It may sound odd coming from an investment advisor employed by
Sprott Ltd. (
TSX: T.SII,
Stock Forum), the Toronto fund manager that has been relentlessly optimistic when it comes to gold and silver.
But Michael Kosowan says he isn’t counting on a rising gold price to lift the spirits of beaten down investors who have seen stock price valuations fall by as much as 70% in the past two years.
“It’s not that I’m saying US$2,400 per ounce gold is not possible in the next 12 months,’’ he told Stockhouse, during an interview this week.
The is a reference to a recent forecast by Sprott Asset Management CEO Eric Sprott.
"I just think that in the context of what I do, there are always going to be people who bet on the sector predicated on what they think the gold price is going to do,” he said.
But Kosowan prefers not to make that bet.
Rather, he tends to take a strategic approach to picking winners in the junior space, one that features a "backup plan."
“And my back up plan is having a good project that will get financed come hell or high water,’’ he said.
Kosowan is a 43-year-old mining engineer from Sudbury, Ont., who spent 13 yearsworking with Sprott Global Resource Investments Ltd. Chairman Rick Rule in San Diego before recently moving back to Toronto with Sprott.
Here are three companies that he is watching in the belief that they could emerge as takeover targets.
Cayden Resources Inc. (
TSX: V.CYD,
Stock Forum). This Vancouver exploration company has two projects in Guerrero and Jalisco, Mexico.
Kosowan says he likes the fact that Cayden recently raised US$15.7 million from the sale of a portion of Morelos Sur Concession in Guerrero State to a subsidiary of
Goldcorp Inc. (
TSX: T.G,
Stock Forum), the operator of the nearby Los Filos mine.
Cayden retains a sliding scale royalty on those concessions, commencing after the first 250,000 ounces of production, starting at 0.75% and up to 1.75% when gold is over $2,500 per ounce.
Cayden also has control of a strip of ground that is located between two open pit mines – the Los Filos, and El Bermejal, which have been in production since 2008.
“A lot of people that I have spoken to believe those two pits are really one,’’ said Kosowan. “To link them, you need the ground that is owned by Cayden.”
The Morelos Sur Gold Project contains a NI 43-101 compliant mineral resource of 1.5 million tonnes at grade 1.66 grams per tonne, equivalent to 89,000 ounces.
Cayden traded this week at $1.66, leaving a market cap of $69 million, based on 41.5 million shares outstanding. The 52-week range is $1.80 and 64 cents.
Lydian International Ltd. (
TSX: T.LYD,
Stock Forum). The Toronto-based company is working through the "painful" mine permitting phase at its Amulsar project, which is located in the Republic of Armenia,and is estimated to host 2.4 million ounces of gold (in the measured and indicated category), plus another 1.7 million ounces of inferred material.
“There is risk associated with Armenia, largely because it hasn’t seen a lot of commercial mining,’’ said Kosowan. “But potentially that is where the opportunity is,’’ he said. “As long as the project doesn’t get expropriated, which I don’t think is likely, then you are looking at a project that can really sing and produce nice gold numbers for you.
Trading at 74 cents Tuesday, Lydian has a market cap of $96.3 million, based on 130.2 million shares outstanding. The 52-week range is $2.39 and 73 cents.
Reservoir Minerals Inc. (
TSX: V. RMC,
Stock Forum). Kosowan sees this company as a potential takeover target because it has exploration permits in eastern Serbia, which are close to the world class Bor and Majdenpek high sulphidation and porphyry copper mines.
He also likes the fact Reservoir is working with U.S. mining giant
Freeport-McMoran Copper & Gold (
NYSE: FCX,
Stock Forum) on the Timok project. Covering 245 square kilometres, it coughed up one of the best drill results that Kosowan says he has ever seen. (291.3 metres of 7.17% copper equivalent, averaging 5.13% copper and 3.4 grams gold per tonne).
If Freeport completes a feasibility study, it can own 75% of Timok, leaving Reservoir with the other 25%.
“It is a project that I’m a little biased about because I visited it 3 years ago and I met with the Prime Minister of Serbia along with [Reservoir Minerals CEO Simon Ingram],’’ said Kosowan.
“It’s in a very strong geological system.”
The stock traded at $4.89 this week, leaving Reservoir with a market cap of $204.2 million, based on 41.7 million shares outstanding. The 52-week range is $5.33 and $1.97.