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Mega's Deal is Everyone's Benefit

Yamana Gold just announced a deal to buy Canadian gold explorer Mega Precious Metals in a deal valued at C$17.5 million.

MGP investors will get 0.2092 YRI shares and C$0.001 for each Mega share. That implies a share price of C$0.10, a 120% premium to Mega's closing price yesterday.

That sounds great. And it is, for anyone who bought MGP shares in the last seven months. Those with a longer timeframe might see things differently.

Or they might not, if they are realists, because this is a good deal regardless.

Mega has some good projects. Monument Bay is a large land package in Manitoba with 2.1 million measured and indicated oz. gold plus notable tungsten, in a coherent, open-pittable deposit with a high-grade starter zone. The North Madsen project in Ontario has another 888,750 M&I ounces of gold and the Blue Caribou property in Nunavut hosts an inferred copper-moly-silver-gold resource.

They are all interesting projects with real potential. However, advancing them from here would require access to the most elusive of assets today: cash.

I'm sure Glen Kuntz and the rest of the Mega team wishes they were announcing a higher-priced deal, but they deserve congrats regardless. MGP shares had sunk to just 4.5ยข. Raising enough money at that price to make material progress at Monument Bay would be crazy dilutive, if even possible. Battening down the hatches until the markets turn might have worked, but more likely G&A would have eaten through the remaining cash reserves and left the company stuck.

Instead, shareholders get a bit of cash and some YRI shares, which offer better security, upside, and liquidity.

What does Yamana get? A steal of a deal: 3 million oz. gold, most of it in a project that has seen $50 million worth of work and has support from the local Red Sucker Lake First Nation.

Viewed from another angle, Yamana is paying between $3 and $4 for each ounce of gold in the ground, depending how you calculate equivalent ounces.

That is just about if not the cheapest deal for Canadian gold ever.

It's a fact that won't go unnoticed in the markets. Despite general acknowledgment that this is the bottom, majors have been slower than molasses in the winter to ink acquisitions (Canadian winter, to be clear). It's no surprise: after the overpriced acquisition sprees of the last bull market, producers are loath to make a wrong move, to buy too soon only to see prices fall farther.

They want certainty that the bottom is in. A historically cheap gold deal should help provide precisely that confidence.

So congrats to Mega on the deal. A 120% premium deserves as much, especially since it shows that Mega's team has a good understanding of reality.

And thanks, from the rest of the sector. A junior capitulating to reality confirms this as the bottom, especially when the capitulation involves an all-time deal for Canadian gold in the ground.

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Thanks Gwen. Always enjoy your views. Tough market to read short term. Long term metals / energy look very strong.

-NH (October 2022)

The change is terrific for two reasons: it's current and concise. I suspect it really isn't that much harder for you to do since you always have opinions on the companies anyway. For me it provides current assessment without having to wait for an occasional update.... Another comment on your service is that you cover way more companies than I want to invest in but that provides me with a selection. I've always considered advisors as desperately needed filteres in the dog eat dog investment world. Keep up the good work

-BJ (September 2019)