Miner Merger Monday Followed by FOMC Fun Day
When Iopened my inbox on Monday, I was happy to see the news of three miner take-overdeals which could possibly be the beginning of more to come in this undervaluedsector. It is no secret to sector professionals in the mining space that gold production has peaked and global miners have beenhigh-grading, while running out of economic ore to produce. There is a dearthof quality pipeline projects at many of the majors and a number of single assetproducer/developers struggling to find incremental buying to fund projects. So,it has not been a question of IF M&A was going to be heating up in themining space again, but more a question of WHEN.
The first deal was Hecla Mining (HL) announcing itsintention to acquire all issued and outstanding shares of Klondex with a mix ofcash and shares for US$2.47 (in cash/stock) plus a stake in a new company,Klondex Canada, created to hold Klondex's Canadian assets. If this deal isapproved by shareholders, the company will add a district scale sized high-gradegold project in Nevada which contains three mines and two mills to its alreadyformidable stable of mostly silver-based mines. Hecla would also become a more diversifiedgold and silver mining company, as opposed to being a mostly silver producer.
The second deal was Rye Patch Gold Corp (RPM.V)announcing they have entered into an agreement whereby Alio Gold (ALO) willacquire, through a plan of arrangement all of the outstanding shares of RyePatch. The transaction values Rye Patch at C$128M, based on 0.48 common sharesof Alio Gold per Rye Patch and existing Alio Gold and Rye Patch shareholderswill own approximately 53% and 47% of the combined company, respectively. Thisdeal will give Alio shareholders welcome jurisdictional risk diversification. Thecompany’s high-grade Ana Paula Project resides in the Mexican Guerrero GoldBelt, where over 31 million ounces of gold has been discovered since the early1990’s but has also been regarded as a dangerous place to operate.
The third deal was a lower-profile hostile take-overof junior miner Anaconda Mining (ANX.TO) intending to make a formal offer toacquire all of the issued and outstanding common shares of micro-cap explorer MaritimeResources Corp. (MAE.V). Anaconda offered a premium of 40% to the closing priceof Maritime's stock the previous Friday, as it seeks to bring the Hammerdownand Orion gold projects in Newfoundland under its control. With the Maritimeboard appearing unresponsive, Anaconda has decided to go directly to the shareholdersof Maritime.
A few daysafter these proposed deals were announced, newly appointed Fed Chair Jerome Powell did not disappoint the gold space when he delivered thelong-awaited FOMC meeting speech on Wednesday. Just like previous rateincreases since 2016, the quarter-point interest rate hike became a “sell therumor and buy the news” event, as the gold price zoomed above $1330 after theannouncement. The Fed now sees a total of 8 quarter point hikes until the endof 2020. Three this year, three in 2019 and two in 2020, with rates ending upnear 3.4%.
Manyeconomists had expected the Fed to pencil in four rate hikes and prior to themeeting financial markets were pricing in an almost 40% chance of four moves. Whenthe gold sector took off higher on short covering and bargain hunting after thenews, equites made a strong reversal to the downside. This gold stock/equity dis-connect isa welcome occurrence to miner investors and has been a missing piece to thegold bull puzzle since the U.S. equity correction began earlier this year.
The GDX, nowpriced at $21.50, is roughly in line with where it was trading after the previousrate hike was announced in December, even though the gold price is nearly $100higher. So, the gold stocks have some catching up to do once the market beginsto price in a possible $1300 floor in bullion. A solid close above $1330 at theend of Q1 next week would mark a breakout on the quarterly chart and I believethe miners would begin to run higher in rapid fashion if this takes place. Moreover,a strong close above the $26 level in the GDX would be the confirmation of a long-termbottom being technically confirmed in gold stocks.
If yourequire assistance in choosing the best quality junior resource stocks toinvest, please stop by my website and check out the subscription serviceat http://juniorminerjunky.com/
By David ErfleContributing tokitco.com
Follow @KitcoNewsNOW
newsfeedback@kitco.comwww.juniorminerjunky.com Disclaimer: The views expressed in this article are those of the author and may not reflect those of Kitco Metals Inc. The author has made every effort to ensure accuracy of information provided; however, neither Kitco Metals Inc. nor the author can guarantee such accuracy. This article is strictly for informational purposes only. It is not a solicitation to make any exchange in commodities, securities or other financial instruments. Kitco Metals Inc. and the author of this article do not accept culpability for losses and/ or damages arising from the use of this publication.