Pinch me, I must be dreaming. After Tuesday's market close we learned about a C$722 million all-cash acquisition of Nova Scotia gold producer Atlantic Gold (TSX-V:AGB) by ASX listed gold producer St. Barbara (ASX: SBM) at a 41% premium to today's market close in AGB shares. M&A among mid-tiers (both developers and producers) has been one of my main themes for the gold sector in 2019. However, it's been slow going thus far and the sector seems to have been 'frozen' by the Newmont/Goldcorp and Barrick/Randgold mega-deals. Today's Atlantic Gold/St. Barbara deal melts the ice a bit and stands out to me for a few reasons:
- It's an all-cash deal that is not contingent upon financing. This speaks strength and commitment. St. Barbara wants the Atlantic Gold assets and they obviously see value well above and beyond the price they are paying for AGB.
- A 41% premium for a company whose shares were already trading near all-time highs is highly significant. While AGB is undoubtedly one of the better managed gold producers out there, there must be other mid-tiers and juniors worthy of ~40% takeover premiums.
- We are seeing a trend of Australian mining companies making investments and acquisitions in Canada and the US - Newcrest acquiring 70% of Red Chris from Imperial, South32 buying Arizona Mining, and we've seen OceanaGold make multiple smaller deals in Nevada including investing more than C$30 million in Gold Standard Ventures (TSX:GSV).
From my perspective the most important aspect of the Atlantic Gold news is that it's good news after a rather tough stretch for the mining sector. St. Barbara also proves that there are mining management teams that are able to think outside the box and acquire high quality assets even at times when the gold sector is near its lows for the year.
Atlantic Gold has also demonstrated that a gold developer/producer can be successful regardless of sector conditions by focusing on advancing its projects and being good stewards of shareholder capital:
At the takeover price of C$2.90 AGB shares are a 10-bagger since January 2016. It's also notable that AGB has been in a steady uptrend with most pullbacks turning out to be relatively shallow (20% or less), with rallies being interspersed by multi-month sideways consolidations. Simply put, you want to own charts like the one above.
This is good news and analysts will be dusting off their list of mid-tier gold acquisition candidates. Premier Gold (TSX:PG) comes to mind in the producer category, and Gold Standard Ventures (TSX:GSV) and Marathon Gold (TSX:MOZ) come to mind in the developer category. I'm interested to hear what readers think, please comment with your favorite gold acquisition candidates.
Disclosure: Author is long AGB, GSV, and PG shares at the time of publishing and may buy or sell at any time without notice.
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