How to identify silver mining takeover targets in 2012

The only reliable way to predict what sorts of junior silver mining stocks will get acquired is by looking at the types of companies that have gotten acquired in the past.

At one point or another, everyone who invests in the junior mining sector thinks about the big buyout their company could get. You’re more likely to pick a dud than a winner, though, and that means it’s all the more important to do your due diligence before plowing into a mining stock.

The only reliable way to predict what sorts of junior silver mining stocks will get acquired is by looking at the types of companies that have gotten acquired in the past. And contrary to a common investor belief, it’s producers (companies that are already pulling silver out of the ground) – not the hotshot young explorers that have uncovered a giant deposit – that tend get acquired.

“As silver miners continue to amass healthly cash treasuries, the sector looks primed for a spate of merger and acquisition activity,” Haywood Securities wrote in a recent research report on silver mining stocks (per Mineweb). “Producer/producer-sector consolidation seems – at the moment – to be a preferred route for silver producers to add to their production growth profiles. For example, Pan American’s recent acquisition of Minefinders, First Majestic’s proposed acquisition of junior producer Silvermex Resources, and Endeavour Silver’s proposed acquisition of AuRico Gold’s El Cubo operating silver-gold mine.”

Haywood’s report almost reads like a manual for identifying mining takeover targets. Look for small and medium-sized producers that control large deposits. Why, after all, would a large mining company take a chance on acquiring a potential deposit when they can go after one that’s going to start generating income from day one?

Knowing what the majors are looking for makes our job easier. Haywood even went on the record with a list of their favorite producers in their report. Among them? Endeavour Silver (NYSE:EXK), Fortuna Silver Mines (NYSE:FSM) and Mandalay Resources (PINK:MNDJF).

A few we’ve identified? Scorpio Mining Corp. (PINK:SMNPF), Golden Minerals Company (AMEX:AUMN) and Great Panther Silver Ltd. (AMEX:GPL). We’ve identified several other silver producers in our new book, The Top 500 Gold and Silver Mining Stocks.

Like this post? On Saturday, we also wrote about Haywood Securities’ fascinating silver price forecasts through 2016.

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Undervalued silver stocks: Tahoe Resources Inc. (THO, THOEF)

The sheer size of Tahoe’s Escobal deposit puts near the top of our list of the Top 200 gold and silver mining companies as ranked by gold and silver in the ground.

Tahoe Resources Inc. (PINK:THOEF, TSX:THO) is one of our top 100 favorite gold and silver mining stocks out of the 500 that we’ve profiled in our brand new book: The Top 500 Gold and Silver Mining Stocks. Here are four reasons why:

1) More than 300 million ounces in the ground. Tahoe Resources is focused on its Escobal silver project in Southeast Guatemala. Escobal hosts an indicated silver resource of 245.2 million ounces at 500 g/t average grade, and an inferred silver resource of 71.7 million ounces at 271 g/t average grade. The sheer size of the deposit puts Tahoe near the top of our list of the Top 200 gold and silver mining companies as ranked by gold and silver in the ground (check out our book for the full list).

2) Extremely low cash costs. According to Chris Marchese, contributor to The Morgan Report, Tahoe is looking at expanding its mill capacity so that it can produce between 26–28 million ounces of silver at a cost of $3–4 an ounce net of all the byproducts.

Another stock that we like – Great Panther Silver Ltd. (AMEX:GPL) – has generated lots of investor interest even with cash costs between $6.50 and $7.50 an ounce. All in all, Marchese is very bullish on Tahoe. “The only problem is it’s in Guatemala,” he says.

3) Production slated for Q1 2014. “The original capital estimate of $326.6 million (for the Escobal project) is on-budget, the project is fully financed, and we hold a significant cash reserve should we encounter unanticipated start-up issues,” Kevin McArthur, Tahoe’s President and CEO, said in the company’s earnings release last month. “We have seen impressive exploration results over the last year, indicating the potential for future mine expansion. … It is anticipated that the expansion plan would be financed with internal cash flow and completed within five years of mine start-up.”

All told, Tahoe’s current mine plan calls for 317 million silver ounces to be mined over 18 years. Look for the total number of ounces to expand after the company has positive cash flow.

4) Investor interest. Despite headwinds for gold and silver mining stocks, Tahoe’s shares are actually up for the year in 2012 (+3.22 percent at the time of this writing). Comparatively, the Global X Silver Miners ETF (NYSE:SIL) is flat since the start of the year and the Market Vectors Junior Gold Miners ETF (NYSE:GDXJ) is down more than 9 percent. Since debuting on the Toronto Stock Exchange in June of 2010, Tahoe shares have climbed more than 170 percent. American investors can buy shares in Tahoe on the Pinksheets under ticker THOEF.

Like this post? Check out our book, The Top 500 Gold and Silver Mining Stocks, to uncover other undervalued gold and silver mining stocks.

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Top 3 silver junior mining stocks ranked by silver in the ground

Take a look at our three favorite junior silver mining stocks based on the amount of silver they claim to control.

In our latest book, The Top 500 Gold and Silver Mining Stocks, we dug behind the scenes at the top 500 gold and silver mining companies based on market cap.

The goal was to uncover some of the best junior mining companies – the ones without PR agencies; the ones that fly under the radar but happen to be sitting on incredibly promising gold and silver deposits. Here are our three favorite junior silver mining stocks based on the amount of silver they claim to control:

Bear Creek Mining Corp. (PINK:BCEKF): 500,000,000 ounces silver

Bear Creek Mining’s Corani and Santa Ana Projects contain more than 500 million ounces of silver. According to the company, more than 320 million of those ounces are in reserves providing near-term production potential. A feasibility study at Santa Ana shows a 5-million-ounce per year silver mine with an 11-year mine life.

Levon Resources Ltd. (PINK:LVNVF): 450,000,000 ounces silver

Levon Resources Ltd. is exploring its Cordero Project in northwest Mexico. The project is promising with indicated resources of 310 million ounces of silver, 900,000 ounces of gold and inferred resources of 140 million ounces of silver and 229,000 ounces of gold.

Tahoe Resources Inc. (PINK:THOEF): 316,900,000 ounces silver

Tahoe Resources is a silver exploration company focused on its Escobal silver project in Southeast Guatemala. Escobal hosts an indicated silver resource of 245.2 million ounces at 500 g/t average grade, and an inferred silver resource of 71.7 million ounces at 271 g/t average grade.

Check out our book The Top 500 Gold and Silver Mining Stocks to see a list of 200 companies ranked by the amount of gold and silver they control.

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