Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Are Junior Gold Miners Ripe For Takeovers Now?

Commodities / Gold & Silver Stocks Aug 18, 2010 - 01:59 PM GMT

By: Julian_DW_Phillips

Commodities

The Kinross takeover of Red Back

Recently Kinross made an offer for the shares of Red Back with its Mauritanian gold deposits as the target. The offer made to Red Back was accepted by the shareholders of Red Back, but looked on with skepticism by Kinross shareholders. In the statement made by Kinross, the Directors asked for patience to be shown by their shareholders for around six months. In that time, they expect to reveal more of the extent of the Red Back deposits.


Institutions expect to see their Mauritanian deposits reach between 10 million ounces and 20 million ounces. The fact that the deposits will require shallow low cost open mining operations make the venture capable of profits that will justify the price paid. If this proves to be the case then it marks the way forward for the big gold mining companies in expanding their resources and not relying on inherent growth.

The background of the gold mining world

The cost of finding new large deposits is climbing as are the risks attending such work in this politically greedy world. On top of that most if not all of the large deposits have been found and the large companies have to replace exhausted deposits. This means lowering their sites on the size of discoveries and entertaining the likelihood of taking over small companies, like Red Back that have already found the goods.

This can be risky, very risky for it not just a matter finding a deposit, but proving it to independent standards [403-1], doing a feasibility study, raising finance , developing the mine, reassuring investors that the political climate of the are is conducive to shareholders investment [politically favorable], then producing the gold. Ideally the deposit should be continuously expanded [Goldcorp's Red Campbell Lake [Goldfield's South Reef deposit etc]. This then makes the project attractive to investors as the risk declines from the discovery to production. The point at which investment takes place relates directly to the stage of development it is at.

Major mining companies need to replenish resources to continue in existence.

  1. Each mine contains only so much proven gold resources.
  2. The rate at which this is depleted gives the mine its life.
  3. In turn, the profit path of the mine can be traced and its value established.
  4. The number of shares issued to shareholders relates to the earnings the mine will achieve.
  5. The dividend policy defines the cash flow to the shareholders.
  6. In turn the value of the share relates to the average earnings rating in that particular market and by extension the share price.

The number of mines and their life defines the future of the mining company owning them [they used to be called 'mining houses']. Such large groups of mines under one roof become attractive because the life of a company extends far beyond the life of any of their individual mines.

The Prospects for more takeovers of Junior Mining companies

Since the days of accelerated production that lasted from 1985 to around 2005 [the time when the bullion banks loaned bullion to the miners to use in financing production] new deposits have become more difficult to find and bring to production. The political climate in which miners operate in the world has increased the risks associated with investment. The deposits that are out there have become smaller. Mining companies are lowering their sights and looking at deposits as small as 1 million ounces. Anything larger is more inviting. Deposits in politically favorable and mining friendly nations add to that attraction.

So imagine that you have to before a company that is producing the proven deposits and is already producing and good drill results on your properties you would not choose but go for both, provided the terms are right for you.

There are many companies out there from those exploring, to those with proven deposits right the way up to junior companies already in production. These are safer than the unknown, so, subject to the takeover enhancing shareholder value and not diluting it, takeovers are a very good way to go and a way that will be followed increasingly by large mining companies in the future.

Gold Forecaster regularly covers all fundamental and Technical aspects of the gold price in the weekly newsletter. To subscribe, please visit www.GoldForecaster.com

By Julian D. W. Phillips
Gold-Authentic Money

Copyright 2009 Authentic Money. All Rights Reserved.
Julian Phillips - was receiving his qualifications to join the London Stock Exchange. He was already deeply immersed in the currency turmoil engulfing world in 1970 and the Institutional Gold Markets, and writing for magazines such as "Accountancy" and the "International Currency Review" He still writes for the ICR.

What is Gold-Authentic Money all about ? Our business is GOLD! Whether it be trends, charts, reports or other factors that have bearing on the price of gold, our aim is to enable you to understand and profit from the Gold Market.

Disclaimer - This document is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment. Gold-Authentic Money / Julian D. W. Phillips, have based this document on information obtained from sources it believes to be reliable but which it has not independently verified; Gold-Authentic Money / Julian D. W. Phillips make no guarantee, representation or warranty and accepts no responsibility or liability as to its accuracy or completeness. Expressions of opinion are those of Gold-Authentic Money / Julian D. W. Phillips only and are subject to change without notice.

Julian DW Phillips Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in