The Battle Royal for Gold in the Ground

Buckle up for 2010, Fools. This new chapter in gold's multiyear bull market is bound to be quite a page-turner, and dramatic dealmaking among miners is sending 2009 out with a resounding bang.

Goldcorp's (NYSE: GG  ) sweetened $242 million bid last week for Canplats Resources, which both matched and nullified a competing bid by a Newmont Mining (NYSE: NEM  ) joint venture with silver miner Fresnillo, provided the latest example of intensifying competition for precious metal asset purchases -- at least until Monday morning brought breaking news of another counter-bid by the Fresnillo-Newmont venture that values the target at about $253 million.

At stake in this battle royal are 3.45 million ounces of gold resources with a very precious kicker: more than 60 million ounces of silver.

Goldcorp's motivation to acquire the Camino Rojo property in Mexico is clear, with the proximity to the world-class Penasquito mine presenting an enticing opportunity to expand this significant gold and silver mining camp. Goldcorp has already identified 940,000 ounces of inferred gold resource at the nearby Noche Buena property, and the addition of Camino Rojo follows a pattern of district-focused production growth like that seen at Goldcorp's Red Lake mining camp in Ontario, Canada.

Just what the world's No. 2 gold producer is up to by targeting Camino Rojo is somewhat less obvious. Newmont Mining's joint venture with silver giant Fresnillo -- called Minera Penmont -- operates the La Herradura mine in northern Mexico (not far from the Arizona border). Newmont owns only 44% of the joint venture, and at a modest 1.89 million ounces of attributable proven and probable reserves, the mine represents just over 2% of the company's collective pot of gold. Even with a nearby development project purchased from Seabridge Gold (AMEX: SA  ) in 2008, the La Herradura camp can hardly be considered a core asset for Newmont.

The joint venture's revived bid for Canplats Resources, however, indicates that Newmont may be looking to create a more strategic foothold in Mexico. Flanked by noteworthy mines like Penasquito and Fresnillo's namesake silver lode, and located within convenient range of Penoles' Met-Mex smelter and refinery complex at Torreon, the Camino Rojo property may have been targeted by Newmont as an ideal nucleus for a new post-Boddington phase of pipeline development. If that is the case, then Goldcorp may encounter some tenacious competition before the final gavel falls on this potential bidding war.

Whether it's NovaGold Resources (AMEX: NG  ) increasing its allure to suitors with the acquisition of the Ambler property last week, or Royal Gold's (Nasdaq: RGLD  ) bold move to outbid its rival Franco Nevada for smaller competitor International Royalty (AMEX: ROY  ) , the trend toward consolidation in the mining industry will shadow the trend toward higher gold and silver prices. With both the frequency and the competitive nature of precious metals dealmaking activity beginning to ramp up anew, I believe that the stage is set for a dramatic increase in the sector's consolidation activity during 2010.

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 can be found blogging actively and acting Foolishly in the CAPS community under the username TMFSinchiruna. He tweets. He owns shares of International Royalty, Royal Gold, and NovaGold Resources. The Motley Fool has a gilded disclosure policy.


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  • Report this Comment On December 28, 2009, at 3:04 PM, Bkeepr100 wrote:

    Look for many other such struggles over the very best discoveries of the minor miners and explorers properties over the next couple of years. There could be some good profits to be made by investing in the the small cap precious metal(s) mining companies, if you can stand the risk levels involved in ownership.

    Don't get me wrong the middle rank of companies will make good profits, but the little guys are the ones that will be gobbled up. A few will be multi baggers of legend. Still others will give great returns. Many will be losses for their owners. Due dilegence is needed before investing in this level of the market.

  • Report this Comment On December 29, 2009, at 1:23 PM, jesusfreakinco wrote:

    Chris,

    Any comments on PZG?

  • Report this Comment On December 29, 2009, at 3:48 PM, XMFSinchiruna wrote:

    Yeah ... that's a very large collective land package in strategic proximity to a number of prolific existing mines. :)

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