Ex: The problems with these mergers/buyouts is that most investors are not making much from them. They are buying high quality companies with real potential on the cheap and without a premium. I constantly hear talk about what will bring other investors into the sector well that is easy – the ability to make money, getting some return for the risk you are taking. I have been sitting on shares of Yamana for years and will make a bit from this but frankly even with dividends it won’t be much.

Now I sense you are not a buy and hold investor but I am. If you invest in a company that has potential and have it taken out when there is a few bad months in the sector you will be lucky to get your principal back. Don’t even think about a 2x, 3x or more gain. I’m starting to think that the only way to do this kind of investing is to get in early, keep the investment small and run when a company like Gold Fields shows up. For me I held off selling all my Yamana today which was probably a mistake because tonight it seems to be falling fast. At this rate any premium will be gone tomorrow morning. A fellow I read told his audience today that he would sell all Yamana and get out, you do not want to own Gold Fields. As I sell my Yamana I will pick up some Alamos Gold, keep some cash and move a large chunk out of PM. The market is just too broken for average investors – it is only for active traders and Board Members like those at Yamana that sell out their investors at the first opportunity.

Hi Mike. 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.