Mexico is fireworkson metals right now: silver, gold and copper combos are leading the way. Yet merger transactions, be they friendly or heated in this accelerating commodities market, take a year or more of discussions, site visits and wrangling.
Gary Freeman and his VP of exploration at $137 million merger candidate Pediment Gold, Mel Herdrick, spent many years developing the San Antonio gold project on the Baja Peninsula in Mexico. When I was there, geologist Mel, businessman Gary and their team of Canadians, Americans and some savvy Mexican natives were spending as much time negotiating with local property rights owners as they were on the geology.
Mr. Freeman’s Pediment Gold (TSX: T.PEZ, Stock Forum), with its developing gold property on the Baja and another near Hermosillo, is combining with Argonaut Gold (TSX: T.AR, Stock Forum), a Mexico producer and developer.
“The best things never come easy,” said Mr. Freeman, Pediment’s CEO and president. “They have talent and they (Argonaut) came to us four months ago. But we had been approached by a couple of other groups over the past 18 months and they were not right for shareholders.” (See our original coverage of Pediment’s San Antonio.)
Freeman, a Canadian, says he is holding all of his Pediment shares, about two million of them. (See one-year Pediment chart here.) “I’ve worked, sheesh, we have worked on this Pediment thing for six years and I see a lot of value still.”
In the past 10 months, mergers and other mining combinations look to have surpassed what was a global record for such transactions in 2007. Widely quoted PricewaterhouseCoopers estimates 40 percent of the global mergers and transactions are in the gold area. I do not know if Mexico is on a record pace, but one look at the names of companies searching, or succeeding, in landing corporate partners tells me Mexico is fireworks.
These names include Timmins Gold, Gammon Gold, Capital Gold, Grupo Mexico’s Asarco, Southern Copper, Goldcorp and on and on. Gammon (TSX: T.GAM, Stock Forum) appears just to have notched a $288 million cash and stock combination with Capital Gold (TSX: T.CGC, Stock Forum). This list is not exhaustive. But the negotiations can be exhausting.
“The M&A front is heating up for gold and even a couple of deals in silver,” Endeavour Silver’s Bradford Cooke says. Endeavour (EDR and EXK) started its pursuit of tiny Cream Minerals (TSX: V.CMA, Stock Forum) in early 2009. The first step was a site visit of Cream’s Nuevo Milenio silver property in Nayarit State, Mexico. After that it gets complex.
“It may be our first M&A target but certainly not our last, although we always try to do friendly deals if possible,” Mr. Cooke, chairman and CEO of Endeavour Silver, says. “In the case of Cream, we negotiated off and on for 15 months … so we decided to see what the Cream shareholders think by taking our offer directly to them.” Tender date for the approximately $10 million offer is November 9.
For all companies scrubbing around in Mexico, gold, silver and copper, the goal is to become a mid-tier producer of metal at a time of accelerating commodities prices. Or one might say, to become a mid-tier producer faster than otherwise possible via existing growth rates at existing company-owned mines.
I know about Endeavour Silver’s growth because I have been to its primary silver mine in Guanajuato and I own the shares (the only company in this article whose shares I own). Endeavour Silver hopes to reach a yearly pace of five million-plus silver ounces, or nearly double what it does now. Mr. Cooke says the chase for Cream included multiple offers.
Caution is best for those looking to search for merger and purchase candidates down south. The good ones, like GeologixExplorations (TSX: T.GIX, Stock Forum) and its Tepal gold and copper prospect, have seen their stocks soar this week. (See Geologix three-month chart.)
Tim Lee at Salman Partners is fresh back from a standing-room-only tour of Tepal. He tells me, “Based on the PEA, the stock is (still) undervalued. It is a fairly straightforward project, and I believe a junior to mid-sized producer could put it into production.”
Mr. Lee says he expects step-out drill results “in the near term, followed by some results from the other exploration property in northern Mexico, a joint venture with Riverside Resources (TSX: V.RRI, Stock Forum), and then results from the exploration target in the east at Tepal.”
It is not just Mexico that will log offers for gold and silver miners. I think we’ll see Nevada in the USA go fireworks as well. Nevada is almost as easy to drill out and develop mines as Mexico is.
Targets for publicly-traded growth miners likely will include developers and prospectors with little Nevada state or federal permitting risk. If you want to spread your bets, find a company, Paramount Gold (TSX: T.PZG, Stock Forum) is one, which is active in Mexico and in the wake of its X-Cal Resources purchase this past summer, the state of Nevada.
Of several that I have seen in Nevada, I point to tiny silver and gold aggregator Comstock Mining (OTC:BB: LODE, Stock Forum) and microscopic General Metals Corp. (OTC:BB: GNMT, Stock Forum). Both trade in the USA and might benefit from fresh capital and from an additional listing on a commodities-friendly exchange. (Please see coverage of these and other companies, such as Mexico’s Corex (CGE, Stock Forum), via the Stockhouse columns feed. It’s free reading.)
Note: With the exception of Endeavour Silver, I do not own any shares of companies in this article.
EARLIER THIS WEEK: Adrian Day is a Maryland asset manager whose INVESTING IN RESOURCES is just out. In the book, he covers gold, silver, platinum, nickel, copper, uranium, rare earths, energy, natural gas, water and geothermal.
For that and more, please view Thom Calandra’s Stockhouse articles.
THE NOVEL: It’s complete and for your reading pleasure: PABLO BY NUMBERS. It’s about the world of natural resources.
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