The following article was written by David Pett for The National Post, May 27th, 2013
Few gold miners are in a position to acquire new assets at the moment, but those that are have a solid opportunity to pick up high-quality development assets, says a new National Bank Financial report.
“Despite the threat of production declines, many producers need to get their own portfolios in order and execute at existing operations before shareholders would support M&A or even strategic investments,” said the bank’s team of mining analysts.
“However, in the meantime, those companies that are in a position to execute on strategic investments or even bite-size acquisitions are likely to pick away at assets, if even to hold them in inventory until market conditions improve.”
Agnico Eagle Mines Ltd. is leading the charge on this front, making four investments worth $53-million in just over two months.
But National Bank analysts said there are very few companies who can carry out the same strategy, because most do not have the balance sheet strength, harvest mode status, investor support and bandwidth that Agnico has.
Those companies that do have similar characteristics will likely be intensifying their M&A efforts, they said. “We believe that other companies will not and should not sit idle. Here’s why: inventory of high-quality (ie. low capex intensity, favourable IRR, EXECUTABLE) assets in favourable jurisdictions are limited; valuations are compelling; and, bottom line, companies need to get on with business,” the report said.
“In other words, make moves to secure high quality exploration and development projects even if it means putting it into inventory until market conditions improve.”
Possible acquirers include New Gold Inc., Yamana Gold Inc., Alamos Gold Inc., Eldorado Gold Corp., Goldcorp Inc. and B2Gold Corp., while the short list of high-quality acquisition candidates includes Romarco Minerals Inc., Balmoral Resources Ltd., Belo Sun Mining Corp., Minera IRL Ltd., Newstrike Capital Inc., Rainy River Resources Ltd., and Torex Gold Resources Inc.
“While other jurisdictions offer prospective geology and, in cases, mining expertise, we see the potential for assets in the Americas, notably Canada, US, Mexico, Chile, Brazil, and, arguably, Peru for bite-size projects, and Australia to remain in focus,” National Bank analysts said.
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