This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Gold Stock M&A: How to Play It

NEW YORK ( TheStreet ) -- High gold prices have triggered a wave of mergers and acquisitions in the gold mining sector, and there are four ways one could profit from this consolidation wave:
  • Short the buyers and potential buyers;
  • Buy the buyout targets;
  • Buy the large miners that already have made big purchases;
  • Buy the mid-tier miners who focus more on organic growth rather than buyouts

First off, M&A for gold miners is here to stay as long as gold prices stay high. The stronger the gold demand, the more gold a company must produce, the more gold it has to find to replenish supply.

According to the World Gold Council gold demand trend report, mine supply grew 3% in the third quarter compared to a year ago while gold demand rose 12%. Although the difference between supply and demand was largely made up for by an increasing recycled gold supply, as prices sustain high four-digit levels the pressure is on to find new deposits.

Gold Stocks to Buy as M&A Heats Up

Using rough math, if a producer wants to increase its annual production by 1.5 million ounces a year, the miner must find twice as many ounces of resource. CEO of Novagold (NG) Rick Van Nieuwenhuyse says "typically resources to reserves is about 60% [and] you get about 90% recovery."

Finding a new mine and bringing it into production can take upwards of 10 years during which time the company must contend with geopolitical and environmental risks, which could slow the project down. Some companies get lucky like Endeavour Silver (EXK) which took its Lucera mine from discovery to production in four months, a pretty rare scenario.

Another option is partnering. A senior miner can partner with a junior on a new project to help shoulder some of the financial burden while reaping the benefits of someone else's work. Paolo Lostritto, mining analyst at Wellington West Capital Markets, thinks that this strategy, however, is just a fallback.

Juniors might enter into a partnership expecting the richer company to jump-start the project into production, but since the senior typically has a longer production time line (maybe it won't need more gold deposits for 10 years) sometimes an asset just sits there. "A buyout is more beneficial [for a junior]," argues Lostritto.
1 of 5

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
AEM $44.98 2.69%
ABX $17.87 2.35%
GOLD $84.73 -0.66%
GG $18.73 1.46%
KGC $5.29 4.34%


Chart of I:DJI
DOW 17,660.71 +9.45 0.05%
S&P 500 2,050.63 -0.49 -0.02%
NASDAQ 4,717.0940 -8.5450 -0.18%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs