Gold Mining Stocks: Top 3 Junior Take-Over Candidates
Although2018 has been a rough year for junior resource equity speculators, there hasbeen some positive M&A activity in the complex over the past few months.Most notably, we have seen a number of larger acquisitions including South32'sUS$1.3B deal for Arizona Mining, Orion's C$537M bid for Dalradian Resources,and just last week, Zinjin Mining's friendly offer to acquire Nevsun Resourcesfor US$1.41B. The most encouraging aspects of these transactions are that they wereall-cash offers at a high premium to market prices.
I amespecially encouraged to see all-cash deals happening again in the space, asthese arrangements become an instant pay day for speculators at the offeredprice. With many quality juniors being discounted the past few months, mid-tierand major miners may continue to be in a buying mood. Most of the global miners,whose margins on gold production have not kept pace with the rise in the goldprice over the last 12 years, are looking for low-cost projects. Global minersneed to replace their reserves and resources and are in search of high-marginprojects with the right combination of grade, size, and infrastructure.
Here is alist of my top 3 juniors developing projects which may be acquired by a globalminer within the next 12 to 18 months:
Wesdome Gold Mines (WDO.TO): This Canadian focused goldproducer/developer has 100% control of a pipeline of projects in various stages of development. The most intriguing being the brownfields KienaComplex in Val d'Or, Quebec, which is a fully permitted former mine with a 930metre shaft and 2,000 tonne per day mill. The new management team, which was restructuredin September of 2017, has focused primarily on the explorationupside of the projects and the share price has benefitted from this strategy byout-performing the sector since that time. The stock bifurcation from thesector has been due primarily to the excellentresults the company has been releasing from its ongoing drillprogram at Kiena, which is expected to be completed by the end of October. Wesdomehas plans to release a resource update on the project by the end of this year.The market has begun to price in the company's strategy of becoming a 150,000 -200,000 oz per year producer in the heart of prolific gold camps in bothOntario and Quebec.
Atlantic Gold (AGB.V): This is another Canadian focused, growth-orientedgold producer, which is currently growing gold production in Nova Scotia. Thecompany's MRC phase one open pit gold mine declared commercial production inMarch 2018. Phase two of the mine expansion is planned for completion by 2021and the company plans to ramp up gold production to + 200,000 ounces per year by2022 at industry lowestquartile cash and all-in-sustaining-costs. The Phase three expansiondrill programs, recently completed at the satellite deposits Fifteen MileStream and Cochrane Hill, targeted extensions of mineralization and defined/upgradedinferred resources not included in the 2018 PFS to measured and indicatedcategories. A phase four corridor regionalprogram commenced in April 2018 and is systematically exploringthe + 45km of prospective un-tested structure. The ongoing drill program istargeting disseminated style gold deposits amenable to open pit mining. Thestock price has not suffered a harsh correction along with most juniors andmanagement is aligned with shareholders by maintaining control of over 35% ofthe stock.
Pure Gold (PGM.V): This Canadian developer is in theprocess of a definitive feasibility study for the 100% controlled Madsen GoldProject, which is contained in more than 47 square km of contiguouspatented mining claims in the prolific Red Lake region of Ontario. Madsencontains a current indicated resource of 1,744,000 ounces of gold (6.24 milliontonnes grading 8.7 g/t Au, at a 4g/t cut-off), with an inferred resource of296,000 ounces of gold (1.16 million tonnes grading 7.9 g/t Au, at 4 g/tcut-off) and is situated close to existing infrastructure. In September 2017,the Company released aPreliminary Economic Assessment (PEA) for an underground miningoperation which outlined a long life, high margin mine, with low initialcapital requirements and an accelerated timeline to production. The company iscurrently in the process of metallurgical, infrastructure, and developmentstudies and the results are expected in the fourth quarter of 2018, with environmentalbaseline and permitting updates in progress. Drilling and metallurgical resultsfrom satellite deposits Wedge, Russet South, and Fork will be incorporated intoan updated resource estimate and initial economic study, on track for releasein Q4 2018. These satellite deposits have the potential to positivelyimpact the annual production profile at Madsen. The share price has held upextremely well during the recent capitulation in the gold stock complex andcontinues to trade well above its 200-week moving average. Management has beensteadily buying shares in the open market since the middle of August.
Full disclosure: I own shares of WDO.TO, AGB.V & PGM.Vand purchased them in the open market. I have also recommended all three ofthese companies to my subscribers. I do not receive any monetary compensation,or stock options from any of the companies I invest in, or discuss in my Kitcoweekly articles. Please do your own due diligence before purchasing shares inany of the companies mentioned in this article.
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By David ErfleContributing tokitco.com
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