The action in the gold sector was fast and furious in the last couple of weeks with two big takeovers: Aurelian Resources Inc. and Gold Eagle Mines Ltd. And according to Paradigm Capital analysts Don MacLean and Don Blyth, this could be just the start.

Thanks to weak credit markets over the last six months, the small-cap gold companies have had trouble raising money and their stock prices have plummeted. The big gold miners have performed much better, so the conditions are better for them to make acquisitions, the analysts noted in their "Takeover 20" report.

They pointed out that in the cases of Aurelian and Gold Eagle, Kinross and Goldcorp picked up very large, economically robust projects, "yet the margins to the buyers are among the best that we have seen since we began the Takeover 20 analysis [in 2005]."

The "margin" refers the spot gold price minus the investor's total cost to acquire, build, and operate the assets. For their "Takeover 20" list of potential companies, that average margin is now a whopping US$303 an ounce. And the implied internal rate of return on these takeovers is above 10%. What that means is that it can be cheaper to buy ounces on Bay Street than go to the trouble of developing them yourself.

The analysts also listed their top five takeover candidates: Andean Resources Ltd., Andina Minerals Inc., Bear Creek Mining Corp., Detour Gold Corp., and Osisko Mining Corp. They were selected because they have strategic deposits that are attractive to a number of possible buyers, and are also potential "company-makers." They are also in safe jurisdictions. Honourable mentions went to Guyana Goldfields Inc. and Rainy River Resources Ltd.

Peter Koven