Barrick (ABX.T) getting hostile in a bid for Newmont (NEM.NYSE): what this could mean for your ExplorerCo portfolio

The gold arena… Over the past half-dozen years or so it’s been a ring of relative calm and quiet.

That’s all changed.

Percolating just below the surface is one mother of a melee.

The madness:

If Bill Shakespeare were still around, “confusion’s masterpiece” is how he might characterize recent events.

Image courtesy of TheLifeDyslexicOnTwitter.

Senior gold producers – predatory by nature – are now even more sharp-set, fixated on devouring their rivals.

The following headlines involving the largest gold entities on the planet began surfacing only a few months back:

Barrick buys Randgold to create world’s largest gold miner

Barrick’s Randgold Acquisition May Spur More Gold M&A

Newmont Mining to buy Goldcorp to create one of world’s biggest gold producers

Newmont Mining shares rise after Barrick Gold confirms it’s looking at merger

The reason for this sudden escalation in takeover activity is likely a growing awareness that all the low hanging fruit is gone. The easy gold has already been discovered.

When you think about the funds poured into mineral exploration over the past decade, how we’ve scoured vast expanses of wilderness with our most advanced technologies and skillsets, probing the surface rock geochemically, geophysically, and hydrogeologically, how is it that it didn’t pay off?

Gif courtesy of Giphy.

How is it that it didn’t produce multiple Tier-1 (5 million+ oz) class gold deposits?

The explanation is quite simple: peak gold.

‘We’re right at peak gold’: All major deposits have been discovered, declares Goldcorp chairman

It’s more than just a suspicion. It’s a view gaining greater acceptance by those who live and breathe the sector…

Ian Telfer, chairman of Goldcorp Inc:

“Are we bad at finding it? Or have we found it all? My answer is we found it all.”

Discovery – the extremes we’ll go to

We’re growing increasingly desperate to find new sources of the metal. It seems we’ll stop at nothing in our pursuit of it.

Just how far are we willing to go?

Image courtesy of Osisko Gold Royalties.

The reality

Every day these mining giants dig ore out of the ground – every day they’re in business – their precious metal inventory shrinks.

And these ounces are not easy to replace.

Traditional exploration methodologies work great at or near surface but are strained when turned deep under cover. Increased costs and diminishing returns are a producer’s new reality.

Further exacerbating the situation, the brutal bear market of the past eight years forced miners to dramatically scale back exploration spending. They didn’t even go looking for it.

The key to a producer’s long-term survival is a pipeline of new discoveries. If no such pipeline exists, your business strategy changes. You’re forced to take on the role of an apex predator. You’re forced to hunt.

Image courtesy of ThomasPeschak.

At the risk of sounding like a drama queen, the current situation is dire.

We explore the peak gold theory in much greater detail in the following Equity Guru pieces (pay particular attention to the current situation in South Africa – it may be the smoking gun).

Gold: uncharted waters – the technicals, the peak of discovery, the opportunity

 Peak Gold and a classic setup in the mother of all mining jurisdictions

Gif courtesy of Giphy.

The panic:

Yesterday, Feb. 25th, this dropped:

Headline: Barrick Gold Is Going Hostile in Bid for Newmont Mining With $17.8 Billion Offer

With no new tier-1 discoveries in its development pipeline, this is a senior producer’s only play.

But this is a seriously fucked up situation. Mining behemoth Newmont (NEM.NYSE) is attempting to complete its US$10 billion takeover of mining giant Goldcorp (G.T). Mining colossus Barrick (ABX.T), if it’s successful in its hostile US$18 billion takeover attempt, would derail Newmont’s deal to acquire Goldcorp. Follow? (I’m not sure I do).

Bottom line: the future of all three of these mining monstrosities is in question.

My take: this move by Barrick adds heaps of validity to the idea that we are indeed tapped out. This move smacks of desperation. Panic, even.

The reaction to the Barrick news was both swift and entertaining:

Barrick’s Proposed Deal To Newmont Is “Nonsensical”

Barrick Is Throwing “Smoke Bombs” In Aim To Distract Says Pierre Lassonde

Newmont CEO Says He Is “Shocked,” And “Concerned” – Barrick Bid

And what does it all mean?

It means that the predatory behaviors exhibited by these most senior of producers are bound to intensify going forward.

It means that companies further down the food chain – the small to mid tier producers – will display similar appetites, becoming increasingly predatory in order to ensure their own survival.

It means that EVERY asset-rich company, particularly junior ExplorerCo’s with significant new discoveries on their books, are sitting ducks.

Image courtesy of DataMaxTexas.

We’re keeping a watchful eye over the entire junior exploration sector here at Equity Guru.

We have marketing relationships with a few solid companies exploring for gold…

Nexus Gold (NXS.V) expands its jurisdictional scope: Red Lake UPDATE

Barrian Mining (BARI.V): a new gold ExplorerCo grabs a chunk of prime Nevada real estate

Aben Resources (ABN.V) uncovers high-grade gold at Lost Ace

We’re also watching a number of non client companies that offer the potential for discovery in mature, mining friendly jurisdictions:

Gold opportunities in the Abitibi Greenstone Belt: 13 dirt-cheap ExplorerCo’s for your consideration

A potential breakout in gold and 11 dirt cheap ExplorerCo’s in the Yukon

Read: Gold opportunities in the Abitibi Greenstone Belt: an UPDATE on our list of dirt-cheap ExplorerCo’s

Final thoughts:

I believe that now, more than ever, the old adage “be right and sit tight” is the wisest course of action, particularly if your junior ExplorerCo has a significant new discovery on its hands.

END

~ ~ Dirk Diggler

Feature image of Newmont’s Gold Quarry pit in Battle Mountain, Nev. courtesy of David B. Parker/The Reno Gazette-Journal.

Full disclose: Aben Resources, Nexus Gold and Barrian Mining are Equity.Guru clients.

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

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