I love starting the week with good news. And this morning’s news was good.
Nevsun (TSX: NSU) announced a deal to take over Reservoir Minerals (TSXV: RMC). Reservoir’s key asset is Timok, a Serbian property that boasts a very high grade Upper Zone of massive sulphide mineralization and a large, lower grade Lower Zone of porphyry mineralization. RMC is partnered with Freeport McMoRan on the asset, with Freeport holding 55%.
In March Lundin Mining (TSX: LUN) inked a deal to buy Freeport’s stake in the Upper Zone for US$263 million. However, Reservoir held a Right of First Refusal to match any such offer within 60 days.
Enter Nevsun and its bank account.
The deal will see NSU first take a 19.9% stake in RMC through a $114-million private placement. Nevsun will also extend a US$44-million loan to Reservoir. Reservoir will use the cash to match Lundin’ offer, thereby consolidating ownership of the Upper Zone.
Then Nevsun and Reservoir will merge, in a deal that values RMC at US$365 million. When the dust settles Nevsun will own 100% of Timok Upper Zone and 45% of Timok’s Lower Zone. And Nevsun will still have almost US$300 million in the bank, enough
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Gold is holding its ground, companies are raising money and doing deals, drills are turning – life is returning to the mining sector and that means opportunity abounds.
But you have to work for it. I met with the president of a Maven portfolio company today. His company has cash and wants to deploy it, as a strategic investment in another pubco or by buying a project. He said the hardest part is that “there is still so much crap out there.”
Crappy projects that only ‘work’ at US$1,400-per-oz. gold or US$4-per-lb. copper. Assets where ownership issues fragment the parcel of interest. Geologic intrigue where tenure is unreliable or infrastructure non-existent. And companies (this one really gets me) where management is really only interested in cashing in on lofty change-of-control payouts. These teams aren’t interested in a project deal, even if that might put cash in the bank, or in a joint venture, even if that would advance their asset and create value. All they want is a takeout offer that triggers management payouts.
I wish I could say that bear markets strangle out the crap, but crappy exploration projects and greedy management teams have unfortunate staying power.
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Happy Monday everyone. Gold managed another sideways week and with that we’re a month past PDAC without the dreaded curse. Bull markets, especially new ones, act differently than bear markets. The biggest difference: new gold bull markets skip the summer doldrums, which otherwise are an incredibly reliable part of mining’s seasonality. If we get to September and the GDX is at or above current levels, consider that confirmation that the bull is on.
In more near-term news, a big announcement is coming later this week about the Metals Investor Forum. I’ll keep the details in the bag for now but I can say the change was sparked by overwhelming interest in the event, from companies and attendees. If you haven’t signed up yet, click here and reserve your tickets today.
As for the Monday snippet, the biggest article is a commentary on the battle brewing over Eastmain Resources. It’s a very interesting situation. I also write a bit about why similarly high-grade drill results, even from the same jurisdiction, can incite very different market responses. And a macro look at the possible paths forward for gold.
I hope you enjoy! As always, if you’d like to see
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Happy Easter everyone. The long weekend was a much needed break in what has felt like an endless flurry of activity since gold started to move in January. In the last little bit the yellow metal has taken a breather, something I reflect on later in this note.
The weekend wasn’t all holiday – I sent out a new recommendation to subscribers on Sunday, in advance of a buying opportunity that unfolded on Monday, and continue to prepare for the Metals Investor Forum that is coming up on May 14th. The company roster is coming together nicely and ticket signups are flooding in. Click here to secure yours.
And now, this week’s snippet from the Maven Letter. A comment on challenges for miners in Chile, a look at short list of independent brokerages left after last week’s PI-Wolverton-Global Securities merger, and my latest perspective on gold and positioning.
Enjoy!
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In The News…
Chilean Challenges
Chile churns out almost a third of the world’s copper. It is hard to overstate the country’s significance when it comes to the red metal. That is why I highlighted Chile’s mining risks as potential black swans
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The Maven Letter goes out on Wednesdays, which means last week the letter went out the day Yellen announced there would be no rate raise. Gold immediately shot up.
It has slid some since, but that’s ok. I can handle US$1,230 per oz. Heck, sideways from here for the rest of the year would still be way better than the last few years! And, of course, bull markets are never non-stop gains. Corrections or slowdowns are part of the process.
Also: gold equities have been less volatile than gold itself. Compare the following 30-day graphs of gold and the Junior Gold Miners ETF (GDXJ).
Miners are showing a more consistent uptrend than gold, especially in recent days. Is that value investors moving in and establishing positions, regardless of gold’s daily gyrations?
I’d like to think it is. And I get some confirmation from conversations with mining company management teams, several of which have told me recently about overt interest from generalist funds and investors. The arrival of generalists will allow dedicated mining funds and folks to get out of some longtime positions and put funds to work elsewhere: with earlier-stage assets instead of
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What a week it was! Another PDAC is in the books. And a good one. It was undoubtedly small – fewer booths, attendance of just 22,000 compared to an average of 29,000 over the last five years – but the buzz was inarguably better than last year.
I comment on my PDAC impressions after going through the mining news events of the week. As usual, news flow ramped up during the world’s biggest mining conference so there was lots to talk about, and all I got to were the four biggest stories.
Others also deserve comment. Canamex Resources (TSXV: CSQ), for example, published a PEA showing how they could turn their Bruner gold project into a 46,500-oz.-per-year producer for a capital cost of just US$33.4 million. If built the mine should be able to generate a 39% after-tax internal rate of return and operate for six years. It would be a simple oxide heap leach operating on patented land, which eases permitting considerably.
Those are pretty good numbers. The asset and company are small for my tastes but Canamex deserves credit: it not only survived the bear market but advanced its asset to the point where it supports an
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A longer snippet for you this week, starting with some In The News commentary and finishing with the first half of my editorial Gold and the New Paradigm.
The birth of a new gold bull market has changed the game – the trading strategies we’ve employed in the last few years no longer apply. This year, while things transition, investors need to move carefully, watching for opportunities and ensuring they establish exposure to a range of gold stocks before the market really gets going.
This time next week I will be at PDAC. For anyone attending, I am presenting at the Newsletter Writers Session on Sunday, at 3:45. Alongside the presentation I am looking forward to four days of corporate updates, shop talk, and searching out new opportunities. Perhaps I’ll see you there!
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In The News…
Picking the Right Poison
Atlantic Gold (TSX: AGB) announced debt deals that will give it access to $135 million, enough to get its MRC gold project in Nova Scotia up and running. The deals are a $115-million debt package with Macquarie Bank and Caterpillar, which is a basic loan with a three-year payback period starting when MRC gets going, and
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Last week was like a miniature test for gold. US markets gained most of the week, with the S&P 500 and the Dow Jones working their way back up to their 50-day moving averages. The moves slowed the flood of investment dollars heading towards the safe haven of gold – but not completely and not for long. In fact in terms of closing prices gold spent the week almost unchanged at US$1,210 per oz. before jumping up on Friday to close the week at US$1,230.
Sideways and then upwards motion for gold against a strong-looking US equity space and slight gains by the US dollar is very significant for gold. It says the interested eyes – and dollars – turning to the yellow metal have some staying power. A few better days for US markets will not placate their overall concerns about the state of the markets or the economy.
Gold’s move on Friday – up US$21 an ounce – attests to that.
The strength of gold’s rally this year has surprised almost everyone. The way exploration and mining stocks are reacting makes it look like this is the start of a real run.
I have loads to say
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Happy Family Day (Alberta, Saskatchewan, Ontario), Presidents Day (US), Louis Riel Day (Manitoba), Islanders Day (PEI), and Valentines Day (date-challenged romantics). It is not a holiday in BC but feels a bit like one because the markets are closed – and not a bad day for it for gold bugs, as gold slipped 2% since its Friday close.
Why? A pause in safe haven sentiment, I would say. World markets that were open rose sharply today after China’s central bank fixed the yuan higher and oil cemented recent gains. European and Asian stocks rose notably, as did US futures.
The signs were not all positive: Chinese exports and imports for January were down 11.2% and 18.8% year-over-year and Japan contracted 1.4% in Q4, year-over-year, a worse result than expected.
All together, a confusing day. Some negative data contrasted with tightening from China – and we have come to know, over the last eight years, just how much the market loves tightening. China’s move to fix the yuan higher and to spent US$96 billion of its foreign reserves in January alone supporting the yuan are tightening, whether the People’s Bank wants to acknowledge it or not.
We will see tomorrow
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Happy Monday to all, a sentiment that should ring especially true with my Canadian peers enjoying a long weekend. I enjoyed a regular weekend – two 25-km days running in the mountains – and then boarded a flight this morning for Toronto, to position for a pending visit to Integra Gold’s Lamaque project.
A busy weekend to round out a busy week spent at Sprott’s Natural Resources Symposium, which was a fantastic conference. Very good speakers, an impressive lineup of companies, and highly engaged attendees made for an informative and useful week.
To end the week the US announced that GDP growth in the second quarter had managed just 1.2%. In response, gold shot up.
Two days prior it had done something quite similar:
That was in response to the Federal Reserve not raising rates. And a month before that we saw gold make a more dramatic move:
That was in response to the Brexit vote. These repeated, sharp gains in response to undesired news events matter because they demonstrate one thing: gold has become the Go To investment when news of economic uncertainty hits.
Friday’s GDP number was a
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