle
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