Take over targets for 2008
2007 was not a great year for precious metal stocks, but
I was encouraged by the fact we had a record number of our
picks taken out in 2007. I generally do not select picks with a take over in mind, but the fact this is happening is a sure sign that others like the picks so much they want to buy them out.
In most cases, I actually prefer these picks are not taken out,
because of the fact they are good companies - they can continue to out perform their peers and lead to further substantial gains. Then on the other hand, quite often the take over transforms the new company into a superior performer that can continue to out perform it's peers.
My top long term performing pick is 'The Energizer Buuny' Ultra
Petroleum - UPL that is up a whopping 14,000%. The reason why this stock has such large gains, is we have held it almost 9 years and the stock price was always expensive in relation to it's peers, so it was never taken over. There is no way a large company (take over suitors) could ever convince their board to pay a too high a price to take over a company. These large companies are run by the financials and bean counters, they have little vision and fore sight. It is obvious that
UPL would have been a great acquisition over the years, but it's expensive stock price has prevented this from happening. While most stocks did poorly in the last half of 2007, UPL went on to new highs and hit another new all time high just a couple of weeks ago.
This leads me to the next point. Stocks are in many cases taken out because they are priced too cheaply. In other words they offer value and are worth buying. This is what I look for in a stock when I select it, exceptional value or at least strong potential for future value
(exploration plays). And is the chief reason that many of our stocks
were bought out this year. At this point I want to make brief mention
of each stock and the action we took or should.
****************** 2007 Takeovers ************************
Bema Gold - BGO will be listed as sold at 7.32, a 1,120% gain. It
merged with Kinross and we already own Kinross. It is ok if you took
Kinross stock if you did not own it
Rio Narcea - RNG will be listed as sold at 5.48 a 585% gain. It was
taken over by Lundin Mining.
Miramar - MAE will be listed as sold at 6.25 a 594% gain. It is being
taken out by Newmont. Newmont is on our list, but I think it is better
to put proceeds in a other junior or mid size producer. Seniors are
struggling to replace reserves so are having a difficult time growing.
I expect Newmont to make numerous other take overs with their big 1.3
billion windfall from the Franco Nevada IPO
stockhouse.com
Primary Metals - PMI will be listed as sold at 3.60, just a 24% gain.
It was taken out early by Sojitz Corp. before it had much of a chance
to go up in value.
Shell Canada - SHC will be listed as sold at 45.00 at 180% gain. It
was bought out be it's parent Royal Dutch, already on our Millennium
List. It was OK to take Royal Dutch stock.
Western Oil Sands WTO will be listed as sold at $37.70 a 251% gain. It
was taken out by Marathon Oil.
Advantage Energy Trust will be listed as sold at 15.35 a -24% loss. It
was hit by new government legislation like all trusts and was bought
out by Ketch Energy at a depressed price.
Shiningbank Energy Trust will be listed as sold at 14.52 a -30% loss.
It was hit by new government legislation like all trusts and was
bought out by PrimeWest Energy Trust.
Pacific Stratus - PSE will be listed as sold around $11.70 for a gain
of 185%. It is being merged with Petro Rubiales - PEG. PSE
shareholders will receive 8.85 shares of Petro Rubiales for each
Pacific Sratus share. I suggest taking these shares and I will be
adding Petro Rubiales to our list at $0.46 per share based on our
$4.10 buy level for PSE. There is strong growth potential with the new
merged company.
stockhouse.com
Norther Orion - NNO will be listed as sold at 7.25 a 353% gain. It was
taken over by Yamana YRI already on our list. It is OK to accept and
hold the Yamana shares
Palmerajo - PJO will be listed as sold at 11.45 a 55% gain. It will
just be delisted today as a result of a take over of Couer d'Alene -
CDE. I have suggested taking the CDE shares because of the strong
growth potential from the Palmerajo takeover. CDE will become one of
the world's leading primary silver producers and is expected to
increase company-wide silver production to nearly 30 million ounces by
2009, and at very low costs. I will add CDE on our selection list at
$2.72 base on our $7.40 entry price for Palmerajo. Palmarejo
shareholders will receive 2.715 Coeur shares and $0.004 for each
Palmarejo share.
The Palmarejo project is expected to begin production in early 2009 at
an annualized rate of approximately 10.4 million ounces of silver and
115,000 ounces of gold per year with cash costs, net of gold
bi-product, of an estimated ($0.41) per ounce of silver and an initial
mine life of nine years. Exploration continues on the large land
package, with current measured and indicated mineral resources of 88.7
million silver ounces and 1.0 million measured and indicated gold
ounces and an additional 61.4 million ounces of inferred silver
mineral resources and 0.7 million inferred gold ounces.
stockhouse.com
So there we have it, 11 take overs for 2007
**************** 2008 potential take overs ********************
I am sure 2008 will be another year of numerous take overs in the
industry and we certainly have some good candidates on our list, so I
thought I would touch on the possibilities I see
Gold Eagle - GEA is one stock that could attract a takeover very soon,
recently around $8.00 with a very advanced gold project at Red Lake
near Goldcorp's huge mine. Gold Eagle continues to announce great
drill results at depth and is about to sink a shaft down to this
level. This will greatly enhance the exploration effort with
underground drilling and advance the project towards production.
Rumors have been floating around for sometime on a take over and the
way this project is advancing it could happen very soon. I would not
rule out 2007 with just a few days left.
stockhouse.com
Orko Silver - OK around $1.65 has made no bones about it and has
issued news that they are open for a take over. On Oct 1st the
company's resource at La Preciosa was increased by 86% to 73.1 million
silver-equivalent ounces of contained metal. Getting close to 100
million ounces makes a silver project a very attractive take over. Few
deposits make it over the 100 million ounce mark and become targets of
the major silver producers. The resource estimate was based on 120
holes drilled by Orko Silver. To further the objective of increasing
the resource at La Preciosa, the company has since completed hole 167
and deepened another eight previously drilled holes to further test
the Martha vein. More drilling will continue in 2008 and I expect the
company could be taken out some time in 2008.
stockhouse.com
What I see as a buy of a lifetime and also a take over target in 2008
is one of my favorites, Paramount Gold and Silver - PZG recently
$1.70. I have been quite surprised by the recent weakness in the
stock, even with the year end selling. There is definitely a seller in
the market for some reason. I have followed their exploration closely
and it looks to be going very well, but I was concerned whether I have
missed something. I got a hold of Bill Reed who I have become to know
quite will over the years and have been impressed with his honesty and
the fact he is a quite conservative geologist and also very
experienced.
He is not afraid and willing to warn on anything he does not like or
looks inferior. In fact earlier in the year he warned me about Tara
Gold's Las Minitas project that the historic data was probably
fraudulent. Hecla mining drilled 3 holes in the late 1990s to verify
the data and found nothing and low and behold Pershimco - PRO, Tara's
recent former JV partner found the same thing. It was one reason that
I have been recommending Paramount over Tara beside the better
valuation Paramount has based on the San Miguel project. I think Tara
is also over sold now, but still has down side risk. Anyway, my
concern is the San Miguel project.
Bill Reed is no longer running the detailed exploration program which
is now been handled by Larry Segerstrom, another very well qualified
geologist that over saw exploration at Freeport-McMoran, but Mr. Reed
is still over seeing the exploration and is keeping a pulse on the
project. Paramount has been doing a lot of drilling as part of a
50,000 meter program. I put a blunt question to Mr. Reed and that was
- Do you see any reason why the next resource estimate will not go
over 100 million ounces silver? Mr Reed said he did not see any
problem and that was a very obtainable target.
Even if one was to be very conservative and say they 43-101'd just 73
million ounces like Orko. Orko has a market cap of $162 million which
is more than double Paramount's current $77 million market cap. Based
on only 73 million ounces, the stock should more than double to over
$3.50 a share.
However, I have every reason to believe they will go over 100 million
ounces and this would put Paramount in the big league with a superior
valuation. The brokerage and fund analysts would no longer be able to
ignore the stock like they have done so far. It would be far too
embarrassing if they do not report on a major discovery. There is no
reason to believe that Paramount cannot make a similar discovery as
Palmerajo and a similar valuation. I will remind you once again that
Palmerajo was just bought out for about $1 billion based on a 149
million ounce 43-101 silver equivalent measured and indicated resource
(and additional 100 M ounce silver eqv. inferred)
When Paramount 43-101s over 100 million ounces it will be about half
way to Palmerajo, and only half the market cap would be $500 million
or over $10 per share. Going over 100 million will make Paramount a
take over target in 2008 and it will still have a lot of exploration
potential. As of this date they have still only done shallow drilling
and finding lots of silver and gold, there is all kinds of potential
at depth still and is why I think this discovery can rival Palmerajo.
While perhaps the analysts and news letter writers have been ignoring
Paramount, the major mining companies have not, with many already
visiting the project and others going on site in early 2008. They all
have deep pockets and are willing to pay what a project is worth.
Imagine a major stepping in and buying this (I doubt it would happen
until after the next 43-101 which will probably be in the next few
months), but imagine if this happens in several months at between $5
and $10 a share and not one analyst or major newsletter has covered
the stock. I have never seen this happen, so it is only a matter of
time before everyone jumps on the band wagon, in the meantime, I have
little doubt this is one of or maybe the best buy out there among
advanced exploration stocks.
Look at the management team, over 325 years combined experience, these
types don't associate with losing stories, but winners!
stockhouse.com
While on silver, I would not be surprised to see two of are other
picks taken out, First Majestic - FR and SilverCrest - SVL both with
growing production profiles, would be attractive to boost a more
senior producers production profile. But I think both companies want
to grow further before entertaining a take over, but that does not
mean one would not occur.
stockhouse.com
In Red Lake, I should also mention Lake Shore Gold - LSG around $1.65.
They are advancing their Timmins West project and also completing a
prefeasibility study. They have about a 1.2 million ounce gold
resource with lots of potential to increase this further. It is in a
prime Location, in the Timmins gold mining district of northern
Ontario, where more than 67 million ounces of gold have been produced
over the past 100 years. An ideal take over candidate with an advanced
project and good upside growth potential.
stockhouse.com
Other mid size producers on our list that could merge or be taken out
by other mid size or large producers are IamGold - IMG around $8.00,
Agnico Eagle - AEM around $51 and Yamana -YRI around $12.50. With
valuations this low it is far cheaper for the majors to grow by buying
out other producers than finding the metals.
On our oil&gas list Connacher - CLL around $3.50 seems to be priced
quite low considering their oil sands production is about to come on
stream. CLL has been circulating steam for about 90 days heating up
the reservoir. Connacher anticipates that Pod One production will ramp
up to 10,000 barrels per day of bitumen from all 15 well pairs later
in 2008. CLL could easily be bought out this year and so could our
remaining oil&gas trust Vault Energy but I expect a depressed buy
price as with other trusts.
stockhouse.com
Platinum Group Metals - PTM around $3.80 and Eastern Platinum - ELR
around $2.60 are two of the very few advanced junior
platinum/palladium plays around. Both companies could easily be taken
out in 2008 by the senior African platinum producers.
stockhouse.com
European Minerals - EPM around $1.30 is valued very cheap. On Dec. 22,
2007, poured the first gold at its Varvarinskoye gold/copper project
in Kazakhstan. The project has nearly 4 million ounces of gold
reserves and is expected to produce about 150,000 ounces per year. If
the ramp up to full production goes well, EPM would be a good take
over target for a mid size producer or Kinross who also operates in
the area.
stockhouse.com
Aurelian - ARU around $7.75 could also be taken out in 2008 as long as
a potential major suitor is able to work out some pre agreement or
guarantees with the Ecuador government.
stockhouse.com
Exeter - XRC is going gang busters in Argentina and Chile, hitting new
highs of about $5.75 in the past couple weeks. The latest news is the
discovery of two new mineralized vein sets on its 100-per-cent-owned
Cerro Moro gold-silver project in Santa Cruz province, Argentina. As
the company advances their projects it could be a takeover target
later in the year.
stockhouse.com
I am sure there is a couple candidates I may have missed and some new
ones that I hope to find in 2008, but this list of 13 or 14 potentials
is probably destined to become about half this size by the end of
2008. |
