I subscribe to their letters and found this interesting that can be related to SC.
http://sprottglobal.com/thoughts/articles/m-and-a-in-today-mining-sector-more-than-just-a-trivial-pursuit/
I underlined the parts where I found interesting.
Last week I found myself embroiled in a fast-paced, highly competitive game of trivial pursuit with a few friends. The stakes were high and the blood-lust was palpable. It served to validate and reward my fascination with trivia and all things ‘strange, but true.’
Take for instance the number 300. Did you know that 300 is a perfect score in bowling, achieved by rolling strikes in all ten frames? Or that the maximum legal velocity of a shot in paintball is 300 feet per second? And who could forget the 300 brave but doomed Spartans who resisted the Persians at Thermopylae?
But here is my favorite: Cayden Resources Inc., a Canadian Junior gold exploration company trading at $1 per share as of December 312, just received a takeover which valued at $3.79 per share from Agnico Eagle Mines Ltd. as of September 83 – that’s nearly 300% on its former share price. In today’s gold market, how’s that for ‘strange but true’?
Outsized returns like these are not entirely new to the junior gold miners sector, but under prevailing market conditions, this return was a welcomed anomaly. I had taken an aggressive position in Cayden – my clients owned 20% of the stock -- because I recognized the appeal it held to a potential bidder.
Mergers and acquisitions (M&A) activity in the mining sector was anemic for most of 2013, but as the Cayden example suggests, things are beginning to change. Deals are happening. In fact, according to data compiled by Bloomberg,4 deals valued at $11.2 billion total have been proposed and completed so far in 2014, the highest annual figure in three years.
As deal-making revives, there is an opportunity for speculators and investors to capitalize -- but they will need to keep a discerning eye. It’s not going to be as easy as buying any company with ‘gold’ in its name, like we saw in the gold run-up of 2009-2011. It's about hitting the ‘sweet spot’ by being selective and finding the most likely takeover candidates.
Mergers and acquisitions in the gold space typically happen at both market tops and market bottoms. They occur at tops because companies are flush with cash and are able to expand and buy assets.
At market bottoms, they occur when larger companies with foresight purchase distressed assets. Companies recognize that they can bolster their ‘pipeline’ of future projects and/or upgrade their existing portfolios at attractive prices.
Few management teams have been given license by their boards to pursue mergers and acquisitions just yet, but those with strong balance sheets and a mandate to deploy capital are taking advantage of the low valuations across the sector.
It doesn’t make sense right now for producers to bear the high costs of drilling and exploration, not to mention the high level of risk that comes with exploring for new discoveries. With so many distressed assets for sale in the sector, it is far more attractive to acquire a quality discovery than to attempt to find one. This means that discerning senior mining companies with an eye to the future should be on the M&A buying trail – and it follows that investors should want to buy these assets too. The Cayden takeover offer, where shareholders saw a 270% lift in the price of their shares, is a shining example that this is true.
In the case of Cayden, several factors made it attractive as a candidate for acquisition. The geology of the discovery was indicative of potentially millions of ounces of gold in the ground. The management team had a proven track record of success and a clear vision for the company. The discovery was in a top-notch location, in a stable jurisdiction known for its potential for very large discoveries. And finally, the area was familiar to Agnico Eagle Mines, which operates other mines in the area. All these ingredients pointed to a deal.
Whether you participated in Cayden or not, the point is that it’s still a ravaged land out there – that means we are likely to see further M&A activity this year. More big miners will find themselves ‘taking the plunge’ and securing mineral assets to add to their reserves.
This time around, because they’re cash-constrained, companies will need to be more disciplined and selective. At the top of the cycle, the majors sought large, low-grade projects, because they offered the best ‘leverage’ to gold. Now, high-margin, low-cost projects are necessary for the industry to survive. Hence the emphasis is on acquisitions that offer either near-term production opportunity or inexpensive resource expansion, and ideally both.
While the quality of investment is always important, selection is especially critical in bad markets. You need to invest more time for analysis and research than most investors can afford to spend. This is my area of expertise – it’s what I do every day in good markets and bad. I research, seek out, and analyze companies that are most attractive to me given the specific stage of the market. In today’s environment, I think it’s the potential takeover targets -- the next Cayden -- that represent the best risk-to-reward opportunities.
-Teck has foresights of deficit coppers in the near future.
-Teck is willing to throw money to drill and optimizing the project economics.
-I would consider SC a high margin proect. And at this size, the cost is pretty low too. Best thing is that Teck is very familiar with the area SC is in.
