More M&A and two junior take-over candidates to consider
With themining complex attempting to create a sustainable bottom since the beginning ofQ4, the M&A space also began to perk up recently. Once the high-profile Agnico-Eagle/Kirkland Lake Gold"merger of equals" deal was announced at the tail-end of Q3, I suggested the possibility ofthese issues being related in my October 1stcolumn, along withsparking more M&A activity in the near-term.
Into the endof Q3, GDX broke below $31 on a monthlybasis, but thatbreakdown appears to have been a bear trap. Prices have since recaptured thiscritical support level, and has the potential for a significant bottom with theglobal miner ETF likely closing above $31 after the monthly close of Octoberlater today. Further-out, a sustained breakout back above the 18-month movingaverage at $35.50 could signal the beginning of the next leg higher in themining space.
Additionally,junior precious metal’s stocks have been outperforming the seniors, reflectedby the GDXJ/GDX ratio moving higher since Q4 began. Thisis an important sign that a bottoming is taking place. Historically, a typicalsign that capitulation selling has ended in the mining complex is whenhigher-risk juniors begin leading the way to the upside.
Thehigh-profile Barrick/Randgold merger announcement in September of 2018 becamethe catalyst that struck a significant bottom in a deeply oversold miningcomplex during a comparable set-up in the mining space. With the sector tradingat similar oversold levels into late September of this year, the high-profile Agnico/Kirklanddeal may be looked upon as being instrumental in creating another significantbottom in the mining space exactly three years later.
We saw morejunior sector M&A this week, when Calibre Mining (CXB.TO) announced it is buying fellowCanadian miner Fiore Gold (F.V) in a deal the company says will create a diversified,Americas-focused mid-tier gold producer. Terms of the deal state Fiore’sshareholders will receive C$0.10 in cash and 0.994 of a Calibre common sharefor each Fiore share they own, for an implied price of C$1.80 per Fiore commonshare, and a 36% premium based on the 20-day volume-weighted average price ofboth companies.
Over thepast three weeks, cashed-up junior speculators have been biddingup deeply oversoldprecious metals junior take-over targets in anticipation of more M&A takingplace in the near-future. One-by-one, many high-quality junior developers havebeen breaking out of 14-month bullish falling wedge chart formations.
Once capitulation tax-loss selling concluded in their respectivestocks, listed below are two such juniors’ share price which recently madesignificant lows in this fashion. With the mining sector becoming short-termoverbought, both of the following junior developers at the finance stage are attractivefuture take-over targets to consider accumulating on weakness.
BluestoneResources (BSR.V): InJanuary of 2017, this junior gold developer acquired 100% of the high-grade, brownfields Cerro Blanco Gold Project in Guatemala for US$18 million incash, Bluestone shares and a 1% net smelter return royalty. The firm will alsopay Goldcorp (now Newmont) another US$15 million after the mine is inproduction for six months, which should be offset by a VAT credit.
Cerro Blancois a classic low-sulphidation epithermal gold-silver deposit comprising bothhigh-grade bonanza-style vein and low-grade disseminated mineralization. Goldcorpand Cerro Blanco’s other previous owner, Glamis Gold, had spent US$170 milliondeveloping the fully permitted project. Another US$60M has now been spentto date on the project by the serially successful Lundin Group, who manages the firm, including 3km of underground development.
Then in Juneof this year, Bluestone announced a significant upgrade in the mineral resourceto 3.1M oz of gold and 13.4M oz of silver after completing an extensive drillprogram. To date, 158,303 meters of surface and underground drilling have beencompleted by Bluestone and previous operators (766 drill holes and 580 channelsamples). Measured resources have almost doubled from an earlier PEA estimate and now comprise 75 percent of thetotal ounces, providing a very solid foundation for the open pit reservescalculation and an optimized mine plan currently underway.
With US$28Min cash, Bluestone is fully funded until a finance package can be negotiated oncean amended mining permit is expected to be issued, along with a FeasibilityStudy, by mid-2022. The company has already initiated discussions regarding a60-65% debt/equity ratio package, which would be roughly US$300-$350M debt andUS$100-$150 of equity. Here is the latest company presentation.
BearCreek Mining (BCM.V): This seasoned developer has spent the last 15 years de-risking its 100%controlled and world-class Corani Silver-Lead-Zinc Project to the finance stage. Corani is oneof the largest fully permitted silver-polymetallic deposits in the world,containing Proven and Probable Reserves that will support average annualpayable metal production of 9.6M oz of silver, 98M lb of lead and 69M lb ofzinc over a 15-year mine life.
The projecthas been granted all key permits including an approved ESIA, constructionpermits and accreditation of water availability. Corani was also the firstindustrial project in Peru to undergo the state-run "Consulta Previa" processfor which it received 100% community support.
But untilrecently, a toxic combination of harsh in-country Covid-19 restrictions, alongwith Peruvian political concerns during a period of relentless mining sectorselling, had made it difficult for the company to negotiate a financing deal. Earlierthis month, after Covid restrictions had eased, management re-opened theiroffice in Lima and re-engaged with banks regarding a US$525M debt/equitypackage, which would likely include a 10-15% equity raise.
Moreover,newly elected leftist president Pedro Castillo recently stated that the Peruvian government will support the developmentof Corani in orderto bring the project to fruition. At aformal meeting of community representatives on October 15th, the newPeruvian leader stated he "will take Corani as an example for future investmentdesires."
While BearCreek continues pre-construction initiatives and community programs to maintainpermits and social license, the company is well-capitalized with US$30M in cashuntil a finance package is expected to be secured by mid-2022. Here is the latest company presentation.
The JuniorMiner Junky service provides full transparency into my trading activities andteaches investors how to navigate this high-risk/high-reward sector. Subscribersare provided a carefully thought-out rational for buying individual stocks, aswell as an equally calculated exit strategy. If you require assistance in accumulatinga basket of undervalued M&A candidates, and would like to receive myresearch, newsletter, portfolio, watch list, and trade alerts, please click here for instant access.
Fulldisclaimer: I ownshares in CXB.TO, BSR.V & BCM.V and have recommended all three stocks to Junior Miner Junky subscribers. Please do your own due diligence beforeconsidering the purchase of any junior resource stock.
By David ErfleContributing tokitco.com
Follow @KitcoNewsNOW
newsfeedback@kitco.comwww.juniorminerjunky.com