What To Make Of These Puny Premiumswww.worldofwallstreet.us/2009/03/precious-metal-stock-takeovers-what-to-make-of-these-meager-premiums.html
from the above article:
- Silver Wheaton Buys Silverstone Resources - resulting in a 16% pop for Silverstone. Silver Wheaton, the world's largest (and heavily in debt) silver stream (royalty) company buys its smaller and only competitor, Silver Stone resources. The buyout takes place at a price that values Silverstone's royalties at a much lower value than Silver Wheaton's to the point where John Doody classifies the deal as "Silver Wheaton stealing Silverstone".
- Gammon Gold Buys Capital Gold Corporation - resulting in a 7% pop for Capital Gold. Capital Gold is very much undervalued relative to Gammon Gold on the usual metrics: price to operating cash flow, price to annual oz and price to oz in the ground.
What are we to make of this? In all three cases we find smaller,illiquid companies which are profitable, with no financial troubles,accepting acquisitions at truly meager premiums from companies thatcould afford to pay a lot more and still have the acquisitions beaccretive (that is, increase the value of the buying company).SilverStone, in particular, is controlled by the same extremely savvymanagement that controls the highly regarded copper miner, CapstoneMining (CS.TO). These guys are clearly not suckers.
It surely isan example of the managements and controlling shareholders of thesmaller companies wanting to monetize their profits and get out. To"take the money and run". It is a serious vote of a lack of confidencein the outlook for precious metals in general and junior producingminers in particular. The managements and shareholders must haveconcluded there is serious risk of a downturn and decided it was timeto turn their illiquid shares into shares that they can sell (en-mass)if need be. These guys are "smart money". These are guys who shouldhave a better than amateur view of the precious metals outlook.