That Great Bear deal was a godsend, because there was always the potential of them selling off hard if they actually had put out a resource estimate (like what we recently saw with Wallbridge having near 4 million of ounces of gold in just over 2 years, or Blackrock putting out a resource of 43 million ounces of silver in just 18 months).

The issue is, particularly with retail investors, is that they have pie-in-the-sky expectations for how many ounces have been found, and they’re almost always divorced from reality. There were so many people guessing Great Bear had 10 million-15 million ounces already, which was never going to be the case. Even in the takeover deal with Kinross there was an extra kicker incentive that pays out, once Kinross can prove up 8 million ounces, so that means that they didn’t even the 8 million ounces yet, and they were likely in the 5-7 million ounce area after all that drilling, (which would have been stellar, but it would have disappointed the market and that would have risked a selling liquidity event). The best thing for Great Bear shareholders was that takeover at a nice premium when they were already trading near their all-time highs…

That was a grand-slam transaction, and I sold a big chunk of my GBR a few days after the news broke, and initially thought we’d see a counter-offer from Barrick, but then it didn’t look like it was going to happen after 2 weeks. Initially I was going to hold the remaining Great Bear shares for some of the Kinross incentives and extra shares that would kick out, but then realized it was based on getting the resource to a certain size or getting into production, and I didn’t want to wait that long (could be years), so I just sold the rest of the position, and booked the win.

Since I went on a rant about takeover’s on a different blog yesterday, in the context of positioning during weakness and celebrating the takeovers, versus the longer-term buy and hold investors bemoaning the takeovers, it would seem those same comments are fitting here on this thread and I’ll just repost them.

___________________________________________________________________________________________________________

With regards to the cyclical and volatile mining sector, most stocks have not been good buy and hold candidates over long stretches of time, whether gold/silver, copper, oil, uranium, lithium, or whatever.

Most resource stocks have periods of extreme bullishness or bearishness, and don’t do well over decades or even 7 years, 5 years, or 3 years. Most stocks can have good runs for 1-3 years or often just 3-8 month periods of time from troughs to peaks in pricing.

These extractive commodities companies don’t have pricing power over their products like tech or retail or healthcare, and thus are at the mercy of the underlying commodity prices and inflationary pressures on their cost inputs. As a result they are far better to trade in and out of buying when oversold and selling when overbought, or at least trading 10%-50% of a position around a core longer term position, increasing during painful corrective periods, and decreasing during excessive bullish blowoffs.

There were runs like the 8 months between Jan-Aug of 2016, the Q1 Runs of 2017, 2018, 2019 for a 2-3 months coming out of Dec taxloss selling, there was 6-8 months late summer 2019 through Jan/Feb 2020, or the 6 months late March 2020 after the pandemic crash through Aug 2020, or 2-3 months Dec 2020 through the Feb 1st 2021 for the SilverSqueeze, or late Sept 2021 through Nov 2021, or Dec 2021 through March 2022.

All if those were tradable rallies. Buy and holding for 3-20 years has not been a winning approach in the majority of stocks or commodity sectors, and the majority of investors that made money traded them while they went from hated to loved over shorter windows of time. Again, not just the PMs, but Copper stocks, Oil stocks, Uranium stocks, Lithium stocks, Fertilizers, Agricultual soft commodities, etc…

So with that same background of cyclical and volatile trends in the PM mining stocks, it is the same thing for whether investors made money or lost money on mergers and takeovers. Longer term buy and hold investors may be so far underwater by the time the buyout is announced that they still lose money or barely break even, hence the bellyaching that surfaces from those people during takeover announcements.

However, more nimble traders that were accumulating new positions or adding to existing positions during times or extreme weakness, will cheer the exact same transactions as an easy 30%-50% premium and easy return. This is the value to utilizing technical analysis for entries during oversold periods, and the benefit of layering into and out of positions in multiple tranches to get a better cost basis, versus plopping into a position at the wrong time and then sitting in it for years only to see nothing essentially happen, making for jaded bagholders instead of profitable traders.

Personally, I’m in about a half dozen takeovers each year and make money in most of them, and use those as liquidity events to exit positions for a win in most cases, having added or gotten positioned during the big selloffs. Sometimes I feel they do rob the smaller company of larger upside moves, but the acquiring larger companies are taking them over to capture that upside and they are opportunistic just like individual investors and want to buy low just like everyone else.

I remember getting in Crocodile gold before Newmarket took them over when they were hated, and then rode a partial position in Newmarket to the takeover in Kirkland Lake for the win. Most Crocodile Gold shareholders were jaded at the takeover from Newmarket, but that’s because they bought and held a loser for years and weren’t made whole, whereas I bought in much closer to the buyout into the oversold weakness.

Same thing when I positioned in Richmont or Klondex or like you & I had discussed with Corvus last year. I figured all 3 would get taken over for their assets, and bought into oversold weakness, and was thrilled when the takeover news was announced, and exited for a win each time. However, each time there were many longer term buy and hold investors grumbling that got in at much higher levels, did nothing to average down, didn’t exit losing trades years earlier, and were pissed about the buyouts, yelling at management instead of considering the poor positioning and investing they themselves executed.

Even on positions I built core holdings in over time, I may not love that a company is getting scooped up in a low period for a sector but I book the win and move on, as I’m not married to any position, and a small 20%-50% gain is still a profit. This is how I felt about Ely Gold or Golden Valley being acquired by Gold Royalty last year, or Azarga Uranium being acquired by enCore last year.

While I may not totally jive with the business combination (like Roxgold by Fortuna last year, or the thwarted hostile bid for Elemental by Gold Royalty this year, which I traded partially on the initial news, then bought back after it sunk post failed takeover), it is irrelevant if I made money on the trade buy accumulating low and selling for a profit. There are ALWAYS other trades to rotate those funds into and endless amounts of mining stocks to choose from.

Even on special cases with amazing assets like the prior incarnation of Silvercrest, when they sold to First Majestic, or Great Bear when they sold to Kinross, it may have robbed from the true potential in the smaller vehicle, but nobody really knows. Maybe if not for the takeover the junior may have run into money issues and diluted, or lost investor momentum, or hit a snag, or there could have been years of opportunity costs for holding it. A takeover is a clear premium at that time, and while it may end that stocks journey prematurely, it is still a win and profitable liquidity event.

So the question that PM resource investors should be asking themselves in a time like this, where almost all mining stocks are very oversold, is:

>> “Which companies will be next to get scooped up?”

This is perfect time to go and accumulate the single-asset producers or the developers with a solid project and big enough potential production profile if developed that they are ripe for takeovers.

These companies can all be purchased now, or existing positions can be averaged down into during any further corrective moves. That is the essence of buying a much better valuation than were these same companies were trading at just 2 years ago, and in most cases they are a better and more developed/derisked project, so a better risk/reward setup.

The big boy producers are asking themselves that same question about which companies are on sale that they should acquire. Smart mid-tier producers will be opportunistic in buying these companies while they are on the clearance rack… as they like to get a deal, just like individual investors do.

Now, if we see more takeovers announced, it will be the exact same pattern like every other transaction. The longer-term “value investor” shareholders that rode these stocks down in valuation by 30%-70% will grumble and be jaded bagholders; but savvy investors that buy into these weak prices and get the takeout premium of 20%-50% will be elated. See how that works? (buy low, sell high).

Boy, it sure did. (GFI) Gold Fields down over 23% on the day, so it’s market cap almost lost 1/4 just in today’s trading. It’s normal for the acquiring company to get hit on the news of a takeover, but that’s a pretty big fishing line sell-off for sure. Also (AUY) Yamana only closed up 3.68% on the day, so kind of a lackluster response from it as well.

It’s possible another company like Barrick could have a go at (AUY), as Mark B. already threw cold water on the idea that they could go after Kinross (and pick up Dixie that way), with Mark stating the rest of their portfolio was “cow dung.” However, but there is some other chatter that Barrick may be more apt to go after one of the companies they already have a strategic stake in already — which makes sense. Actually there are a lot of majors and mid-tiers with strategic stakes in smaller companies, and it will be interesting to see if any of them pull the trigger on any M&A deals here while the sector is under pressure.

Yes, good point on the GBR royalty shares. Unfortunately I never got those as I was in earlier than that and sold the position before that offer was announced, and then got back in again once those Great Bear royalty shares had already been distributed. I considered getting in just for the royalty shares, but at the time had bigger fish to fry with capital being expended.

We’ve talked to a half-dozen royalty companies regarding if that royalty would ever be purchased by a royalty company, and uniformly they all mentioned the royalty on Dixie was way overpriced and all of them had looked at it and decided to pass, opting for royalties that were either much better valuations to NAV or already in production with more known parameters. That doesn’t mean it won’t grow in value as Kinross continues to explore and develop the project, and as it gets closer to production, but most of the royalty guys felt it’s valuation was pretty bloated when we’d asked about it last year. Still, I love royalties, and in retrospect, wish I’d have at least taken a partial position in GBR when they announced that royalty deal, just to get it during the spin-out.