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Tomorrow's Successes Today

Two deals in two days reinforce the notion that tomorrow’s mining success stories are being bred today.

The first, which I’ll just mention quickly, was Newmont’s $820-million deal to buy the Cripple Creek & Victor mine in Colorado from AngloGoldAshanti. The deal is a value-add for Newmont, which adds a large, long-life mine with expansion potential in a safe jurisdiction. As important, though, is AngloGold’s reason to sell: it needs cash. The gold major has more than $3 billion in debt, representing 80% of its market cap and including $1.25-billion bond with an 8.5% coupon that has a call option next July. Talk had been mounting that the company would need to issue equity to cover the obligation, something it pointedly did not want to do.

Bottom line: Newmont’s focus on selling non-core assets and lowering production costs put it in a position to capitalize on AngloGold’s predicament. It’s a large-scale version of the little deals we are seeing across the sector.

Deals are being done in preparation for the upswing. And yesterday’s deal had to be mining’s biggest merger ever – not in terms of value but in terms of involved parties. Five juniors are joining forces, aided by a cash infusion from a sixth company.

The lawyers must be loving this one. But investors looking for a well managed, well funded exploration company to ride through the next rally might also fall head over heels.

Oban Mining (TSX: OBM) is taking over Eagle Hill Exploration (TSXV: EAG), Temex Resources (TSXV: TME), Ryan Gold (TSXV: RYG), and Corona Gold (CSE: CRG) in a deal designed to “create a leading Canadian-focused gold exploration and development company.”

And one led by a highly experienced group. In other words, New Oban is the vehicle this group of proven mine finders and builders plans to ride up through the mining rally. These guys have capitalized on mining’s cyclicality before, acquiring assets when they were cheap and then selling them in better markets, and after trudging through this long bear market they damn well plan to collect their rewards on the other side by cashing in again.

Any company intending to position for tomorrow by aggressively bottom fishing today needs two things: money and experienced management. New Oban will have both.

Three of the companies joining the party are essentially cash-rich shells. Ryan Gold has $21 million in the bank, Oban brings $10 million to the table, and Corona counts $9 million in cash and $6 million in securities.

The other two companies offer properties. Eagle Hill has Windfall Lake, a high-grade gold project in Quebec with a first-pass economic study that needs an infusion of cash to take it to the next stage. Temex has a portfolio of properties in northeast Ontario, headlined by the high-grade Timmins Whitney gold project and the larger, lower-grade Juby gold asset.

Adding to New Oban’s war chest, Osisko Gold Royalties plans to put $20 million into New Oban. The investment will give Osisko 18% of the company, as well as first rights to participate in royalties and streams on New Oban properties, pro rata financing participation rights, and three seats at the boardroom table. In fact, Osisko’s main man Sean Roosen will co-chair the new company, alongside Canadian mining investment legend Ned Goodman, who is president and CEO of Dundee Capital Markets. Dundee’s stakes in the concerned companies will give it about 15% of New Oban.

Carried cash plus the Osisko investment will put no less than $65 million into New Oban’s pocket. That is enough to make some deals.

Finding the right deals will fall to the high caliber team heading up this new entity. The board will include Patrick Anderson, the geologist co-founder of Aurelian Resources (acquired by Kinross in 2008 for $1.2 billion); John Burzynski, one of the key teammates responsible for building Old Osisko into an intermediate gold producer; Murray John, a mining engineer who has guided many ventures from the boardroom as part of the Dundee team; Rene Marion, best known for building AuRico into a significant gold mining company; and several other highly experienced players.

That’s that: once the legal dust has settled, New Oban will debut as the newest option for who wanting a growth-focused company with top notch management to ride through the next metals market.

But it is not alone.

The combination of Crocodile Gold and Newmarket Gold __ weeks ago created a similar entity: heavyweight management engineering a vehicle to drive during the upswing. First Mining Finance is another option: experienced management armed with cash focused on acquiring assets while everything is cheap.

Which should one buy? Hard to say. Each of these management teams has done it before; investors who have already followed one of these groups to the bank will be predisposed to stick with that team, and rightfully so. Location might matter to you: New Newmarket has operations in Australia while New Oban is Ontario-Quebec oriented and First Mining focused on eastern Canada and Mexico. Newmarket offers current production and outright intends to grow into a mid-tier producer. First Mining has no plans to explore, let alone develop, its assets; it is a mineral bank, seeking joint venture partners to take on the risk and in return provide royalties.

Each has its individual attributes. What matters is that not one, not two, but now three highly proven management teams sat down and said, “The opportunities right now are incredible. Valuations are really low. We need to take advantage – we need to build a vehicle to ride up through the next cycle.”

These are those vehicles. It is impossible to know everything about mining and exploration. There are too many people, too many projects, too many deals. What you can do, however, is follow the people who know more than most and who have shown they can turn that knowledge into money.

These teams fit that bill. Take your pick.

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"Gwen - I just analyzed our returns for the past month. We had a 36.7% return on our portfolio in one month! Thank you so much for your excellent, thoughtful and timely guidance. 12 of the 18 stocks in my portfolio were recommended by you. 4 were recommended by other MIF letter writers and 1 each by Eric Sprott and Rick Rule. Yes it was a good month for precious metals - Gold was up $50 and Silver $3.90 - but “our" portfolio performance more than doubled the 16% of the GDXJ"


-WJ (June 1, 2020)

Great letter this morning Gwen. I am not "all aboard" with your picks but your understanding of how best to manage a high risk portfolio is second to none. And I did buy a lot of G when you made the call and sold it about a month later for a very healthy gain. Thank you very much!
As for "shiny ponies" that are moving on anticipation and will move big on good news, you need to get on the BAY train. Just sayin’..........

-PL (June 7, 2018)