This from the intro to IKN380, out last Sunday evening.
We’re early in the cycle
If you haven’t seen the 29 minute round table discussion video (1) I stuck on the blog last week featuring Brent Cook and Joe Mazumdar of Exploration Insights, John-Mark Staude of Riverside Resources (RRI.v) (a company I currently own) and Morgan Poliquin of Almaden (AMM.to) and Almadex then do so, it’s one of the better ones I’ve seen recently and there’s plenty of intelligent insight from all four participants to get your mining brain working.
But of all the comments made perhaps the best for me came from Joe Mazumdar who pointed out that, so far at least, mergers and acquisitions in the mining space in 2016 have been 1) friendly and 2) nearly all pure-paper deals, with either very little of no cash component at all. That’s a great point, one of those market generalities that’s easy to spot and shows that we’re still early on in this current cycle. Along with Morgan Poliquin confirming the IKN view that there really has been sea-change in the mining sector and this current rally isn’t about relief in a bear, it truly is a change of trend, Mazumdar’s observation tells us something simple; that mining companies haven’t started to fight between each other for the next round of assets and once they do, the friendly all-share type of M&A that goes through without fuss or mess will become the exception rather than the rule. To the fore will come paper+cash deals, all-cash deals, hostile bids out of the blue, third party interlopers, target companies finding White Knights (to save their own boardroom hides) and all other stripes of mergers and buyouts.
We’re now two months on from Brexit and gold has just been through another soft and quiet week, with more selling of bullion from GLD to add to the wall of worry (955.9mt as at this weekend) and the edge taken off silver’s run as it drifts back up to 70X. We’ve even had a few of the braver anti-goldbug commentators piping up and telling us that gold’s a waste of time. Again. Pay no heed, nothing goes up in a straight line, August has gone quiet and what’s more, it’s done so at the top of the current gold range rather than at the bottom. Most of the time the advantage in capital markets is skewed enormously in favour of the larger player but there are some times and circumstances in which being small and nimble offers an edge, as noted below I’ve been taking the opportunity to top up on positions thanks to the opportunities offer by smaller weaker hands and impetuous traders. I suggest you do the same, because when gold breaks U$1,400/oz you’ll have to pay more. Make no mistake, Joe Mazumdar is right about where we are in the current mining cycle and anyone bailing now on quality names with longer-term futures is making a big mistake. This has only just begun.