The price of spot gold has been hammered over the past year. The top American gold producers have gone through waves of restructuring and cost cutting in an effort to squeeze out profits as the price of the precious metal plummets. Despite negative sentiment toward commodities and precious metals equities, producers are still profitable.
The commodity research team at Cowen thinks the time is ripe for the big six American gold producers to make some timely acquisitions. Due to ever-increasing project timelines, they believe that major producers need to acquire advanced projects now in order to avoid production and margin declines after 2017.
A new Cowen research report highlighted specific names that may be targets for the senior producers. They also pointed out specific needs for the big six North American producer stocks. We have highlighted those names by the stocks they feel would be the most likely acquirer. Many of the stocks trade under $3 and are priced at a huge discount to their net asset value.
Barrick Gold Corp. (NYSE: ABX) needs to add large assets in safe jurisdictions. Possible acquisitions targets include Pretium Resources Inc. (NYSE: PVG) and Seabridge Gold Inc. (NYSE: SA).
Newmont Mining Corp. (NYSE: NEM) needs to buy low-risk assets in the United States and Canada. A good fit for Newmont may be Allied Nevada Gold Corp. (NYSE: ANV).
Goldcorp Inc. (NYSE: GG) can buy large assets now. One target cited by Cowen for Goldcorp would be Rubicon Minerals Corp. (NYSE: RBY).
Kinross Gold Corp. (NYSE: KGC) has low near-term spending capacity and it needs Canadian production. The company may have an interest in Exeter Resource Corp. (NYSE: XRA).
Agnico-Eagle Mines Ltd. (NYSE: AEM) should buy or build sub $1 billion assets in the United States and Canada. A potential target may be Gold Standard Ventures Corp. (NYSE: GSV).
Yamana Gold Inc. (NYSE: AUY) is one of the favorite names to buy at Cowen. The analysts think the company can step up to larger asset purchases or buy low risk production in Canada. Brigus Gold Corp. (NYSE: BRD) may prove a nice fit for Yamana.
The gold trade is horribly out of favor and skeptics currently point to an $1,100 or lower spot price target. Typically in the past, the big gold producers have made acquisitions when the spot price is high. Smaller companies that may be desperate for financing and liquidity may welcome any overture now as the price has dropped almost 50% in less than a year. The stocks listed are all very speculative, and there is no guarantee that any of them will be purchased by the big six. However most are trading at gigantic discounts to their net asset values and may prove to be tremendous additions for the top gold-mining companies.
As we have reminded our readers, gold is often cherished by investors as a hedge against inflation. While inflation currently remains low, the Federal Reserve continues to flood the market with liquidity via its low interest rate policies and quantitative easing bond buying. Printing dollars to buy bonds ultimately should stoke the flames of inflation. Perhaps not this year or even next. When it does, the price of gold may head back to the lofty levels seen earlier this year and in the past.
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