MAG Silver Eludes Pursuer ... for Now

If you hold a beach ball underwater, you just might get smacked in the face when it surges through the surface.

London-listed silver miner Fresnillo attempted to hold joint-venture partner MAG Silver (AMEX: MVG  ) underwater with its "take-under" bid announced last month, but investors used dollars instead of ballots to cast an early vote against the deal. I believe that the deal is as good as dead now that the beach ball has slipped through Fresnillo's hands, but I also suspect that MAG shareholders haven't heard the last from Fresnillo.

Until last week, shares of MAG Silver remained anchored near the $4.54-per-share offer price, even as the broader sector enjoyed a phenomenal end-of-year rally. In fact, the entire precious metals mining sector had itself been pressed deep underwater by a combination of factors, including forced liquidations by hedge funds, a counterintuitive rally in the U.S. dollar, a deep correction in silver prices, and severe weakness among base metals like copper and zinc.

Thanks to the sectorwide recovery in recent weeks, gold miners like Kinross Gold (NYSE: KGC  ) and my top pick, Agnico-Eagle Mines (NYSE: AEM  ) , are up well more than 100% from their lows of late 2008. Shares of Silver Wheaton (NYSE: SLW  ) rose sharply enough to become my best call of the year. MAG Silver shares, however, remained in a stranglehold.

The beach ball bounces
All that changed last week, when a press release from MAG Silver indicating yet another discovery of excellent high-grade ore provided the catalyst for the ball to surge out of the water and effectively quash the hostile bid. Shares launched to almost $6 on Friday, or 30% above the bid price, before settling back down toward the $5 mark this week.

While I believe the current bid from Fresnillo is clearly doomed now that investors have cast their vote with their capital, I expect Fresnillo to follow up with a second bid. With some very rich ore-bearing veins right in Fresnillo's backyard, MAG Silver is too precious for Fresnillo to ignore. With leading silver miners like Pan American Silver (Nasdaq: PAAS  ) and Coeur d'Alene Mines (NYSE: CDE  ) struggling to withstand a very challenging market, I see no other silver miner in a position to outbid Fresnillo for MAG.

Further Foolishness:

Over at Motley Fool CAPS, 109 members have selected five-star-rated MAG Silver to outperform the S&P 500. Create your own CAPS portfolio today and cast your vote on where these shares are headed. Join us. CAPS is free and fun!

Fool contributor Christopher Barker can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He owns shares of Agnico-Eagle Mines, Coeur d'Alene Mines, Kinross Gold, MAG Silver, Pan American Silver, and Silver Wheaton. The Motley Fool has a disclosure policy.


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Related Tickers

10/2/2014 12:38 PM
MVG $7.25 Down -0.03 -0.41%
MAG Silver Corp. CAPS Rating: **
AEM $29.79 Up +0.53 +1.81%
Agnico-Eagle Mines… CAPS Rating: ***
CDE $4.90 Down -0.16 -3.16%
Coeur d'Alene Mine… CAPS Rating: ***
KGC $3.23 Down -0.03 -0.92%
Kinross Gold Corp… CAPS Rating: ***
PAAS $10.71 Down -0.31 -2.81%
Pan American Silve… CAPS Rating: ***
SLW $19.66 Down -0.46 -2.26%
Silver Wheaton Cor… CAPS Rating: ****

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