Big miners go shopping for production assets

Submitted by cpowell on 05:41AM ET Monday, April 12, 2010. Section: >http://www.reuters.com/article/idAFN0912469420100412?rpc=44

TORONTO -- The "for sale" signs are out in force and potential buyers are thinking they should get in on the action now while the good properties are still around.

But rather than seeking million-dollar homes, these shoppers are on the hunt for billions in buried copper and gold, as scarce resources combine with recovering markets to kick off a flurry of mining takeovers.

Spurred by strong economic signals, rising metal prices and rebounding stock markets, established miners have come out in force to snap up assets needed to ensure their future production.

Recent announced deals such as Quadra Mining's C$1.6 billion acquisition of FNX Mining and and gold miner Agnico-Eagle's C$570 million purchase of Comaplex Minerals' Meliadine project in northern Canada are seen as the leading edge of a new wave of mergers.

While there has been a trickle of deals in the wake of the 2008 resource price meltdown, potential buyers appear to have gained enough confidence from recent market signals to take on a bit of risk through acquisitions.

"I think the comeback of the capital markets really has helped a lot," said Egizio Bianchini, global head of mining at BMO Capital Markets. "Assuming the market stays the way it does right now, I anticipate there being a lot more deals."

For investors eager to wring some value out of recently stagnant mining stocks -- Toronto-listed miners are currently trading at December 2009 levels -- getting in on a resource play ahead of an acquisition can pay big dividends.

Exeter Resource shareholders have enjoyed an 18 percent rise in the gold explorer's stock since Reuters quoted a company official on Tuesday saying it had signed confidentiality agreements -- which can sometimes signal a deal in the works -- with gold majors Barrick, Newmont, and Kinross.

Exeter owns the massive Caspiche project in Chile, with resources of 24.3 million ounces of gold, 6.4 billion pounds of copper and 60.3 million ounces of silver.

Another high flyer is Brett Resources, which owns the Hammond Reef gold project in Ontario. Its stock has risen 50 percent since Osisko Mining announced a C$372 million deal for the junior miner in late March.

Analysts say possible targets include junior players Copper Mountain, Nevada Copper, East Asia Minerals, and Osisko -- seen as a possible prey for Goldcorp, which already owns a 10 percent stake.

The M&A activity appears to already be having a positive impact on shares of smaller resource companies, which have generally been the targets.

The S&P/TSX Venture composite index, which tracks small-cap Canadian companies and is made up predominantly by mineral explorers, has risen 6 percent since the beginning of April, outperforming a 4.4 percent rise in the Toronto Stock Exchange's materials index, which comprises larger producers.

"I think there's some added speculative appeal to the juniors right now," said Canaccord Adams analyst Wendell Zerb.

He said recent deals have appeared to be at "fair value" levels, suggesting the sector is not undervalued. The good buys, he said, are smaller players that hold deposits with defined resources.

For large players, such as Barrick and Kinross, the acquisitions have become a necessary part of the process of replacing metal pulled out of the ground, particularly as attractive new deposits have been harder to sniff out through traditional exploration methods.

With gold prices holding close to record levels, base metals having more than doubled from last year's lows, and rising stock prices allowing miners to use their shares as currency, would-be buyers are hardly lacking for purchasing power.

Potential buyers for base metal assets have increasingly emerged from China, which is eager to lock in supplies of copper, zinc and other metals to feed its economic expansion.

Jinchuan Group's recent C$150 million offer for nickel miner Crowflight Minerals is the latest of several deals, many of which have been led by state-owned miners.

There's a lot of money around looking for a home, and some of these exploration vehicles with successes are great candidates," said John Ing, president of investment dealer Maison Placements.