Merger and Acquisition Opportunities In The Metals Resource Stocks – Part 1B
Excelsior Prosperity w/ Shad Marquitz - 05/06/2024
Here in (Part 1B), we are literally picking up directly from where we left on in (Part 1A) of this series yesterday.
If you haven’t read that, then first stop and do so. Here is that link for reference:
https://excelsiorprosperity.substack.com/p/merger-and-acquisition-opportunities
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Continuing on with 2022 M&A deals; only a few months after the Hecla takeunder of Alexco came the next takeunder in the sector…
In August 12, 2022, Orla Mining (TSX: OLA; NYSE: ORLA ) acquired Gold Standard Ventures (TSX: GSV; NYSE: GSV); primarily interested in their South Railroad Project, a feasibility-stage, open pit, heap leach project located on the prolific Carlin trend in Nevada.
https://orlamining.com/news/orla-mining-closes-acquisition-of-gold-standard-ventures/
This was largely seen as a “takeunder” transaction in the marketplace. GSV had spent a half dozen years correcting downwards from it’s August 2016 first primary peak of over $3.72 (with another brief rally up to $3.85 in early 2017), as one of the darling exploration stocks on the TSX, all the way down to $0.55 at the takeover premium. That is around an 85% drop in value over 6 years, and was absolutely brutal for most investors that bought in or added to positions during most of that time period and long road down.
It should be noted that GSV was not alone in their long slide lower during that time period. Plenty of other quality projects, that were the flagship exploration projects of yesteryear, that released solid drill results and defined compelling resources, have become largely unfollowed, unloved, or forgotten about the last couple of years. There are about 2 to 3 dozen companies in this same predicament, that offer interesting optionality in an improving metals price environment, and will most likely be the crop of companies that see the lion’s share of M&A offers in this next cycle. We’ll definitely be reviewing some of them that seem like obvious targets in future parts of this series.
Personally, I had the good fortune of getting positioned back in GSV about a month before the acquisition transaction was announced, at a 35% takeover premium. My investing thesis in the summer of 2022 was that eventually GSV was bound to get rerated higher for their ounces in the ground, or that they’d be acquired by a larger producer. To be honest, I was a bit startled that it happened about a month later after getting repositioned, but the value was there to be exploited, so good on the Orla management team for buying low. I bring this up because I think a lot of advanced explorers and developers are in a very similar situation at present, and these types of companies will be the ones in discussions with the larger producers to bring in strategic partnerships, or that will be the next M&A targets. Again, finding similar types of opportunities is going to be a big focus of this series moving forward.
Regardless of seizing the good trade setup in GSV in mid-2022, it merely washed out my prior bad trade in GSV from late 2021 through early 2022 where I took a comparable loss. This illustrates the point that sometimes being too early, even if one is eventually correct, has potentially harmful ramifications to one’s investing performance… especially in a PM equities bear market.
Overall, Gold-Standard Ventures was a break-even experience for me, but I definitely felt the value in GSV was clipped long before it had time to recover and get re-rated higher. It had the potential to be a 3x-5x mover in a better gold price environment and sector sentiment when it’s ounces in the ground, economics around the project, and Nevada jurisdiction, finally got a more reasonable valuation. There was also all the exploration upside at this project for a properly funded exploration strategy.
It is easy to understand why so many GSV investors were upset with this transaction, and why the ORL/ORLA investors were pretty happy with buying a quality asset near it’s low valuation. This has also been the risk in positioning in “beta” optionality plays the last few years, with ounces or pounds in the ground. The vast majority of stocks were caught in downward trending valuations and unforgiving bearing markets, and so if they were acquired, they were inevitably takeunders.
As a significant update, and further development with regards to M&A, it should be pointed out that just a few months ago Orla Mining (TSX: OLA; NYSE: ORLA), followed up the prior acquisition of Gold Standard Ventures with yet another acquisition for Contact Gold Corp. (TSX-V: C). Yep… another takeunder….
Orla Mining Enhances Land Position in Nevada with Acquisition of Contact Gold - February 26, 2024
Contact’s key asset is the 100%-owned Pony Creek property, a 4,500 hectare exploration land package, strategically located adjacent to Orla’s South Railroad property in the heart of the Carlin trend in Nevada. In retrospect, one can see their larger vision coming into play in this area, and providing they can execute on moving this whole area into a producing district, then it highlights Orla Mining as another savvy growth-oriented gold producer in the sector to keep tabs on.
In review, 2022 had seen some epic megamergers with the majors, the Kinross takeover of Great Bear, and also quite a few mid-tier producers taking over (or taking under) key juniors developers.
Rolling into 2023, we saw many of the same basic M&A trends continue…
B2Gold Corp. Announces Acquisition of Sabina Gold & Silver Corp. – February 13, 2024
B2Gold Corp. (TSX: BTO, NYSE MKT: BTG) agreed to acquire all of the issued and outstanding shares of Sabina Gold & Silver Corp (TSX:SBB; OTCQX: SGSVF) for a 45% premium, for their Back River Gold District located in Nunavut, Canada.
https://www.b2gold.com/news/2023/b2gold-corp-announces-acquisition-ofxa0sabina-gold--silver-corp
Many longer-term shareholders still considered this a takeunder, but I’d point out that at least on this deal, Sabina had already been climbing higher in share price for months before the transaction was announced, so investors that had positioned during that rise actually did pretty good.
I-80 Gold Announces Board-Supported Acquisition Of Paycore Minerals - Feb 27, 2023
https://www.i80gold.com/i-80-gold-announces-board-supported-acquisition-of-paycore-minerals/
Here we saw i-80 Gold nabbing the adjacent polymetallic FAD deposit from Paycore, just to lock it up before some other company did, and because it plays into the very impressive polymetallic discoveries they had made on their own Ruby Hill project at the Hilltop and Blackjack targets in Nevada. So sometimes, a company acquisition is just an efficient way to grab adjacent land deemed important to a larger district play. This is quite similar in nature to the aforementioned deal where Orla acquired Contact Gold’s Pony Creek property adjacent to the South Railroad project… also in Nevada.
At the end of last year I interviewed CEO, Ewan Downie, and (starting at the 8:00 minute mark in the interview) we reviewed the continued exploration focus on bonanza-grade polymetallic mineralization at Ruby Hill from both the CRD mineralization being drilled at that Hilltop Zone, and the skarn mineralization at the Blackjack Zone. Additionally, we revisited the ongoing drilling at the adjacent FAD Deposit, that was acquired from Paycore Minerals earlier in the year to get his vision of how things were unfolding.
I-80 Gold Corp - Comprehensive Update - 3 Gold Projects - 1 Polymetallic Project In Nevada - Dec 20, 2023
Integra Resources and Millennial Precious Metals Announce Friendly At-Market Merger and Concurrent Equity Financings of C$35 Million with Strategic Investment from Wheaton Precious Metals - February 27, 2023
Here we see one of the “merger of equals” transactions, where Integra was the larger and better-known company between the two, but was stuck in the less exciting “orphan phase” of project development and derisking of the Lassonde Curve at their DeLamar Project in southwest Idaho. Millennial Precious Metals had both the oxide-gold focused Wildcat and Mountain View Projects in western Nevada, where there was more ongoing drilling and thus could provide more exploration sizzle for the company newsflow. (The company has since moved to combine both Wildcat and Mountain projects into the larger combined Nevada North Heap Leach Project). In this case by merging they created the scale and size for the new pro-forma company by creating one of the largest gold-silver endowments in the Great Basin not controlled by a major mining company.
Sometimes it is helpful to hear the initial thought process on an M&A deal.
Over at the KE Report in March last year, we spoke to Jason Kosec, President and CEO of Millennial Precious Metals (TSX.V:MPM – OTCQB:MLPMF), and now the CEO of Integra Resources (TSX-V: ITR; NYSE: ITRG) about the transformative merger. We discuss how the valuation could rerate in line with peers, the new combined resources, and what the growth profile will be.
Millennial Precious Metals – A Breakdown Of The Transformative Merger With Integra Resources – March 2nd, 2023
Just looking ahead in this series, in one of these future updates, we’ll take a deeper dive into where things are at with Integra Resources today. In my opinion Integra Resources is one of those companies that has massed up, and is a very likely takeover candidate by one of the larger producers down the road. Until that time period, it also qualifies nicely as “beta” optionality play on higher metals prices because of the potential of all their ounces in the ground to get revalued higher.
Another M&A transaction in the PM junior mining stocks in late 2023 worth highlighting was the NovaRoyalty takeover by Metalla Royalty and Streaming. We’ve already covered this new combined company briefly in the article highlighting Metalla Royalty in a different series on royalty and streaming companies. Here is a link to that article for anyone interested:
Opportunities With Mid-Tier And Junior Royalty Companies – Part 2
https://excelsiorprosperity.substack.com/p/opportunities-with-mid-tier-and-junior-6b8
Again, it is instructive to look back at the company strategy and what is going through the thought process from management during a merger or acquisition. On October 6th last year, over at the KE Report, we had a good chat with Brett Heath, President and CEO of Metalla Royalty & Streaming (TSX.V:MTA – NSYE:MTA) to discuss the business combination with Nova Royalty (TSXV:NOVR – OTCQB:NOVRF), announced on September 8th. We have Brett explain how the deal came together, the strategy of the combined Company, the strategic partnership with Beedie Capital, and the higher weighting in longer-dated top-tier copper royalties augmenting their gold and silver royalties in their portfolio.
Closing up 2023 we had one more acquisition deal that we’ve already discussed a fair bit on this channel… that being Calibre Mining (TSX: CXB) (OTCQX: CXBMF) announcing they would acquire Marathon Gold Corporation (TSX: MOZ) for a 100% interest in Marathon’s advanced-stage Valentine Gold Project in Newfoundland & Labrador.
Calibre and Marathon Announce Combination to Create a High-Growth, Cash Flow Focused, Mid-Tier Gold Producer in the Americas with Expected Annual Production of 500,000 ounces - Nov 13, 2023
https://calibremining.com/news/calibre-and-marathon-announce-combination-to-creat-6555/
This gave Calibre further diversification into North America, beyond their Nevada Pan Mine and Gold Rock projects, and Washington Golden Eagle Project, and further diversification outside of Nicaragua, where the base of their production and exploration has been focused the last 5 years. In addition, it set Calibre up to be an intermediate gold producer, with increased visibility, more trading liquidity, a better cost of capital, and the potential for a rerating higher as the higher production profile typically gets a better multiplier to NAV. Granted they still need to execute on getting the Valentine Gold Mine into production, but they are making steady progress to be in production by about the middle to end of 2025.
In late 2023 over at the KE Report, we interviewed Ryan King about the main value drivers of the pro-forma company, the opportunities for growth and value creation, the diversification of jurisdiction risk, and the quality of the management teams to move the Valentine Gold Project forward into production. Yet again, it is instructive and helpful to look back into the company strategy and what is going through the thought process from management during a merger or acquisition.
Calibre Mining – Unpacking The Proposed Business Acquisition Of Marathon Gold - Dec 22, 2023
Well, that wraps up 2022 and 2023 M&A deals of note in the juniors. In (PART 1C), we’ll review the dozen M&A deals this year in the junior metals companies. This is all leading towards starting the process of speculating on which companies could be good contenders for the next M&A deals, as this series evolves into future updates. I’ve already teased up above that one of those companies we’ll take a deeper dive into down the road is Integra Resources, and there are a few recent mergers in 2024 that will also be contenders for larger M&A deals in the next article.
As always thanks for reading and wishing you prosperity in your trading and in life!
- Shad