Major Gold Miners Target the Junior Ones

NEW YORK, May 16, 2016 /CNW/ - Prices for gold have rallied on increased demand for safe haven investments from equity market turmoil, and these unusual market conditions have increased expectations for more mergers and acquisition deals within the gold market. Tahoe Resources Inc. (TSX:THO), Kaminak Gold Corporation (TSXV:KAM), Goldcorp Inc. (TSX: G), Market Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ), Brazil Resources Inc. (TSXV:BRI)

Earlier in February Tahoe Resources Inc. agreed to acquire Toronto-based miner Lake Shore Gold Corp. in a $552 million all-share deal. Then just last week Kaminak Gold Corporation announced that the company will be acquired by Goldcorp Inc. for a deal approximately $520million Canadian. 

Goldcorp's strategy of using the infrastructure developed by smaller exploration companies to then identify and develop their mining projects. For example, Kaminak's 'The Coffee Gold' project is located in a suitable territory easily accessible from Dawson City, Yukon Territory in Canada, which is located very close to the Alaskan border, and provides Goldcorp with high quality development project at low sustaining costs. 

Large Gold companies with a strong balance sheet and cash can afford to buy assets that strengthen their production portfolios. The fact that the gold sector market share will remain diversified only supports this strategy. According to research by BMI, the top 10 gold producers account for only 25% of global output. 

As a result, Junior Gold Miners have become quite popular, and shares of the Market Vectors Junior Gold Miners ETF (NYSEARCA: GDXJ) have increased in value by 94% year to date. Some junior gold companies have witnessed astonishing rallies, like Brazil Resources Inc., shares of this company have surged 240% since January. 

Brazil Resources Inc. focuses on the acquisition and development of projects in emerging producing gold districts in Brazil, Paraguay and other regions of the Americas. One of the company's new projects, Whistler gold-copper project, was acquired from Kiska Metals Corp. pursuant to an asset purchase agreement in August 2015. The Whistler Project is located in South Central Alaska approximately 150 km northwest of Anchorage, with 75% recovery rate for gold and silver, 85% recovery for copper. 

Last week gold jumped back to the high end range as a weakening dollar and bearish earnings continued to weigh on equity markets. Gold companies, despite already high returns since the beginning of the year, still have a bullish underlying trend, as worries regarding the performance of the stock market create a need for risk aversion.

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