As of this writing, it appears that the natural resource sector market cycle's low may have been in early December 2013. At that time, the share prices of senior and junior mining exploration companies were being pummeled by investors. We saw ridiculously cheap share price valuations, but we have not revisited those lows since then.
During the decline, mining companies across the board reacted by slashing costs anywhere possible and as quickly as they could, as there was no indication that the extended lull in metals prices would end any time soon.
One of the first signs of things starting to get better was in mid-January, when Goldcorp Inc. announced a $2.6 billion hostile takeover offer for Osisko Mining Corp. Goldcorp would not have made that takeover offer were they not feeling financially healthy. But so were others.
A bidding war soon erupted between Goldcorp, Yamana Gold Inc. and Agnico Eagle Mines Ltd., which ended with Yamana and Agnico Eagle outbidding Goldcorp with a takeover offer of $3.6 billion to gain control of Osisko and its large, highly-prized gold mine in eastern Canada. This move showed that Yamana and Agncio Eagle felt like their corporate houses were in order, and were ready to go out shopping while the asset they had in mind was relatively cheap and ripe for acquisition. This new acquisition would allow them to grow their companies' annual gold production.
More recently, merger activity has popped up in other cases where companies were feeling as if their houses were in order, and now are ready to look to acquire other companies' deposits. It looks like they are feeling that the bottom has been passed, while deposit valuations are still low enough to be considered attractive target acquisitions.
Three weeks ago mid-tier miner B2 Gold Corp. announced a friendly takeover offer to acquire one of the largest and highest-grade gold deposits near surface (which means it could be mineable as an open pit) available, in a deal with Papillion Resources Ltd.
Just the next day after that, Mandalay Resources Corp. announced they were acquiring smaller gold miner Elgin Mining Inc.
And in the most recent example from just a few days ago, large copper miner First Quantum Minerals Ltd. announced a friendly takeover offer for Lumina Copper Corp. in an effort to acquire one of the largest copper deposits available.
After dramatic belt-tightening during the last few years, we are seeing companies pick up the pace on spending, too. Gold heavyweight Barrick Gold Corp. has already announced that it is prepared to start spending again on its giant Pascua Lama gold-silver deposit that straddles the Chile-Argentina border. This mine construction project has seen costs spiral out of control since construction began. Initially pegged at $3.0 billion to build, it has so far cost $8.5 billion and it's still ongoing. Barrick recently put the brakes on the project to stop the bleeding, but they are back to building this significant mine.
These recent developments tell us that the precious metals and copper mining space is starting to turn for the better. Consolidation like this is a good sign. It tells us that the miners are getting healthier again. For investors in senior and junior mining exploration stocks, this is a key trend to anticipate if you are looking to profit from investments in these companies.
The trend is very clear. In my view, you should own shares of the "best in class" junior mining companies available. These tend to be the companies that own the most high-quality assets such as a medium to large-sized deposit with economic grade that can generate good profits at today's metal prices (and hopefully even at somewhat lower prices should we see temporarily lower commodity prices) or assets such as high-quality royalties that larger royalty companies may look to acquire for their portfolios.
In a depressed market environment like we are in today — and have been for some time — it is actually much easier to identify the top-quality companies. It is a very short list of names which knowledgeable speculators in the sector can quickly point to.
The near term is starting to offer us a little more promise than we have seen in this space for several months, so be positioned wisely.
Steve Todoruk
Daily Resource Hunter
