Goldcorp Inc.’s (TSX: G) $2.6-billion, or $5.95 per share, unsolicited takeover bid for Osisko Mining (TSX: OSK), announced on January 13, 2014, may turn out to be the spark that ignites the next wave of mergers and acquisitions in the gold mining space.
Ubika Research Senior Analyst Vikas Ranjan, in a recent SmallCapPower.com interview (view the article here), said he believes that the pace of consolidation in the junior/intermediate gold producers and near term producers’ space can accelerate, as many companies with high-quality projects represent good value at current market levels for major producers such as Goldcorp. (NYSE: GG), Barrick Gold Corp. (NYSE: ABX), Agnico Eagle Mines (NYSE: AEM), Kinross Gold Corp. (NYSE: KGC) and Newmont Mining (NYSE: NEM). Large and intermediate producers with strong balance sheets and little or no debt are in a particularly better position to capitalize on such merger and acquisition opportunities.
The following seven smallcap and midcap gold companies could be attractive takeover candidates:
1. Alamos Gold Inc. (TSX: AGI): This gold producer owns and operates the Mulatos Mine in Mexico, and has exploration and development activities in Mexico, Turkey, and the United States. Alamos has approximately $410 million in cash and cash equivalents and is debt-free. The company recently announced that it expects to produce between 150,000 and 170,000 ounces of gold in 2014 at cash operating costs of $630 to $670 per ounce of gold sold, excluding royalties.
2. Argonaut Gold Inc. (TSX: AR): Argonaut’s primary assets are the production stage El Castillo Mine in Durango, Mexico, and the La Colorada Mine in Sonora, Mexico, in addition to the advanced exploration stage San Antonio project in Baja California Sur, Mexico and the Magino project in Ontario. The company currently has $200 million in cash and no debt. It has a Measure and Indicated gold resource of 12.5 million ounces. Argonaut expects 2014 gold production of 135,000 to 150,000 gold equivalent ounces at a cash cost per ounce sold of $750-$775.
3. Scorpio Gold Corporation (TSXV: SGN): The company holds a 70% interest in the Mineral Ridge gold mining operation in Nevada, and is currently entitled to receive 80% of the cash flow generated. Total gold production for Mineral Ridge in 2013 was 39,160 ounces, an increase of 22% over 2012. Scorpio Gold has trailing 12 month free cash flow of $7.2 million.
4. St Andrew Goldfields Ltd. (TSX: SAS): This gold miner owns and operates the Holt, Holloway and Hislop mines in the Timmins mining district of northeastern Ontario, which produced 99,548 ounces of gold in 2013. The company had $31.6 million in cash and cash equivalents at the end of the third quarter of 2013, as well as $9 million in bank debt. St Andrew Goldfields has trailing 12 month free cash flow of $19.1 million.
5. Rio Alto Mining Limited (TSX: RIO): Rio Alto is developing its producing La Arena gold/copper mine in Peru. The company expects to produce between 190,000 and 210,000 ounces of gold in 2014 at adjusted operating costs that are forecast to be in the range of US$629 to $695 per ounce of gold sold.Rio Alto Mining had $29.6 million in cash and cash equivalents at the end of September 2013, with $3.4 million in long-term debt.
6. Lydian International Limited (TSX: LYD): The company is developing its near-term producing Amulsar Gold Project in Armenia. Lydian had $10.2 million in cash as of November 30, 2013 and no debt.
7. Belo Sun Mining Corp. (TSX: BSX): Belo Sun is projecting production in 2015 on its 100% owned Volta Grande Project in Brazil, which hosts a Measured & Indicated gold resource of 5.1 million ounces (at an average grade of 1.69 g/t gold). The company had $19.1 million in cash and cash equivalents and no long-term debt as of September 30, 2013.
