Midas Letter’s Top 10 Takeout Targets in Junior Golds

by JAMES WEST on DECEMBER 27, 2010

By James West
December 27, 2010.

Consolidation is a continuous process in the mining industry – more so as senior producers elect to explore less and less, letting the speculators absorb the exploration risk in the junior gold sector. Replacement ounces are expensive, but for a senior producer, it makes more sense to buy an asset that’s ready to go into production, rather than incur a liability with residual risk isn’t going to add anything to the bottom line for several years.

Thus the trend is for exploration projects to be almost at feasibility before the senior takes the plunge and goes all in. This means there are some big deposits around that are nearly maxed out in terms of discovery value, and the only event left in their life is a takeover or production.

The process of negotiating the maximum price on behalf of shareholders in juniors by their management teams is marked by the cagey senior acquirers who seek to get the additional ounces as cheaply as possible. Thus there are many a Mexican stand-off underway, with the senior signaling that it doesn’t really need deposits it is interested in right now, and advanced deposit holders posturing to go into production without the major. So you end up with companies going through the motions of putting a deposit into production when really, their preferred exit would be to hand it over to a senior.

Trying to figure out which way a deposit is going to go and when can cause migraines. Far better to position in an advanced explorer (for the reduced risk portion of your portfolio) and then forget about it. The deal will happen when it happens, and in the case of precious metals deposits, the investment will continue to appreciate in value in relative lock step to the increasing prices of gold and silver.

Chicken Littles who running around screaming that gold is a bubble are correct, but irrelevant, as the popping of this bubble will not occur until currency and capital supply is brought to heal, which likely won’t happen until the next major leg down of the now collapsing U.S. dollar bubble. The collapsing of this bubble is difficult to perceive, unlike say, the tech bubble. That’s because Bamboozle Ben Bernanke keeps fabricating more dollars out of thin air. But it is collapsing none the less, and so perhaps in three or four more years, the G7 leadership will finally admit that the jig is up, the paper is worthless, and agree to a new global currency whose value is officially determined in part by the price of gold.

So for the foreseeable future, gold and even more so silver will continue to rise in price.

Now the question is, which of the advanced mining projects out there are likely to be sought out by the likes of Barrick, Goldcorp, and Newmont? Here is our annual end-of-year top ten gold companies likely to be taken out by a major.

1. Exeter Resource Corp. (TSX:EXE)
Exeter’s Caspiche project in the Maracunga region of northern Chile hosts 26 million ounces gold and over 6 billion pounds of copper in a low grade deposit sandwiched between large mines operated by Kinross, Barrick and Goldcorp. That size of a deposit is definitely going to end up in the hands of a major producer at some point, despite Exeter’s plans to start mining it soon. Its just too big for the majors NOT to buy. Exeter, now trading over $6 a share, was first introduced to Midas Letter Premium Edition subscribers at $3.20 a share on April 14, 2009.

2. Canaco Resources Inc. (TSX.V:CAN)
Powered by its success in the Handeni Gold District in eastern Tanzania, Canaco was the best investment for Midas Letter Premium Edition subscribers, who were lucky enough to first learn about Canaco in the November 9, 2009 edition when the stock was trading at just $0.39. Since then, on major drilling success, the stock has taken off and is now trading in the $5.50 – $6.00 range for a gain of 1,370 per cent. It is expected a resource calculation in 2011 will result in takeover offers, though the company is already owned as to 32 million shares by Chinese mining company Sinotex Mineral Exploration Company Limited. Any takeover or joint venture development will need to include them in the discussion.

3. Evolving Gold Corp. (TSX:EVG)
Despite ongoing drilling success at the company’s 100% owned Rattlesnake Hills project in Wyoming, Evolving Gold’s share price continues to underperform expectations. Trading at just over $1 a share, this company remains remarkably cheap for risk tolerant investors, as well as for major mining companies who are surely marking the ongoing progress of this stellar deposit. With grades recently announced such as 251 metres at 1.5 grams per tonne gold and 332 metres of 1.28 grams per tonne gold, its no wonder Midas Letter Premium Edition subscribers piled in when they were first alerted to the opportunity at $0.37 in April of 2009.

4. Continental Gold Ltd. (TSX:CNL)
As the first financial publication to feature the opportunity inherent in Continental Gold Ltd., Midas Letter Premium Edition selected the company for investment in April of this year when it debuted on the TSX exchange at $2.37 a share. Since then, it has traded as high as $10.78 a share, delivering a 273 % win to subscribers who bought it back then.

Continental’s flagship Buriticá project has consistently delivered high grade intercepts that have been the cause of the company’s continuous value appreciation. Super bonanza grade intercepts such as 14.3 metres grading 446 grams per tonne of gold (that’s nearly 14 ounces per tonne of gold!) and 17.9 metres grading 113.82 grams per tonne gold are going to have majors circling this rapidly evolving story in droves.

5. Colossus Minerals Inc. (TSX:CSI)
Collosus Minerals, first brought to Midas Letter Premium Edition subscribers in April 2008 and then again in January 09 with shares trading at $1.10 per share, has seen its share price hit as much as $9.87 in the last year as continuing development at the incredibly rich Serra Pelada project in Brazil progresses. Some of the richest drill intercepts in the history of mining have been encountered at the Serra Pelada pit, including assays such as 43 metres grading an unbelievable 4,709 grams per tonne gold, 204 grams per tonne platinum, and 1,117 grams per tonne palladium over 43 meters.

The company has managed to avoid too much attention from the majors thus far by electing not to develop 43 101 compliant resources and reserves and instead moving straight into development and production mode. It is likely that there will be a keen desire to own Serra Pelada by major mining companies the closer to production the mine advances.

6. Nova Gold Resources Inc. (TSX: NG)
NovaGold has assembled a world-class portfolio of projects, with 50% interests in two of the world’s largest undeveloped gold and copper-gold projects, 100% of the Rock Creek gold project, 100% of the Ambler copper-zinc-gold-silver deposit and other exploration-stage properties. The company is primarily focused on gold properties, some of which also have significant copper, silver and zinc resources.

7. Chesepeake Gold Corp. (TSZ.V: CKG)
Another home run for Midas Letter Premium Edition subscribers, Chesepeake gold has grown in value from Midas Letter’s first write-up on the company in January 09 at $3.30 a share to its current price level of $11.20 per share in just 2 short years, delivering a 269 per cent win to subscribers.

Chesepeake’s flagship project is the Metates gold project in Durango state, Mexico. It boasts a National Instrument 43-101 compliant measured and indicated resource of 17.2 million ounces of gold, 467 million ounces of silver and 3.4 billion pounds of zinc, plus a pretty sizy inferred resource as well. This is another evolving story whose sheer contained metal value means its too big not be owned by major mining companies.

8. International Tower Hill Mines Ltd. (TSX:ITH)
Another remarkable TSX Venture junior success story, ITHL controls 100% of its flagship Livengood gold project 100 kilometres north of Fairbanks, Alaska. (10.9 Moz Indicated) and 94 Mt at an average grade of 0.79 g/t gold (2.4 Moz Inferred), both at a 0.5 g/t gold cut-off grade, make it one of the largest new gold discoveries in North America.

Midas Letter Premium Edtion subscribers were fortunate enough to get the nod on ITHL back in February of 2009 with shares trading at $2.75, which represents a 260 per cent gain in less than two years for Midas Letter subscribers. Livengood itself is yet another example of a “Too Big Not to Own” gold deposit for the major mining companies.

9. Nevsun Resources Ltd. (TSX: NSU, AMEX:NSU)
Though much smaller in comparison to some of the previously mentioned mega-projects, Nevsun is already in production and has a lot of built-in exploration upside. The current resource of 1.06 million ounces of gold, 9.4 million ounces of silver, and 734 million pounds of copper (not to mention the million plus pounds of znic) means the Bisha Mine in Eritrea, Africa, will be a profitable little operation, and might therefore be of interest to regional mid-tier mining companies, or majors in the area who perceive an opportunity in the exploration blue-sky.

Midas Letter Premium Edition subscribers were lucky enough to hear about Nevsun in October of 2009 with the shares trading at $2.43 a share, providing subscribers with a 190% gain in just over a year.

10. Ventana Gold Corp. (TSX:VEN)
Ventana Gold is the subject of a takeout offer by a subsidiary controlled by Brazilian billionaire Eike Batista that values the company at $12.63 per common share, a price the board of Ventana has roundly rejected as too low as it recommended its shareholders not tender their shares to the offer. Ventana has the 4,590 hectares of exploration property in the historic California-Vetas mining district of Colombia, 400 kilometres northeast of Bogota.

Midas Letter Premium Edition subscribers lucked out when they heard about Ventana first when the company was trading at a mere $1.42 per share in April 2009. Since then, the share price has touched as high as $14.13 a share. If Midas Letter Subscribers sold their positions today, they would enjoy an 830 per cent win – in just over a year and a half.

2011 Shaping up for Gold and Silver Company Investors
Midas Letter editor and publisher James West thinks that the bull market for junior gold and silver explorers and miners is just getting up a head of steam.

“We fully expect the demand for junior miners and their deposits to continue and increase in the coming year,” he said. Senior miners simply can’t afford to explore any more and remain competitive, and so that function is now most thoroughly outsourced to junior mining companies. The Midas Letter has proven the most authoritative source of resource company intelligence as demonstrated by our performance during the last year – a year we hope to emulate in 2011, if not improve on.”

James West is the publisher of the highly influential and widely respected Midas Letter at midasletter.com. Midas Letter Premium Edition features 5 stock picks on the first Sunday of each month that are expected to double within 12 – 18 months in 9 out of 10 cases. The 2009 model portfolio performance was 237%. Until December 31st, subscribers to Midas Letter Premium Edition will enjoy it at an annual rate of $39 per month in perpetuity, and be entered to win US$100,000 in gold bullion. After January 1, the price is $49 per month.

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