With what I believe to be a granite foundation for higher gold prices now firmly constructed, and many profitable gold miners positioned with considerable sums of cash and credit, this forward-looking Fool sees accelerating consolidation activity as a foregone conclusion.
Joint venture agreements will continue to provide an important road forward for juniors, while some may look to merge with one or more competitors. I believe, however, that outright acquisition of juniors by producing miners will typify the coming wave of gold consolidation. With that in mind, let's take a look at some of the miners with cash-lined pockets, and try to select a well-suited junior for their Foolish consideration.
The geography of opportunity
The grass may look greener on distant pastures, but for gold miners the greatest opportunities often lie in their own backyards. Acquiring assets adjacent to existing operations can reduce development and operating costs enormously by leveraging existing equipment and infrastructure. Because of their adjacent locations in the prolific Red Lake mining district of Ontario, Canada, I believe Goldcorp
Goldcorp recently netted approximately $840 million from a convertible note offering, and indicated that $330 million of that sum will go to debt repayment. That leaves roughly $510 million of fresh capital in the coffers, compared to a $470 million enterprise value for Rubicon. As rich as Goldcorp is in gold reserves, a Rubicon acquisition would keep Goldcorp's Red Lake operations squarely on the map as one of the richest and most prospective gold mine complexes in the world.
Meanwhile, the largest gold mine in Canada in terms of reserves remains Agnico-Eagle Mines'
If I were at the helm of this miner, I would take a long look at Osisko Mining. Although not an adjacent property, Osisko's Malartic project is only about 20 kilometers from LaRonde. I'm cognizant of the company's stated objective to acquire smaller companies or projects, but I feel that Osisko's 6.28 million ounces of gold reserves would provide an optimal boost to Agnico's development pipeline with only minimal interruption of the present growth spurt. With a market capitalization of almost $1.5 billion, though, Osisko might already have grown beyond Agnico's reach.
Considering core competencies
With $2 billion in cash, a major miner like Barrick Gold
No one can precisely predict the deals that will ensue, but this Fool finds real value in pondering the possibilities. While I don't recommend buying equities purely on buyout speculation, I believe that the same attributes that make certain gold juniors particularly attractive to larger competitors also render them excellent vehicles for leveraging further increases in the price of gold. Investments in gold juniors requires substantial due diligence, but the research is like searching for buried treasure. Happy prospecting!
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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 owns shares of Agnico-Eagle Mines, Kinross Gold, Osisko Mining, Rubicon Minerals, Taseko Mines, NovaGold Resources, and Yamana Gold. The Motley Fool's disclosure policy is 0.999 pure.