Brent Cook comments on the Claude Resources – Silver Standard “deal”
Exploration Insights
by Brent Cook
www.explorationinsights.com
March 7, 2016
Comment: Silver Standard to acquire Claude Resources
Another week and another M&A transaction
Apparently, things are heating up on the M&A front in the precious metals sector during PDAC week as investment bankers sharpen their pencils in a buoyant gold price environment.
Today, Silver Standard (SSO.T) announced that it has entered into a definitive agreement to acquire Claude Resources (CRJ.T) in a predominantly share transaction at ratio of 0.185 SSO share plus C$0.0001 in cash per share for one CRJ share. According to the press release, this translates to an acquisition price of C$1.65, a 30% premium to the company’s previous close, and an implied value of C$337 million.
CRJ was purchased at a price of C$0.77 (see EI December 6, 2015), generating a 114% return for the EI portfolio in a few months. The merged company would have an ownership split of 68% SSO shareholders and 32% CRJ shareholders. Given the activity in the gold sector, we plan on holding our position for now.
With Tahoe Resources’ (THO.T) acquisition of Lake Shore Gold (LSG.T), see EI Alert dated February 8, 2016, one would be forgiven for thinking that silver companies’ acquisition of gold producers has become a trend. However, since Silver Standard acquired the Marigold open pit heap leach gold project in Nevada in April 2014 from Goldcorp (G.T) and Barrick Gold (ABX.T), the majority of their valuation is tied up in gold. Year to date in 2016, SSO has underperformed CRJ with the former providing a return of 24% versus 62%. This is the first major acquisition for Paul Benson, CEO of Silver Standard, who joined in July 2015.
At the end of last week (March 4th) Endeavour Mining (EDV.T) entered into an agreement to acquire True Gold Mining (TGM.V) in an all share transaction that valued the company developing the Karma open pit heap leach gold project in Burkina Faso.
That’s the way we see it.
Brent Cook
Joe Mazumdar
Brent owns shares in Claude Resources.
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The Market Call?
BNN’s
Joe and Brent will also be fielding questions for an hour on BNN’s Market Call Tonight, Tuesday at 6 p.m. EST, 3 p.m. PST.
Or is today Tuesday in Canada?
Not last time I checked.
As you say, I am starting to wonder if Silver Standard should be considered a gold company. It reminds me of when Esperanza Silver’s geologists kept finding gold deposits instead of silver, and eventually changed the corporate name to Esperanza Resources. Although gold projects are far more available than silver projects, with the silver/gold ratio at 80+ I think this is probably a better time to invest in silver rather than diversifying away from it.
A number of folks feel that way Victor.
Victor. I agree and the exact same thing is true for Hecla. It not has more revenue generated off it’s gold assets than it’s silver assets.
I do like a nice blend of Silver & Gold & Base Metals, but for someone that wants exposure to strictly Silver then there are other companies that better fit that bill.
not –> now
It (Hecla) now has more revenue generated off it’s gold assets than it’s silver asstets…
I would like to understand if SSRI could be a buy or a sell…..
If Claude is so good as everyone said why shouldn’t SSRI be a good buy now..?
We will address this at the market close Mark Gix.
Al;
Can you get an update from Bill at RPM while out there at PDAC.
price and volume firming up.
Just wonder if something is coming down the pipe.
TIA
Good idea Tony. It would be nice to have a Rye Patch update soon.
Count on it this week.
Claude is small compared with silver standard. This purchase won’t in itself have that great an impact.
However, it is one more example of the Quality of management of SSRI.
It is accreatively accumulating while prices are low.
At the moment, Claude’s market cap is 43.33% of SSRI. The deal was much friendlier to Claude holders than SSRI holders since SSRI was worth nearly three times as much Claude in September and 11 times as much two years ago.
To be clear, it was worth eleven times as much relative to today’s value. As you can see on the chart, SSRI used to have 65 times the market cap of Claude but today it’s about 5.5 times.
But it’s the potentiality of the resources that count.
SSRI was generous, however. I see that the stockmarket thought so too.
Maybe, the absence io Bob Quartermain is noticeable.
Claude had fantastic potential, no doubt about it. That’s why I don’t like the deal. On the bright side, Claude had become far less attractive on a relative basis so it is probably a blessing in disguise for the many shareholders that will now have to find something else.
Matthew
“A blessing in disguise for the many shareholders that will now have to find something else.”
That sentence, at the end of today, expresses how I feel.
Brian
Sorry CFS, I believe you are incorrect:
“SSRI was generous, however. I see that the stockmarket thought so too”
SSRI was down today (NEGATIVE) -11% (How would you feel as a shareholder?)
CLGRF was up today (POSITIVE) + 12% (Should be UP 25-30%, and …. How would you feel as a shareholder)
Not ONE shareholder (or the market) likes this deal.
Perhaps this might put a damper on these ABSURD (sorry) 10-15% sellouts by really great mining companies at the beginning of a new bull market in gold … unless they know something I do not.
I suspect Caude was looking at this chart:
http://stockcharts.com/h-sc/ui?s=%24gold%3A%24SILVER
and waited until they saw the optimum time to do the deal.
In the long run I don’t doubt it will still be positive for SSRI.
I suspect about 5 people at Claude made a boatload of money.
And now I will stop my rants about this Claude sell-out.
Guys, now let’s see how SSRI does compared to AXU or Impact Silver from here.
CFS, yes, gold is about to underperform silver and maybe in a big way, but that does not mean things will turn bad for the gold miners.
When Q 2 earnings come out in late Q 3, the miners will be ready to fly again (but I am not saying the current rally is done yet).
At these levels can only be beneficial going forward. SSRI at one time traded in high $40s
It’s a fine thing for SSRI but a lot Claude’s shareholders are more interested in much smaller plays.
Agreed. I believe some of the Claude shareholders will migrate into other smaller producers. It will be interesting to track SSRI versus the smaller silver producers over the next year and see how they stack up on a percentage basis.
Anyone care to comment on the EDV/TGM deal?
I makes sense to me for Endeavour mining to snag True Gold and there would be some operational and management synergies in the consolidation of W. African Gold miners. Perseus Mining also just bought out Amara Mining in W. Africa as well, and I am following their progress. The real question now is which company may take out Asanko, Roxgold, and Avnel Gold? W. Africa is getting very exciting.
Bloomberg for President!
Anders…..”RUBBISH….Irishtony for President….There fixed it for you.
Bloomberg is not running……..
So……IRISHTONY wins……………. 🙁
After the mess he made in NY, not even liberal NYers would vote for him
good one
I don’t know what you are smoking, Anders. Bloomberg would be terrible. If you like the nanny state, he’s your guy.
Matthew, you are firing on all cylinders when it comes to your stock selection in the junior resource market. DT
He has been firing on all cylinders for a long time.
I assume the Market Call will be tomorrow?