Gold Mining Bull: Top News And Month In Review
Hecla Mining is buying Klondex Mines in a $462-million deal.
Silvertip mine begins producing for Coeur.
Congo signs new mining code into law.
Insider buying picks up in the gold sector.
Gold Mining Bull: Top News for March 2018
Here's a monthly recap of the top news in the gold mining sector, including drill results, takeover announcements and other relevant updates, to keep readers up-to-date on news in the sector. Here's my update for February if you missed it.
Subscribers get access to "The Gold Bull Portfolio," my personal holdings which are made up of miners, juniors and exploration companies. The portfolio provides leverage to the price of gold, with the goal of outperforming benchmark indexes, such as the VanEck gold miners index (NYSEARCA:GDX), the junior miners index (NYSEARCA:GDXJ), and the price of gold (NYSEARCA:GLD).
Gold has continued its strong year as the price of the yellow metal rises on U.S.-China trade tensions and increasing inflation expectations. The setup for gold looks pretty bullish here in my opinion. Here's a look at the top news in the gold mining sector for March.
1. Hecla Mining to Acquire Klondex Mines
The top news of the month goes to Hecla Mining (HL), which has made a deal to scoop up the troubled Klondex Mines (KLDX) in a $462-million deal in cash and shares.
Hecla will add the high-grade Fire Creek mine into its portfolio, as well as the Midas and Hollister mines, all located in Nevada; the deal adds 162,000 ounces per year of gold equivalent production. Klondex's high-cost Canadian assets, which are currently on care and maintenance, will be spun out to existing shareholders in a new company called Klondex Canada.
Hecla shareholders don't seem to be all that pleased with the deal as Hecla's share price fell by more than 15% in the wake of the acquisition. I have mixed feelings on this deal for Klondex, as the junior miner is being acquired at a substantial discount to where its stock price traded in 2017. It seems like a desperation move. Despite Klondex's issues, Fire Creek is still a great asset, and I think Hecla is likely to get the better end of this deal.
2. Alio Gold and Rye Patch Gold to Combine
Two juniors Alio Gold (ALO) and Rye Patch Gold (OTCQX:RPMGF) have agreed to merge in a deal that values Rye Patch at $98 million (a 35% premium); Rye Patch shares will be exchanged for .48 common shares of Alio Gold.
The pro-forma entity will combine Alio's San Francisco mine and Ana Paula project with Rye Patch's producing Florida Canyon mine.
The new company will produce 165,000 ounces of gold production this year from its two open-pit, heap leach operations in Mexico and Nevada, and will develop the Ana Paula project, which is anticipated to produce 115,000 ounces of gold annually. The company will hold $74 million in cash and cash equivalents with just $29 million in total debt.
The move looks like a good one for both companies as it provides a premium to Rye Patch shareholders and de-risks Alio Gold's portfolio with a second producing asset. This should be a much stronger, more diverse mining company and make it more of a legitimate stock to own. I would expect more deals like this to happen in the gold mining sector.
3. Asanko To Sell 50% of Company to Gold Fields
Asanko Gold (AKG) is selling a 50% interest in its Asanko gold mine to Gold Fields (GFI) for $185 million in cash; the money will primarily be used to repay its outstanding debt of $164 million. Gold Fields will also subscribe for 22.35 million Asanko shares at $.79, worth $17.6 million.
Asanko will now be a debt-free company following repayment of its debt and will also hold $35 million in cash, while gaining an experienced partner in Gold Fields.
The Asanko gold mine is scheduled to ramp up gold production next year to 255,000 ounces, increasing to 280,000 ounces by 2020 with AISC falling to $810/oz with the development of the Esaase deposit and initial production in Q1 2019.
Like Klondex, Asanko is another gold miner that has been forced to sell its main assets at a discount. Asanko's stock traded over $4 per share in 2016 and now trades at a buck, as it has been impacted by liquidity issues and higher-than-expected mining costs.
Unfortunately, issuing debt to finance construction of a gold mine is risky and doesn't always work out. This move by Asanko seems like a better deal than re-financing its debt, however. Upside may be limited for Asanko, but downside risk has definitely been reduced as well.
4. Coeur Mining Commences Production at Silvertip
Coeur Mining (CDE) has started producing at its high-grade Silvertip mine in Canada following the successful commissioning of mill operations. Production is expected to ramp up from 250 tonnes per day in April to 750 TPD by year-end.
Silvertip was acquired by Coeur from JDS Silver back in October 2017 for $147.5 million in cash and $37.5 million in Coeur shares. Once in full production, the mine is expected to produce 10 million silver equivalent ounces of an initial 7.5-year mine life.
This is also good news for royalty company Maverix Metals (OTC:MACIF), as it owns a 2.5% NSR royalty on the mine.
5. Insider Buying Picks up in the Gold Sector
I recently covered five gold stocks that have seen heavy insider buying lately, and provided buy/hold/sell recommendations to subscribers.
Insider buys occurred recently at Taseko Mines (TGB), Pure Gold (OTCPK:LRTNF), Barrick Gold (ABX), Liberty Gold (OTCPK:LGDTF), and Alamos Gold (AGI).
I think insider buying is mostly a positive sign, as it means insiders (such as directors or the CEO) are bullish on company stock and think shares are undervalued and will rise. Read the article (link above) for more information.
6. Nevsun Releases Robust PFS Results on Timok
Nevsun Resources (NYSEMKT:NSU) has released the long-awaited results on its pre-feasibility study for the Timok Upper Zone copper-gold project in Serbia.
The pre-feasibility results basically confirmed that Upper Zone is a high-value, profitable project. The highlights include an after-tax net present value (8% discount) of $1.82 billion, using $3.15 per pound copper, and life of mine cash costs of $.92 per copper pound.
Initial capital costs are pretty reasonable for a mine of this size, with $574 in pre-production capital costs. The project will now move to the feasibility stage, with a projected release date of mid-2019.
However, there are a few things to note here. First, the pre-production capex I noted does not include $114 million in costs to get to the construction phase. Second, the project capital excludes three staged payments due to Freeport-McMoRan (NYSE:FCX): $45 million anticipated to be paid on an Upper Zone build decision, $50 million to be paid upon achievement of commercial production and up to $12.5 million to be paid out of project cash flow.
Finally, the company is targeting initial production by 2022, which is a year later than previously, due to a delay in commencement of exploration decline construction by two quarters.
The company also reported some pretty strong drill results from the Lower Zone portion at Timok, which is a separate project it owns in a joint-venture with Freeport-McMoran. Highlights included massive intersections of copper, including 556.8 meters of 1% copper and .20 g/t gold (1.14% copper equivalent).
7. Congo President Signs New Mining Code into Law
Democratic Republic of Congo President Joseph Kabila signed a new mining code into law earlier this month. The new law will raise royalties and taxes on mining operators, and replaces an earlier code from 2002.
While mining company Randgold (GOLD) will be impacted by the new code as it operates the Kibali gold mine, the biggest impact will be felt on "strategic substances" such as cobalt, as royalties on cobalt mines are set to increase five-fold to 10% and include a windfall profits tax, according to Reuters. Congo holds half of the world's cobalt reserves, and demand has increased as the metal is used in iPhone batteries and electric cars.
The government shut down a proposal by mining companies to soften some provisions in the new mining code in exchange for higher royalties. However, it also said it is open to talks and negotiations with mining companies, which began last Friday.
8. Teranga Secures Debt Financing for Burkina Faso Projects
Teranga Gold (OTCQX:TGCDF) has secured $165 million in financing to advance the Wahgnion gold mine (previously called Banfora), and also $25 million to advance its Golden Hill project to the feasibility stage.
Wahgnion mill construction will begin in Q2 2018, and the mine is expected to increase the company's annual gold production by 50% to between 300,000 and 350,000 ounces by 2020.
With $88 million cash on hand, cash flow from its Sabodala mine and the new debt facility, Teranga expects to have enough money to fund pre-production capital at Wahgnion and explore the promising Golden Hill property.
9. Atlantic Gold Achieves Commercial Production at Moose River
Atlantic Gold (OTCPK:SPVEF) has announced that it has achieved commercial production at the Moose River gold mine in Nova Scotia, Canada.
Phase 1 Life of Mine production guidance for 2018 is between 82,000 and 90,000 ounces of gold at AISC between $540 and $588. However, a phase II expansion will see production ramp up to 200,000+ ounces per year with AISC of $555, based on a pre-feasibility study.
Board and management must be happy with the progress made at Moose River, and with the company's strong stock price, as they own more than 35% of shares.
10. Victoria Gold Lands C$500 Million Financing for Eagle Mine
Victoria Gold (OTCPK:VITFF) has secured the funds to bring its Eagle gold mine to production. The company has announced a massive C$500+ million financing package, which will be made up of several debt/loan facilities, the sale of a royalty and an equity financing.
Here's a look at how the project will be financed:
Two credit facilities will total $175 million, or C$219 million. An equipment financing facility will total $50 million, or C$63 million. The company will sell a C$98 million, 5% NSR royalty to Osisko Gold Royalties (OR). The company will sell C$125 million worth of Victoria Gold shares at a price of C$.50 per common share.The royalty and equity financing were done at pretty fair terms in my opinion, with shares being sold at a big premium to their current price of C$.36, and the royalty looks like it was done at fair value. However, the debt component worries me a bit, as it carries interest rates ranging from 3-month LIBOR plus 5% to 6.7%.
Once in production, Eagle will produce more than 200,000 ounces of gold annually with AISC of $720/oz.
Other top news
B2Gold (BTG) reports strong financial results and is forecasting incredible growth to over 910,000 ounces of gold production in 2018. Abitibi Royalties (OTCPK:ATBYF) updated the market on its reserves and royalty production schedule and said it expects growth from the Jeffrey and Barnat East zones in 2018-20. Corvus Gold continues to expand the Mother Lode deposit. The company drilled 21.77 g/t gold over 7.5 meters in a new east zone at Mother Lode. These results have outlined a system that is at least 400 meters long running northwest from the eastern edge of the historic pit, according to the company. Arizona Mining reported high-grade drills from its Taylor project. The results were infill drills that highlight the potential for resource growth and increased grades. They included 420.5 feet of 11.4% zinc-lead and 269.5 feet of 9% zinc-lead and 1.6 opt silver. Watch out for the upcoming feasibility study for Taylor, which will be released in Q3 2018.Did I miss any top news this past month? Please let me know in the comment section.
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