Let the Golden Dealmaking Begin Anew

With gold vaulting into a new phase of its multiyear advance, the gold rush is back in high gear with miners positioning themselves for inevitable consolidation within the sector.

If Newmont Mining's (NYSE: NEM  ) January buyout of AngloGold Ashanti's (NYSE: AU  ) stake in the world-class Boddington mine sounded the starting gun for another round of dealmaking among precious-metals miners, then Barrick Gold's (NYSE: ABX  ) move this week to acquire a 70% stake in the El Morro project from Xstrata for $465 million marks the renewed acceleration of the trend.

Located near Pascua Lama, Barrick's key development project covering territory in both Argentina and Chile, El Morro brings another 5.8 million ounces of attributable indicated gold resources into Barrick's fold, plus a significant cost-cutting bonus of 4.4 billion pounds of copper. The project has completed the feasibility stage, where economic viability is confirmed, and is presently seeking environmental permits.

As I pointed out last week, the larger players within the precious-metals mining sector will inevitably be forced to acquire new assets to sustain their scale of production in a world where large new discoveries are getting harder to find.

Pan American Silver (Nasdaq: PAAS  ) might look small next to a titan like Barrick, but it is nonetheless a leader among primary silver producers. Pan American joined the fray this week as well, announcing a friendly acquisition of explorer Aquiline Resources and its prized Navidad project in Argentina.

Golden heavyweights Goldcorp (NYSE: GG  ) and Kinross Gold (NYSE: KGC  ) must also be viewed as likely suitors of additional gold properties, with Goldcorp sitting upon a cache of cash and Kinross indicating that up to 50 potential investments are under consideration. Goldcorp founder Rob McEwen predicts that M&A activity "will pick up as people become more comfortable with this environment at a higher price."

From this Fool's perspective, the clear winner in this latest Barrick deal is the minority holder of El Morro: New Gold (AMEX: NGD  ) . Rather than exercising a right of first refusal to stymie this deal, I expect New Gold to embrace its new partner as a meal ticket to fast-tracked development of the mine. As the ongoing consolidation trend matures, I continue to look to smaller and midtier producers and explorers for the greatest potential to reward shareholders as the titans compete to build out their production pipelines.

Gold is a hot topic on the blogs at Motley Fool CAPS. Join the free service today and see just how many Fools are taking the long view when it comes to investing in gold. The "Gold" tag at CAPS lists 46 potential investments, and you'll find Christopher's comments on most of them.

Fool contributor Christopher Barker carries a silver coin which reads: "Honest value never fails." He can be found blogging actively and acting Foolishly within the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of Kinross Gold, New Gold, and Pan American Silver. The Motley Fool's disclosure policy is 0.999 pure.


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  • Report this Comment On October 19, 2009, at 7:34 PM, jesusfreakinco wrote:

    Wooohooooo! Bring it on. I have plenty of junior shares to sell... At the right price, of course!

    JFC

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