OTTAWA

SEAN SILCOFF
RTGAM






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Gold is a scary sector for investors these days, what with the wobbly metal price and high-profile majors who have been scaling back mine projects, taking writedowns or facing hostile governments. If the majors are sick, the junior miners are in intensive care, starved for financing and devoid of investor appetite to fund their projects.

But juniors may have found their saviour, and its name is Agnico-Eagle Mines Ltd. The Toronto-based company has dished out $54-million in the last two months to acquire stakes of 10 per cent to 15 per cent apiece in four Canadian junior gold miners - Sulliden Gold Corp., Kootenay Silver Inc., Probe Mines Ltd. and ATAC Resources Ltd. - and to buy a fifth outright: tiny Urastar Gold Corp. of Vancouver.

Could this herald more good news for the low-end of the sector? Maybe, but investors looking to play the consolidation game will need a good pan. Separating gold from dirt will take some work, and luck.

Still, the message from Agnico's recent chain of acquisitions is compelling. It seems there are quality assets to be had, and cheaply, a dream situation for any well-financed gold miner looking to replenish its ever-declining inventory of minable gold. National Bank Financial analyst Steve Parsons expects others will follow Agnico's example.

But not all gold companies are created equal, and opportunities vary widely. High-quality projects, Mr. Parsons cautions, are in "ever dwindling supply" and only a few mid-tier gold miners, including Agnico, New Gold Inc., Yamana Gold Inc., Goldcorp Inc., Alamos Gold Inc. and Eldorado Gold Corp., are ready to invest in juniors, based on the health of their balance sheets, growth status and investor support.

What should consolidators be looking for? Mid-stage exploration companies that lack financing and strategic backing, but have deposits big enough to make it worth the while of prospective buyers to secure an option in their future, says Mr. Parsons. There's more - the projects must have high enough grades, scalability and low enough capital and development costs. These are mandatory conditions in today's tough market, where the excesses of recent years won't be tolerated. And let's not forget two other essential ingredients: experienced management; and projects located in friendly jurisdictions whose governments aren't trying to extract more from miners or otherwise changing the rules in a fit of resource nationalism.

Agnico's five juniors are developing projects in relatively hospitable Canada, Mexico and Peru. The list of other prospects is short, warns Mr. Parsons. There are just seven companies with projects in North America, Peru and Brazil. They are: Romarco Minerals Inc., Balmora Resources Ltd., Belo Sun Mining Corp., Minera IRL Ltd., Newstrike Capital Inc., Rainy River Resources Ltd. and Torex Gold Resources Inc.

Not all of them necessarily need cash, says Mr. Parsons: Rainy River has $90-million and Torex has $380-million. But at a time when governments from Argentina to Mongolia are shaking down miners for an ever larger cut of the spoils, a stake in friendly ground might be their best asset.

Sean Silcoff is a contributor to ROB Insight, the business commentary service available to Globe Unlimited subscribers. Click here for more of his Insights , and follow Sean on Twitter at @seansilcoff .

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