A Busy November for Gold Company M&A

Marin Katusa  |

Pixabay, Skeeze

There have been close to $6 billion in gold buyouts the last 2 weeks—none of which was a major surprise—and one massive gold company on which I was in early made major headlines.

The Big Two Gold Companies Making Moves

Below is a chart which shows the operating mines of Newmont and Barrick. The yellow dots are Newmont, and grey are Barrick. The purple represents joint-ventures between the two companies.

Click to enlarge

The joint-ventures are the obvious first candidates for companies to sell off or acquire full stakes in.

  • Barrick has been very aggressive in stating they only want to own projects that are capable of producing 500,000 ounces or more per year.
  • The focus will be on “Profitable Gold Production and near term Reserves”.

It shouldn’t come as a surprise that one of Barrick’s first moves was to sell off its 50% stake in Kalgoorlie to Australia's Saracen Mineral Holdings for $750 million.

Saracen is a company I’ve highlighted several times as one of the Australian miners that would take a run at buying assets from North American peers.

Mark Bristow, Barrick’s CEO, has been quite adamant about selling off assets that it does not own wholly or those that do not produce over 500,000 ounces per day for 10 years.

The second major deal this week was again an Australian miner, this time Evolution Mining (EVN:ASX) acquiring the Red Lake package from Newmont-Goldcorp for $375 million.

I believe the domino chain has begun to fall with Kalgoorlie and Red Lake, two non-core assets being sold along with Detour being acquired.

This package of assets has an incredible mining history.

But it does not move the needle for a company like Newmont-Goldcorp.

Gold Deals – The Next Chapter for Kirkland Lake

The big earthquake was when Kirkland Lake flexed its muscle and large market cap to buy Detour Gold for $4.9 billion in Kirkland shares.

Kirkland’s goodwill from the markets has been taken away until CEO Tony Makuch and his team can prove this deal was a profitable acquisition.

Detour is a massive leveraged play to the price of gold since their costs are in Canadian dollars. And I don’t see the CAD getting stronger any time soon.

I also expect the U.S. dollar to stay strong and perhaps even get stronger. Both work in Kirkland’s advantage in this acquisition.

I think Tony and his team will bring in some synergies and cost improvements. But the wildcard is the price of gold. This was a bold move by Kirkland, and kudos to Tony and his team for having the balls to do this deal.

But, if gold breaks down below $1300, Kirkland will have a tough time running a profitable operation at Detour.

If gold stays rallies and stays above $1,500, Tony will look like a more attractive version of Mark Bristow, who is known for his bold moves.

It’s incredible to think only four years ago, I bought just under 10% of Newmarket Gold for under CAD$1.50 per share. Newmarket Gold owned the Fosterville Gold Mine at the time, and it’s now Kirkland Lake’s flagship asset.

Although I was one of the first to the story, I’m still kicking myself for selling too early as Kirkland Lake rocketed to the stratosphere.

This deal is going to get a lot of naysayers.

And I remind these naysayers, that many of you pooh-poohed the deal between Kirkland Lake and Newmarket Gold back in 2016.

How wrong were you? Considering the share price went from $3 to $60 - pretty wrong.

While I do believe this deal is full value for the current Detour Mine, Tony and his team clearly have a long-term angle. Just like they did with Newmarket Gold and Fosterville.

I am going to sit on the sidelines for now and watch the best performing gold company of this decade execute its game plan.

Go Tony go.

Breaking Down the Top Performing Gold Stocks of the Year

I spend countless hours every week analyzing the next acquisition targets and I have my shortlist.

If you want to skip the man-hours to do it yourself, they will be published with my full analysis in next week’s December edition of Katusa’s Resource Opportunities.

So, how do your gold producers stack up to the rest of the assets around the world?

Below is a chart that shows the production cost curve for primary gold producers.

If your gold company isn’t making money at current gold prices—time to sell it and buy something that is. Focus on Profitable Production.

Click to enlarge

Now, let’s take that a step further.

In the charts below, you’ll find the year-to-date performance of primary gold producers. And the minimum production we’re including is 50,000 ounces per year.

Let’s start with the big boys.

This includes North American or Australian listed primary gold producers that produce over 1 million ounces of gold per year. The average return for the senior producers this year is +65%, or 47% excluding Sibanye.

Click to enlarge

Now let’s move on to the mid-tiers.

This group produces between 250,000 and 1 million ounces of gold. The mid-tier producers' average return year to date is +34%.

Click to enlarge

And finally, below you’ll find the YTD returns of junior producers.

The cutoff for the junior producers is annual gold production of at least 50,000 ounces per year, up to 250,000 ounces per year. The average return for the juniors is +24%.

Click to enlarge

So, the question to ask yourself is this - how did your picks standup?

There’s no shortage of deals and opportunities right now, especially during the next 30 days of tax loss season.

That’s when you can buy some of the best companies (from a value standpoint) on the cheap. Some investors that saw their shares in these stocks tumble over the year will want to sell en masse.

It’s the annual fire sale and we’ve sharpened our list of hundreds down to three stocks I want to buy.

Only subscribers to Katusa’s Resource Opportunities will get the names, ticker symbol and easy to read analysis. And it all comes out next week on December 4th.

_____

Equities Contributor: Marin Katusa

Source: Equities News

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer. The author of this article, or a firm that employs the author, is a holder of the following securities mentioned in this article : None

Comments