The big news in the gold sector last week was Newmont Mining’s (NEM) big to acquire Goldcorp (GG, G.TO) and become the largest gold mining company in the world. This comes on the heels of Newmont rival Barrick Gold’s (ABX) acquisition of Randgold, which makes it the largest gold miner in the world at the moment.
There’s been a lot of commentary on whether the deals are good for shareholders of these four (now three) companies. My own take is generally positive, but I don’t—and wouldn’t—own shares in any of these big companies. That’s not because there’s anything wrong with them, but simply because they are too big to offer me the explosive upside potential I get picking the right junior resource stocks.
What’s been missing from mainstream financial analysis of these deals is precisely what interests me the most: how do they affect the tiny juniors that move in the same space as these giants?
So I want to jump in here with a quick guide for resource speculators looking for other ways to profit as a result of these mega-mergers:
- This is an excellent time to speculate on takeover targets. This industry consolidation at the top will cascade down the food chain. Look for juniors advancing multimillion-ounce projects that larger producers other than Newmont and Barrick might be interested in.
- Short (or avoid) juniors with marginal joint-venture options with Newmont and Barrick. Post consolidation, both Barrick and Newmont will be going through their exploration portfolios and cutting the projects lowest on the pecking order. This will hurt the junior partners who can’t afford to keep exploring these projects on their own.
- Look for juniors with great but smallish projects optioned to Newmont and Barrick. There’s a good chance that those juniors could regain 100% of those projects and all the benefit of the millions the big boys spent on them. Note that the same cutting that’s bad for junior partners with marginal projects is good for juniors with excellent projects.
For this to be happening at a time when the outlook for precious metals is looking up is very bullish. If you haven’t seen my case for higher gold and silver prices this year, I urge you to download my free special report on the subject.
But whether I’m right about that or not, the right speculations in any of the three categories above could deliver big wins this year.
Caveat emptor,
