<why isn't there more acquisitions within this industry?>
I made a large financial bet starting in mid-late 2000 that we would see majors start chomping down on junior deposits. A number of potential acquirers have talked a big story, and have kicked some tires, but nothing has transpired. Really the only important transaction involving a major in the last year and half was Pangea (ABX). I owned that one, but otherwise my theory to date has been proven wrong.
Whenever, I talk with presidents of my juniors that might be acquisition candidates, I ask them the same general question. And I get the same general answer, that the majors are deer in the headlights. I used to think it was price, that the juniors were asking too much. As a rule of thumb, IMO the prices being asked have come down. When you hear or read about the profile (multi-million ounce reserves, expandable, cash costs below 125, safe places, at give away prices) the majors are looking for, it becomes evident why they are in trouble. Such deposits don't really exist. I've come up with the term "tooth fairies" for it.
The second aspect is that the majors are structurally a mess with their finances, their hedge books, their access to capital. There are only a handful capable of carrying out new projects, let alone the dozen or more a year they need to survive. This means risk in several respects: many if not most producers will dwindle out of existence. I see it taking about 5 years to play out if POG averages below 325. And, since no private transactions are occurring, the best of the junior market will continue to trade at fractional valuations, with no takeover call premium factored in at all. |
