Battle Mountain Gold: April fool's gold or merger candidate?
HOUSTON (DBC) -- Shares of junior gold mining companies were tumbling this week in the wake of Bre-X Minerals Ltd.'s Indonesia scandal, and that could be good news for shares of mining companies that stick closer to home.
Several publications, including The New York Times, speculate investors might be willing to pay more for the right to own gold companies with producing mines in North America now that the specter of fraud shadows Bre-X's Busang discovery on the jungle island of Borneo.
To be sure, investors have sent the price of most gold stocks big and small down to yearly lows as the price of an ounce of gold idles around $350 an ounce. And most of the largest North American gold stocks failed to register a lift after Newmont Mining and Santa Fe Pacific Gold agreed to combine this year to create the largest mining company in North America.
Speculation at the time of the Newmont purchase in March was that a slew large gold mining companies would gobble up potential partners as they sought to boost their reserves. Yet little has happened to convince investors the so-called senior mining companies are both hungry to grow and willing to buy their competitors.
"I think we will continue to see consolidation in the industry, especially with a discovery like Busang possibly off the table," said Robert Bishop, editor of Gold Mining Stock Report in California. Bishop said it is inevitable that large mining companies combine with partners to grow their reserves, especially if the price of gold stays stuck in neutral. Bishop prefers the view that the largest companies, represented by the Philadelphia Gold & Silver Index, will buy the tiny
exploration companies that have not been tainted by the Busang fallout. Shares of Bre-X in Toronto and on Nasdaq have lost more than three-quarters of their value after reports of invalid test deposits surfaced in Indonesia.
"With the big eight, you're betting on the gold price," said Bishop about the world's largest gold companies. Bishop would rather speculate on small exploration companies -- not Bre-X, thank you -- that have a shot at a motherlode. "If you find gold in the millions of ounces, your stock price is going to go up. The majors have to buy the juniors making discoveries."
And the seniors, those multibillion-dollar companies that have to grow their gold reserves to make money in a world of sliding gold prices? Well, analysts made little of the news that Homestake Mining would receive a $65 million termination fee from Newmont after Homestake lost the battle to acquire Santa Fe Pacific Gold. Homestake, a San Francisco company, needs a partner that is exploring for new deposits, and it is likely it would choose a partner with interests in
Nevada and across the Western U.S. Homestake's largest holdings are in the Western U.S., especially in Nevada, where it is steadily decreasing its cost for extracting precious metals from the earth.
Battle Mountain Gold, a Houston company that owns and operates the Battle Mountain Complex near Battle Mountain, Nev., might fit the bill. Battle Mountain lost 36 cents a share last year after its merger with Hemlo Gold. Merrill Lynch analyst David Christensen hasn't budged from an "accumulate" rating for Battle Mountain, even in the face of the losses.
He points out that Battle Mountain executives have "enhanced the size and scope of Battle Mountain Gold's exploration program." Besides the Western U.S., Battle Mountain explores in Canada and Australia, both of them countries in which Homestake is active.
Bishop, the newsletter writer, says he can't get excited about such merger talk. Instead, he is "kicking rocks in Nevada," searching for tiny exploration companies that could strike it rich -- far from the jungle of Indonesia.
V.K |
