Message Font: Serif | Sans-Serif
No. of Recommendations: 2

Takeovers the Path to Golden Returns: Sascha Opel


TGR: Sascha, you have owned junior exploration companies like Aurelian Resources and watched them get taken over at substantial premiums. What companies do you believe could see takeover bids before the end of 2012?

SO: We were involved in quite a few takeovers since 2004, such as Western Silver, bought by Glamis, now Goldcorp Inc. (G:TSX; GG:NYSE); Nevada Pacific Gold, bought by US Gold (UXG:TSX; UXG:NYSE); Wolfden Resources, bought by Zinifex Ltd. (ZFX:ASX); Miramar, bought by Newmont Mining Corp. (NEM:NYSE); Aurelian Resources, bought by Kinross Gold Corp (K:TSX; KGC:NYSE), Corriente, bought by CRCC-Tongguan); Potash One, bought by the German company K+S; and Blue Pearl Mining, bought by Thompson Creek Metals Co (TC:NYSE).

We are always trying to find potential takeover candidates. Currently I see many opportunities. From the companies in the gold sector with under a $100M market cap, I see two potential takeovers in 2012: Mansfield Minerals Inc. (MDR:TSX.V) and Rye Patch Gold Corp. (RPM:TSX.V; RPMGF:OTCQX).

Mansfield owns the 3 Moz Lindero gold project in the Salta region in Argentina. Some 2 Moz are in the reserves already. A prefeasibility study two years ago indicates that at US$850/oz gold, Lindero is a very attractive gold deposit capable of producing 161,000 oz of gold per year at a cash cost of US$373/oz over the initial five years of production. Mansfield is trading at CA$1.20/share, giving it a CA$60M market cap, which is US$30/oz of reserves and US$20/oz including the resources.

Rye Patch is a special situation. We bought the stock last year around CA$0.30/share as we liked the valuation: 3.9 Moz gold equivalent was trading at a market cap of CA$40M at the time, so US$10/oz. Bill Howald and his team discovered more than 80 Moz of gold in Nevada. Rye Patch has a great management team. Although Rye Patch had CA$9M cash in the bank at the time, the stock was unknown to brokers as it never did a brokered placement. In late November, the stock went up 100% to CA$0.80/share when it announced that it claimed 30 square kilometers around the Rochester silver mine of Coeur D'Alene Mines Corp. (CDM:TSX; CDE:NYSE). Coeur forgot to pay its annual claim fee and so the claim became open locatable public land. In a press release Coeur announced that 20% of the reserves of the mine and "a substantial" part of the resource—140 Moz silver—fall under these claims. The two companies have met in court, where Rye Patch was granted access to most of the claims outside of a small court-defined boundary inside the operating mine.

Rye Patch's geologic team is back on the ground sampling, mapping and starting a drill program. At the court hearing Bill Howald said that he had already received a "low ball-offer" from Coeur to buy the claims back. I am convinced that Coeur has to make a much higher offer than the current share price of around CA$0.60–0.65/share. The current market cap is only CA$85M or US$22/oz gold equivalent WITHOUT the new claims at and around the Rochester silver mine. My opinion: If Coeur offers CA$1/share, it would still be a very cheap takeover. In addition Coeur would get a great geo-team on top of it. But if it waits too long, another big name could step in and take Rye Patch out. Kinross already owns Rye Patch shares and Barrick Gold Corp. (ABX:TSX; ABX:NYSE) should have an eye on them as well. Rye Patch is drilling only a few kilometers away from Barrick's recent big discoveries on the Cortez Trend in Nevada.

Under the larger companies, you can find many, many potential takeover targets, such as Detour Gold Corp. (DGC:TSX), Rubicon Minerals Corp. (RBY:NYSE.A; RMX:TSX), Colossus Minerals Inc. (CSI:TSX), Sandspring Resources Ltd. (SSP:TSX.V) and Queenston Mining Inc. (QMI:TSX) as exploration or development companies. Alacer Gold Corp. (ASR:TSX), Perseus Mining Ltd. (TSX:PRU; ASX:PRU), Centamin Egypt Ltd. (CEE:TSX; CNT:ASX, CEY:LSE) and Allied Nevada Gold Corp. (ANV:TSX; ANV:NYSE.A) are potential targets under the producers.
TGR: Some of the companies you follow are developing projects in Nevada. Why do you believe Nevada is seeing an unprecedented resurgence in mineral exploration?

SO: As we saw in the past, Nevada is one of the best places in the world to find new gold mines. There are still big discoveries on the different trends, like Carlin Trend, the Battle Mountain/ Eureka Trend and the Cortez Trend. Barrick announced a potential 10+ Moz discovery at its Redhill and Goldrush projects not far from its world-class Cortez mine. The Nevada jurisdiction and infrastructure is very favorable for mining as well. I was in South Africa for Mining INDABA last week and after hearing the ongoing discussions about nationalization of the mining industry in many countries, you know Nevada is a paradise.

TGR: What are some of your favorite plays in Nevada?

SO: Next to Rye Patch Gold, I like Premier Gold Mines. The company has great assets in Red Lake, right next to Goldcorp's Red Lake mine. Goldcorp is building a 4.5 kilometer underground train from the Bruce Channel deposit to its Red Lake facilities, right through Premier's property—a great "exploration program." With its Trans-Canada project, Premier owns an entire district with many potential new gold mines. And in Nevada it just announced a joint venture with Newmont to bring the Rain/Saddle deposit into production. In the long term, Premium is a takeover target as well.
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.