VANCOUVER - Let's make this easy. Cash-rich majors and gangly mid-sizers will use cash to buy junior resource companies.
Large producers of metals (gold, copper, silver, iron ore) are combing Colombia, parts of Africa, Nicaragua, Nevada, Mexico and Canada for purchase candidates. In a year when resource companies' merger and purchase activity is briskly paced, before year's end such transactions will reach a torrid pace.
I spoke with many of my contacts on the central questions: Who is buying and where are they buying? Ari Sussman of Continental Gold (TSX: T.CNL, Stock Forum), David Meyer of Norvista Resources, Ian Slater at Red Eagle Mining (TSX: V.RD, Stock Forum), Bob Allen at Grupo de Bullet, Michael Nikiforuk at African Gold Group (TSX: V.AGG, Stock Forum) and several others were among my source list.
This is what we call quick and dirty. No long quotations from these bankers, geologists, property owners and CEOs. Just this: Most buyers will use cash because they do not want to see their existing equity dissipate. Most buyers will employ acquisitions or mergers, and in some cases 10% strategic stakes, to acquire exploration talent, documented metals resources or nearby properties.
"The companies being taken over might think it's easier to merge than to try and project finance in the current market," says Mr. Slater, whose Red Eagle is active in Colombia, one of my favored jurisdictions. He is using project finance as a verb here.
I see several mid-sizers, like B2Gold, Yamana (NYSE: AUY, Stock Forum), Iamgold (TSX: T.IMG, Stock Forum), Kinross Gold (NYSE: KGC, Stock Forum), US Gold (TSX: T.UXG, Stock Forum) and a host of silver rockets, among them perhaps First Majestic (TSX: T.FR, Stock Forum) or Endeavour Silver (EXK and TSX: T.EDR, Stock Forum), looking for tightly-run prospectors and imminent metals producers with one eye on the clock. The other eye is on the most-actives list on the Canada and Australian stock market screens.
"Not sure how many deals will get done at these cheaper junior valuations," Mr. Sussman tells me from Toronto. Ari Sussman runs Continental Gold, a Colombia gold prospector. "Apparently Galway (TSX: V.GWY, Stock Forum) has been for sale since the spring." Galway also is active in Colombia and recently saw its shares trade briskly higher on zero published news.
My Major Activity candidates are here in this space for all to see ... and for free. I own nearly all of them and intend to purchase more at fire-sale prices. I am an insider at none of them. (See disclosures at bottom please.)
In Colombia, even though he calls most prospector properties that he does not already own "moose pasture," Gran Colombia (TSX: T.GCM, Stock Forum) Chairman Serafino Iacono at some point will purchase privately or publicly-held exploration companies in his neck, or should I say necks, of the woods.
Others already looking in Colombia almost surely will be knocking around Antioquia's Middle Cauca Belt, where success stories after several years of hard work include Sunward Resources (TSX: V.SWD, Stock Forum), Bellhaven Copper & Gold (TSX: V.BHV, Stock Forum), Colombia Crest (TSX: V.CLB, Stock Forum) and one or two others, Solvista (TSX: V.SVV, Stock Forum) for one, maybe Seafield (TSX: V.SFF, Stock Forum) now that it has new execs at the helm. Of all of them, I think those in and around Titiribi, a proven mining district with good to very good grades and a willing work force, will be first to get "transacted." That would be Sunward, whose shares I do not own, Colombia Crest, whose shares I do not own, and Bellhaven, whose shares I own "in size," as they say.
For other candidates in West Africa, Nevada and Canada, please go to our Stockhouse Thom Calandra library of free research. The link to the library is below.
You know, I saw with my wife a screening of the yet-to-be-released "Margin Call" starring Kevin Spacey (looking more and more like Gene Hackman), Jeremy Irons, Demi Moore (just terrific in her thankless role as a top risk moderator at the firm) and Stanley Tucci (giving the year's best monologue sitting on a Brooklyn Heights stoop) ... at the Mill Valley Film Festival last evening. Outstanding day in the life of a fictional NYC dealer of mortgage-backed securities in 2008. Just as good as that Hong Kong day-in-the-life-of-crashing-Hang-Seng film I saw the other week at the Toronto Film Festival, in its own way: "Life Without Principle."
Jeremy Irons is the chief, cold-blooded in trying to save the firm. Basically, the top man realizes he is shtupped unless the firm is first out the door with all the collateralized crap it had been selling for two years. So he gets first out the door, saying in one monologue toward the end that there are far more people in the business of making and losing money today than there were, say, in 1610 or 1790. "But the percentages (of winners and losers) remain the same."
I wish he had told us the freaking percentage. (I tend to think it is 12% winners and 88% losers or break-evens - over the history of paper money.) In resources (mining, metals, even energy and agriculture), M&A winners that act before year's end likely will be our 12 percenters.
Notes: I am a partner of Torrey Hills Capital, which is in Del Mar, near San Diego, California. That investor outreach firm lists Xtra-Gold Resources and African Gold Group as clients. Also, I own shares of Solvista, Red Eagle, African Gold Group and Endeavour Silver. Also Bellhaven and Xtra-Gold Resources (OTO.BB: XTGR, Stock Forum). Stockhouse members - the service is free - can see my entire portfolio online. It is under the portfolio function and my user name, which is TCALANDRA. There is nothing in my portfolio suitable for risk-averse investors. I am not a financial adviser.
Thom Calandra, a founder of CBS MarketWatch and FT MarketWatch, has to rank as one of the most talented financial newsletter writers in the business today. Thom's track record of identifying valuable investments early on, has helped thousands of investors find high-return investments for nearly 30 years. This column first appeared on Stockhouse.com. He will talk on Sunday, Nov. 27, during the San Francisco Hard Assets Investment Conference.