M&A Activity In Mining Is Just Getting Warmed Up, While Gold Looks Ready To Take A Run At $3K

I’m expecting a strong rally in gold to take it well above $2500 this week. After the Fed sat pat on interest rates at the Wednesday meeting, Wall Street sent a clear message that they are spooked. Thursday Wall Street stocks sold off, and continued on Friday after the unemployment numbers came out.

The job market is in tough shape and this wasn’t a Friday event. For months full-time jobs have been in decline, while part-time jobs have increased. Losing a higher paying full-time job with benefits to replace it with a lower paying part-time job with no benefits is painful. Which is why people are leaving the workforce.

The Fed and politicians can talk about near full employment and job creation, but when the jobs are part-time or government jobs, the reality to workers is clear that the jobs market is in trouble. Regardless of the smoke and mirrors numbers coming out that count full-time jobs and part-time jobs as the same. They aren’t and workers know the difference.

I highly doubt that the Fed cares much about the jobs market, despite their much stated dual mandate for a healthy jobs market and price stability. What they most definitely will care about is price stability in the stock market.

This weekend, I imagine the key Fed members' phones are ringing off the hook from politicians and their Wall Street banker friends. The politicians will be pounding the table that an election is coming up and a tough jobs market or recession won’t help them. Wall Street bankers will tell them they don’t want a run on regional banks that spills over to the big banks, and they certainly don’t want a run on Wall Street stocks.

My guess is that the Fed spokespeople will be out in force next week mentioning the options the Fed has. Those would include a rate cut between meetings, which I doubt will happen, but is certainly not off the table if Wall Street stocks get pounded on Monday and the blood keeps spilling. More likely, they will signal a rate cut is coming at the September meeting with a possible half-point on the table.

The Fed’s jawboning will be tough on the US dollar which looks like it has a lot more downside risk. It will also be very bullish for gold, which is already in a powerful bull market.

It is important to point out that during the rate hiking period and since, gold has been in a powerful bull market when it usually would be under pressure. I’m expecting that the next rally in gold, likely to start right away, will take it way beyond $2500 and head toward $3000 before the end of this year.

M&A In Mining Stocks

Shortly after the Filo takeover offer from BHP and Lundin Mining, I saw comments from Rio Tinto’s head honcho, mentioning that they are open to takeovers but cautious about what he calls an overheated market. This sounds like he wanted to tell the market they are looking to buy others but trying to talk things down to get a better price.

I doubt the effort to talk prices down will work because BHP isn’t talking, they are making takeover moves. Everybody in mining knows that the copper supply chain is weak and about to get overwhelmed by demand.

The Filo offer puts a spotlight on copper development projects in Argentina. McEwen Copper’s Los Azules is exactly what majors need. It has a long mine life as it is very big, and most importantly it is a no-brainer of a future free cash flow machine of a copper mine.

The copper development projects available are not enough to meet near-term and long-term demand. Basically, all of them need to turn into mines, they won’t because some are stuck in permitting purgatory.

Down the copper food chain looking at exploration, there are few serious discoveries that can be moved into the development stages. This is a big problem for the copper supply chain because copper discoveries have been in decline for a couple decades.

Looking at the copper mines in production, and then down the food chain at those in development and exploration, the supply chain is going to be overwhelmed by demand for many years. Even if copper prices go up dramatically, it won’t be enough to significantly help the copper supply chain.

It will cause investors to chase copper stocks higher, which will help valuations and allow for more M&A actions. The current copper mines are old and getting depleted rapidly and there just aren’t enough copper projects in development, while explorers are underfunded to make the much needed copper discoveries.

The bottomline is that with looming copper supply deficits that will be overwhelmed by demand, copper is primed to go much higher. Earlier this year we got a look into the future when copper popped to new record highs. I’m looking for copper to head much higher and set a series of new all-time highs.

With gold at all-time highs against every fiat currency, including the most watched pair of gold against the US dollar, I expect that M&A could pick up in a big way. I can see select companies that could be in play, with buyers making tons of money and are likely to pull the trigger.

My two top picks for big gold miners had fantastic second quarter reports out on Wednesday. Both Agnico Eagle and Alamos Gold announced record free cash flow. They both produce gold at well under the average cost of gold production across the gold mining sector. They have fat margins due to gold trading for around $1000 above their all-in costs of production.

While several of their peers are struggling to increase production and bring down costs of production, both of them are bucking the trend by increasing production and bringing down their costs of production.

When it comes to the top 3 gold miners, Agnico Eagle has been the best performer in the market and is primed to keep that going. They just reported their third consecutive quarter of record free cash flow. In the second quarter of 2024, they hit it out of the park generating half a billion dollars of free cash flow for the quarter.

The other two in the top 3 of gold miners have to be looking at that performance green with envy. I doubt that Newmont will take a run at Agnico Eagle because they are still digesting the takeover of Newcrest, but I wouldn’t rule it out. If they did, their currency of stock is still well off their all-time highs while Agnico Eagle is making new all-time highs.

Barrick seems more intent on looking to add copper mines to their portfolio. Plus, their CEO wants to buy on the cheap. They, like Newmont, are still a good distance from their all-time highs so I don’t see them taking a run at Agnico Eagle, but it certainly isn’t out of the question.

Which leaves Agnico Eagle in a pretty good position with their currency of stock making new all-time highs to be an acquirer. Looking out at the list of candidates that looks to fit well with them is Alamos Gold.

Agnico Eagle is very disciplined with their production costs and efforts to increase production. Which is exactly the same story for Alamos Gold. Both are making records of free cash flow, while also increasing production, with costs well below the industry average and bringing them down further.

It looks like a perfect fit for Agnico Eagle to make a run at Alamos Gold.

If Alamos Gold is left on its own, I can see a perfect fit for them as an acquirer with another of our top picks. SilverCrest Metals has a wonderful new mine at their Las Chispas gold and silver mine.

They went into full commercial production with $100 million in debt and in a few quarters paid off all the debt, paid $23 million in taxes, bought back stock, and built up cash, gold and silver that exceeds the debt they had going into full commercial production. Las Chispas is a low cost producer of high-grade and would fit nicely into Alamos Gold’s portfolio of mines and their business model.

If SilverCrest Metals is not taken over, I see a perfect fit for them with a recent company that we did an interview with their CEO. I invited Vizsla Silver for an interview shortly after they announced their PEA that had spectacular metrics.

It has a sub $250 million price tag to build their project into a mine, plus a rapid payback of less than a year due to an incredible IRR of 85%. Another attractive aspect for them is they have an entire cluster of epithermal veins and it is underexplored. It is a silver-rich epithermal vein cluster with very high-grade silver.

As I mentioned to their CEO during our recent interview, I would love to see Vizsla Silver make it through to production. Not only do they have a project that looks to be a future free cash flow machine of a silver mine. They could use that to launch into a much bigger silver focused mining company.

But, that low capex and fast payback due to the massive IRR, probably means they won’t get the chance to build a mine at their Panuco project.

SilverCrest Metals’ CEO has said in interviews that they look at everything that makes sense to them which they think would enhance shareholder returns. When I look at Vizsla Silver, it reminds me a lot of SilverCrest when they were in the development at Las Chispas.

Both had low costs to build in their PEAs, both are high-grade epithermal vein systems, both had exceptional IRRs in their PEAs and both are in Mexico. It wouldn’t surprise me in the slightest if SilverCrest takes a run at Vizsla Silver.

In Closing

These are just some of the companies that I follow closely as picks at Rocks And Stocks News. I wanted to mention them in this report because not only do I see M&A activity picking up for gold, copper and silver, they are what I consider no-brainers.

Gold, copper and silver have powerful supply and demand fundamentals that have them all primed to go much higher.

With all the great news that has been coming out of late, I can see the gold stocks entering the gold bull market with the largest having moved first. Next, I see the top quality gold stocks down the food chain to join the golden party.

All the best,

Allan Barry Laboucan

Disclosure

Rocks And Stocks News does not make buying or selling recommendations. The reports are for information purposes only. Sponsors pay a fee to Rocks And Stocks News for content creation. The business model of Rocks And Stocks News is to fund research and reporting on the sector, picks and sponsors through corporate sponsorship. We are thankful to sponsors for enabling commentary free of charge to readers and viewers of the reports. When reporting on sponsors it is on behalf of the sponsors discussed in the portion of the report mentioning the sponsor. Before making any investment decision it is important for you to speak with your financial advisors to consider your risk profile. It is also important to do your homework. To help in that process, Rocks And Stocks News means to be a gateway by doing reports and interviews of management of sponsors and picks. The reports and interviews should not be considered investment advice. Allan Barry Laboucan is the founder and owner of Rocks And Stocks News, he has worked in the mining sector since 1993 and has been reporting on the sector since 2005. He has worked with and been mentored by very talented geoscientists in geology, geochemistry and geophysics. He uses the skills he has picked up during his career to assess sponsors and picks in the reports. Whether a company is a pick or a sponsor they go through the same filter and are reported on when important news is made that Allan Barry Laboucan wants to discuss on the Rocks And Stocks News platform. He may own shares in sponsors and picks for investment purposes which he discloses when discussing them in the reports.