More Takeover Moves In The Mining Sector Showing Generalist Investors Mining Is The Place To Be

Shortly after BHP and Lundin Mining took a run at Filo for its copper development projects, Gold Fields is taking a run at Osisko Mining in the gold space. Both takeover offers are in the billions.

I’ve mentioned in a past report that the summer of 2024 is shaping up to be a Summer to Remember. It is playing out nicely as major mining companies are making takeover moves and signalling to generalist investors that it is time for them to give some love to gold stocks and copper stocks.

First BHP and Lundin made a takeover offer of C$4.5 billion for Filo Corp. Soon after, Gold Fields made a C$2.16 billion offer for Osisko Mining. The Filo Corp. offer is all about copper and the Osisko offer is about gold. 

The supply and demand fundamentals are extremely bullish for both gold and copper, the majors know it and are opening up their checkbooks. Knock knock generalist investors, gold stocks and copper stocks are knocking.

Gold production has peaked and is moving toward a long period of declining production while demand is powerful as the world returns to the Gold Standard due to the Death Spiral of Debt. Gold is now the second largest reserve currency held by central bankers, recently surpassing the Euro with the USD in its crosshairs.

Gold still plays a small role in international trade, while trade pacts are being made that certainly suggests it will play a larger role in the near-term.

Takeover deals do nothing to increase production; it only moves assets into bigger companies.

Copper supply is weak and demand is set to overwhelm supply to create long-term supply deficits that could become acute.

The current massive copper mines were found decades ago and nearing the end of their lives. There aren’t nearly enough copper development projects to replace the old mines.

Plus, copper discoveries have been in decline for a couple of decades. The copper pipeline is challenged, just when much more copper production is drastically needed.

Both gold and copper are primed to go much higher, the majors know it, which is why they are making takeover deals. The generalist investors haven’t caught on to the tells yet.

In this report I wanted to mention some of the M&A deals that I see are ripe for the taking.

A dream deal in the gold space would be a merger between major gold miners Barrick and Agnico Eagle. In their respective second quarters of 2024, they both had excellent results when it came to generating free cash flow. This was a direct result of the price of gold having its highest quarter of average price, ever, during the second quarter of 2024.

Barrick reported $340 million of free cash flow during the second quarter of 2024, while Agnico Eagle reported its third consecutive record quarter of free cash flow, generating $500 million. A merger would give them a huge company that could take a run at $1 billion of free cash flow per quarter, especially as gold goes higher.

If combined they would have a valuation of close to C$100 billion which would certainly catch the attention of generalist institutional investors. 

Is it possible that Barrick and Agnico Eagle could merge in a transaction for the ages in gold mining? It is hard to say, but there are certainly compelling reasons for it to happen.

Much more likely is that they both could be acquirers. A no-brainer for a target is Alamos Gold. They are also making free cash flow records, while also making efforts to increase their production and bring down their costs.

Alamos Gold is already producing gold with production costs well below the average cost of production across the gold mining industry of large producers. They are also making the moves to bring their costs down to become one of the lowest cost producers of gold.

Beyond these candidates, I see a wonderful opportunity for smaller producers to merge and increase their production. There are several opportunities that are projects not big enough to move the needle for the behemoth gold miners like Newmont, Agnico Eagle and Barrick. But, they would be fantastic growth engines for the mid-tiers and those that want to grow into mid-tiers.

Case in point is SilverCrest Metals. They are a low-cost producer of high-grade gold and silver. At this point they are probably not big enough to move the needle for Newmont, Agnico Eagle and Barrick. But, they would be a wonderful fit for a company like Alamos Gold.

SilverCrest is debt-free while building up over $100 million of cash, gold and silver. I admire them a lot because they are stockpiling gold and silver in their warchest.

More gold and silver miners should do the same as it would show investors that they eat their own cooking when it comes to gold and silver being terrific hedges against inflation. SilverCrest has the potential to be a target and a hunter.

McEwen Mining has a wonderful combination of assets that include producing gold mines and a remarkable copper development project in Argentina called Los Azules.

With the Filo takeover deal is all about copper development assets in Argentina, has put a spotlight on Los Azules which is one of the largest and lowest cost copper development projects anywhere in the world.

Los Azules is 100% owned by McEwen Copper, which is 48.3 and a 1.25 NSR owned by McEwen Mining, major car maker Stellantis owns 19%, Rio Tinto’s Nuton owns 14.2%, and Rob McEwen owns 13.2%.

Based on the takeover price that BHP and Lundin Mining has offered for Filo, while taking in the higher grades and lower costs at Los Azules, it is easy to make the case that McEwen Mining is trading at a discount for their interest in McEwen Copper alone. With virtually zero being priced in for their gold mining operations.

Rob McEwen is a very talented dealmaker, and he sees the potential that exists with projects available that would be tremendous gold mining assets for McEwen Mining.

As McEwen Mining is getting little value for its gold mining assets, I see a remarkable strategic gameplan to look at making strategic investments into high-quality gold projects that are available in development and advanced exploration to remind investors that McEwen Mining is also a gold mining company.

With Equinox Gold moving their key mine Greenstone in Ontario toward full commercial production, they also could be a target or a hunter. 

They are a Ross Beaty company, a legend in mining who has used the buy and build strategy to grow his past successes. Prior to Greenstone recently going into production, Equinox owned 60% and Orion owned 40%. 

They bought out Orion and now own 100% of the Greenstone Mine. But, they had to take on debt to make it happen. In public comments, they have stated their short-term goal is to bring Greenstone into full commercial production and pay down a good chunk of their debt.

By extension, that means their buy and build strategy is likely on hold for a while. But, Ross Beaty is a fantastic dealmaker and if a deal he can’t refuse comes up, I’m sure he would figure out a way to make it happen. They are a sitting duck as a target.

Mine developer i-80 Gold has three world-class projects simultaneously being developed with two processing facilities that will be used in a hub and spoke model.

It is my speculation that they are a target of a short syndicate as they have a large declared short position and likely many more undeclared shorts. I think they are doing this because they see i-80 Gold has an aggressive growth strategy to simultaneously develop three projects. This isn’t easy for a junior miner like i-80 Gold, but it is a way for them to be a high-growth Nevada focused miner. 

Ultimately, i-80 Gold clearly has the assets to grow into an important Nevada focused miner of gold, silver and base metals. I strongly believe that they have the team to pull it off, even if it is clear based on its current valuation that the market doesn’t currently agree.

They are my #1 pick as a turnaround story. The first step is to stop going down, then create a base and then start trending up off the base. An obvious catalyst is higher gold which I see is directly in front of us and going much higher. Additional catalysts are them bringing in partners to help them develop their three world-class projects in development.

West Red Lake Gold is a Frank Guistra company that bought the Madsen Mine out of bankruptcy for pennies on the dollar considering the sunk costs. The Madsen Mine was an abject failure when Pure Gold was mining it, but the issues they had are fixable and West Red Lake Gold is doing the work to bring it back into production in 2025 to make it a success.

The glaring issues that I see is when looking at the high-grade zones, and the underground workings, it looks like Pure Gold was doing its best to avoid the high-grade zones in their early mining. Late in their mining, they did start to tap into the edges of the high-grade zones with their underground workings. But, it was too late because they were mired in debt.

One of the key issues that West Red Lake Gold spotted was that by rushing into production, they didn’t have the drill hole spacing to clearly understand the gold system. They are in the midst of fixing that with tightly spaced drill holes inside the high-grade zones with great success. 

Another issue was that it looks like there were gold recovery issues in the plant. They are also making efforts to fix this serious problem.

Frank Guistra has successfully used the buy and build strategy in his previous mining successes. Although I don’t see them as an immediate candidate to be a buyer or to be bought, I do see that coming into play in the near-term. A successful restart of the Madsen Mine will be the base to build off of.

In Closing

The companies above are certainly not a comprehensive list of potential assets to be involved in M&A. It is merely a list of key ones that I follow closely.

I see some no-brainer deals in gold, silver and copper in the development phases. Most of them are not big enough to move the needle for the majors, but certainly could be engines of growth for aspiring high-growth mid-tier miners and junior miners.

The explorers with high-quality projects are underloved, but the industry is in dire need of more discoveries that can be advanced to development. In this portion of the mining industry, I can see the potential for explorers with top notch discoveries to get strategic investments from larger companies.

All the best,

Allan Barry Laboucan

Disclosure

i-80 Gold is a sponsor of Rocks And Stocks News, content creation about them is for the benefit of the company. Sponsors also benefit readers of the reports as it makes content creation possible for no charge to readers. Allan Barry Laboucan is a shareholder of i-80 Gold shares and tradable warrants.

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