With the gold price breaking records and the dollar sinking into the abyss, the major gold miners are planning for the future and shoring up their resources through acquisitions. The latest of which is Newmont’s announcement that it would acquire 100% of Miramar in a $1.5 billion all-cash transaction. Miramar’s shareholders were promptly rewarded with a 23% single-day gain. Some analysts are anticipating rival bids, which could push up the value of Miramar to levels even higher than their $6.31 close on October 10th. If you have followed Miramar over the years, you are well aware of Hope Bay, which is considered one of the largest undeveloped gold projects in North America.
So, who is next on the gold miner acquisition list? With takeover plays enjoying 20-40% gains in the days following an announcement, this is information every investor would like to know. While nobody can say for sure, we can run our list of miners through a filtering system and output the ones we believe have the characteristics making them prime for acquisition by a resource-hungry major. Amongst other factors, we have considered market cap , resource estimates, production potential, politically stability, access to infrastructure and management/business model. Keep in mind that many of the same qualities that make these companies prime takeover targets, make them sound long-term investments, takeover or not. So it should come as no surprise that these companies are also listed in our “Top 8 Gold Stocks” article. Without further adieu, here is what we think majors’ shopping list might look like…
Golden Star Resources (GSS)
With production estimates at nearly 500,000 ounces of gold and increasing throughput at their processing plant, we like Golden Star as a takeover play. After having a record quarter for production, they have increased forecasts for both their Bogoso/Prestea and Wassa mines. While operational and permitting hiccups have suppressed their stock price, we see the company moving past these issues and surprising the street with next quarter’s numbers. Bill Cara, has also called GSS a takeover target and it is on our list of Top 8 Gold Stocks to own.
Note: We first recommended GSS on 9/29/06 at $2.74 and it has since climbed 51% is just over a year.
Seabridge Gold (SA)
Seabridge has 100% interests in Courageous Lake project in Northwest Territories, believed to be Canada’s largest undeveloped gold project with outstanding exploration potential. They also own the Kerr-Sulphurets project and Red Mountain project in British Columbia, Grassy Mountain project and Quartz Mountain project in Oregon, Hog Ranch project and Castle/Black Rock property in Nevada, and Noche Buena property located in Mexico. In total, they have 10.2 million M&I ounces and another 22 million inferred ounces. Seabridge has been expanding their resource estimates at a blistering rate. They remain fully exposed to the gold price with no hedging, no debt and $30 million cash on hand. While they may have a strategy of “attracting producers as partners,” we think some of those producers will be going for more than a mere partnership.
Note: We first recommended SA at 9/06/07 at $28. It has since rallied 17% is just over a month.
Newcrest Mining (NCMGY.PK)
Rumors of Newcrest being acquired have been floating around for years. After all, they are Australia’s leading gold mining company, boasting a relatively low trading price and a politically stable home. Newcrest currently mines about 1.5 million ounces of gold a year and is expanding output. BHP Billiton Chief Executive Chip Goodyear was quoted as saying BHP was underexposed to bullion and would look at buying a gold mine if the right one came along. The first company mentioned was Newcrest Mining. While their AU$12B market cap is much higher than our other takeover targets, it is still within the reaches of a BHP, Rio Tinto, Freeport or Barrick.
Note: We first recommended Newcrest on 9/06/06 at $16. It has since gained 57% in just over a year.
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Disclosure: Author owns shares of GSS and SA.