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Gold miners: Buy juniors now, act later

Posted by ipso facto @ 9:53 on July 29, 2014  


Cowen analyst Adam Graf urged gold miners to buy juniors with high-quality assets now, given a window of opportunity punctuated by still un-moving valuations despite progress on flagship projects. Graf said, “this disconnect provides a unique opportunity for seniors to purchase less risky assets at relatively the same price, versus a year ago.”

He labeled it a “buy now, act later” strategy that gives seniors a chance to beef up their development pipeline. “We calculate, at current forward curves, that most of the senior producers will have built sufficient spending capacity for even the largest projects within 5 years.”

Of course many of the majors and intermediates have been focused on just the opposite strategy, with divestments of non-core and even core assets the name of the game over the passed couple years as miners deal with soaring costs, blown-out capex, declining precious metal prices, as well as ill-advised acquisitions.

Graf, noting this trend, argued that it was nonetheless a chance to grab assets on the cheap – and build later.

“We continue to believe the best strategy for seniors is to acquire targets today for heavily discounted prices to NAV; giving them the option to defer development according to growth needs and balance sheet health,” Graf said.

Graf singled out Goldcorp (TSX:GG) as the miner with the healthiest balance sheet to make acquisitions. Barrick, Graf noted, is still expected to shed assets, possibly over $2 billion worth; and Agnico-Eagle (TSX:AEM) recently made a joint bid for Osisko with Yamana (AUY), committing some of its spending power.

As targets Graf pointed to Pretium (TSX:PVG), Seabridge (TSX:SEA), Paramount Gold and Silver (TSX:PZG), and Gold Standard Ventures (TSXV: GSV).


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Post by the Golden Rule. Oasis not responsible for content/accuracy of posts. DYODD.