Top 5 Gold Junior Takeover Targets For 2017
Top 5 Gold Junior Takeover Targets For 2017
Nov.29.16 | About:
VanEck Vectors (GDX)
Summary
Gold juniors provide more leverage to gold prices than senior producers.
Juniors that are takeover targets typically get bought out by mid-tier or senior producers at a big premium, and this can boost your portfolio performance.
Here are 5 gold junior takeover targets for 2017.
Top 5 Gold Junior Takeover Targets for 2017
Merger and acquisition activity in the gold sector has certainly cooled off a bit since earlier this year, likely due to gold prices falling to under $1,200 per ounce. But, if you are bullish on gold for 2017 like I am, then it may be a good idea to start buying gold juniors that are strong takeover targets in anticipation of higher gold prices. For one, Credit Suisse
expects a $1,400 gold price in 2017 due to a projected supply deficit of 211 tonnes in 2017). You'll see below that gold supply is expected to fall considerably over the next few years as we've already reached global peak production in 2015.
(Gold has reached peak discovery and peak production. Credit: Teranga Goldcorporate presentation, with figures from SNL and CPM group, GFMS and Metals Focus).
When the gold price does recover, larger producers typically look to buy juniors to add to their resources and reserves, and to add low-cost gold production (a merger paid in shares may also improve an indebted miners balance sheet, if the acquisition adds net cash). Takeovers of juniors are typically done at big premiums (in cash, shares, or a combination of both), which can lead to big returns for shareholders.
For example, in 2016, Goldcorp (NYSE:
GG)
bought out gold developer Kaminak Gold (
OTCPK:KMKGF) at a 33% premium; Tahoe Resources (NYSE:
TAHO)
bought Lake Shore Gold at a 15% premium; Endeavor Mining
bought True Gold (
OTCQX:RVREF) at a 43% premium; Kirkland Lake Gold (
OTCPK:KGILF)
bought St. Andrew Goldfields at a 25% premium. I personally owned a larger position in True Gold before Endeavor's takeover, and it's one of the main reasons my
real-life gold portfolio has been able to outperform the benchmark gold miners index (NYSEARCA:
GDX) this year.
Here are my top 5 gold junior takeover targets for 2017. I expect these companies to receive heavy buying interest from mid-tier or senior gold miners next year, as each company listed owns an attractive exploration/development project or a producing gold mine.
#5 Teranga Gold (TCGDF)
TGZ data by
YCharts
Teranga Gold is one of my largest real-life holdings, as it makes up approximately 7% of my total gold holdings. I added the majority of shares following Teranga's
acquisition of Gryphon Minerals in June, as I felt this was a smart takeover that gives Teranga the potential to grow into a multi-mine producer, possibly joining the ranks of other mid-tier gold miners such as Endeavor Mining (
OTCQX:EDVMF) and Semafo (
OTCPK:SEMFF).
But this acquisition means Teranga is likely a strong takeover target itself in 2017. The company is aiming to grow its annual gold production to as much as 325,000 ounces by 2019, with its all-in sustaining costs in the low-$900's. This year, the gold miner has really been executing well, as it has produced record gold production and strong free cash flow.
For example, last quarter, Teranga produced 49,481 ounces of gold compared to 32,956 ounces the prior year quarter, with a 24% reduction in all-in sustaining costs to $908 per ounce. Meanwhile, the stock continues to trade at a low valuation compared to peers, with an 2016 EV/EBITDA of just 2.7X, compared to 22.3X at Roxgold (
OTC:ROGFF) and 13.6X at Asanko Gold (NYSEMKT:
AKG), according to the company presentation.
Teranga is really a compelling growth story in the making and I think the company will draw the attention of its peers in 2017 if it continues to execute; I see a potential takeover coming from Africa-focused gold miners such as Endeavor Mining (
OTCQX:EDVMF) and Randgold Resources (NASDAQ:
GOLD)
.
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