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DAILY NEWS Dec 30, 2013 4:07 PM - 1 comment

Cowen & Co.'s picks as M&A targets in gold's next growth stage

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2013-12-30

In a report published early last month on acquisition targets that would make sense in the gold sector, Cowen and Company mining analysts Adam Graf and Misha Levental reason that major producers of the precious metal are still profitable and opportunities abound to acquire discounted juniors and assets to fill their project pipelines.

“The few mega-projects in the hands of juniors are significantly more advanced (and de-risked) than they were a few years ago,” the New York-based analysts contend, and the larger gold companies have the opportunity to acquire juniors at historically low valuations as well as quality projects for “pennies on the dollar.” Moreover, they have the luxury of deferring construction spending until markets improve.

“Not only are valuations at decade lows, but the valuation discrepancy between producers and pre-producers is at levels not seen since 2008 — when many pre-producers were trading at negative enterprise values,” they say.

And while some of the largest North American producers might hesitate to make acquisitions at a time when industry sentiment is so negative, Graf and Levental argue they must press ahead and develop their project pipelines or they will be without replacement production in a few years. “If management teams do not act to purchase advanced assets, many will likely find themselves without replacement production post-2017.”

In their report entitled “Gold Miners: Prime Time for an M&A Wave,” the analysts looked at six senior gold producers: Barrick Gold (TSX: ABX; NYSE: ABX), Newmont Mining (TSX: NMC; NYSE: NEM), Goldcorp (TSX: G; NYSE: GG), Kinross Gold (TSX: K; NYSE: KGC), Agnico Eagle Mines (TSX: AEM; NYSE: AEM) and Yamana Gold (TSXL YRI; NYSE: AUY; LSE: YAU).

At Barrick, the authors maintain, management should sell-off all non-core assets and refocus on North America. They contend that sensible acquisition targets would include Pretium Resources (TSX: PVG; NYSE: PVG) and its Brucejack asset in northern British Columbia; NovaGold Resources (TSX: NG; NYSE-Arca: NG) and its flagship Donlin Creek project in southern Alaska in which Barrick already owns a 50% stake; Chesapeake Gold (TSXV: CKG) and its Metates project in Mexico; and Exeter Resource (TSX: XRC; NYSE-Arca: XRA) and its Caspiche project in northern Chile.

Other names of interest to Barrick, they maintain, would include Seabridge Gold (TSX:SEA; NYSE: SA) and its flagship KSM asset in northern British Columbia; Imperial Metals (TSX: III) and its Red Chris project in northwestern B.C.; and Romarco Minerals (TSXV: R) and its Haile project in the Carolina Slate Belt of the southeastern U.S. In addition, the analysts argue, in order to repair its balance sheet, Barrick should sell its stake in Goldstrike to Newmont.  

Newmont, the analysts say, should re-focus its efforts in low investment-risk jurisdictions like Nevada, “where it has already made significant infrastructure investments,” and also look at areas such as northwestern British Columbia. They believe the most sensible acquisition targets for Newmont are Gold Standard Ventures (TSXV: GSV; NYSE: GSV) and its Railroad project in the Carlin trend; Seabridge Gold; and Northern Dynasty Minerals (TSX: NDM; NYSE: NAK) and its Pebble asset in Alaska. Other potential acquisition targets include Pretium, Imperial Metals, Romarco and Allied Nevada Gold (TSX: ANV; NYSE: ANV) and its Hycroft mine in Nevada.

Goldcorp should take advantage of valuations with potential acquisitions such as Premier Gold Mines (TSX: PG; US-OTC: PIRGF) and its Red Lake properties (Rahill-Bonanza), in which Goldcorp already owns 51%, as well as Premier’s Trans-Canada assets; Gold Canyon Resources (TSXV: GCU) and its Springpole asset in Ontario; and Pretium. Other potential companies of interest that could make it to Goldcorp's short list are Torex Gold Resources (TSX: TXG) and its Morelos project southwest of Mexico City; Rubicon Minerals (TSX: RMX; NYSE-Arca: RBY) and its Phoenix project in Ontario; and Romarco.  

As for Agnico Eagle, Gold Canyon, Gold Standard Ventures, Guyana Goldfields (TSX: GUY) and its Aurora project in Guyana; and the Courageous Lake project, 100%-owned by Seabridge Gold, all look attractive, the analysts say. Other potential assets of interest would be Sabina Gold & Silver (TSX: SBB) and its Back River project in Nunavut; Midway Gold (TSXV: MDW) and its North & South Pan projects in Nevada; and Klondex Mines (TSX: KDW) and its Fire Creek asset in Nevada.

Kinross should take a close look at Victoria Gold (TSXV: VIT) and its Eagle project in the Yukon; Gold Canyon and Exeter, while Yamana Gold should look at Guyana Goldfields, Torex Gold; Beadell Resources (ASX: BDR) and its Tucano project in northern Brazil; and AuRico Gold (TSX: AUQ; NYSE: AUX) and its Young Davidson gold mine in Ontario.

In terms of the mid-cap precious metal producers they cover, the Cowen and Company analysts believe First Majestic Silver (TSX: FR; NYSE: AG) and Pan American Silver (TSX: PAA; NASDAQ: PAAS) could be looking for acquisitions to complement their current assets.

Possible assets of interest to First Majestic they say include Paramount Gold & Silver (TSX: PZG; NYSE: PZG) and its two advanced stage assets, Sleeper in Nevada and San Miguel in Mexico; MAG Silver (TSX: MAG; NYSE: MVG) and its Juanicipio and Cinco de Mayo projects in Mexico; and Silvercrest Mines (TSXV: SVL) and its Santa Elena mine in Sonora, Mexico.

Targets of interest to Pan American Silver, the analysts continue, would include Aurcana Corp. (TSXVL: AUN; US-OTC: AUNFF) and its Shafter silver mine in Texas and its La Negra silver-copper-lead-zinc mine in Mexico; Excellon Resources (TSX: EXN; US-OTC: EXLLF) and its La Platosa mine in Durango, Mexico; Wildcat Silver (TSXV: WC) and its Hermosa silver-manganese project in Santa Cruz County, Arizona; and Huldra Silver (TSXV: HDA) and its Treasure Mountain mine in B.C. 



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Reader Comments

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David Collins

Just an FYI that Cowan and Company is actually spelled Cowen.

Posted February 4, 2014 04:44 PM


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