Five Must-Haves for Junior Mining Companies
September 19, 2012 by Gold Editor
SOURCE: [The Gold Report] - Valuation disconnects among producers, rising gold price and juniors facing funding crunches are among the factors fueling a spate of M&A activity. In her first exclusive Gold Report interview, Aleksandra (Sasha) Bukacheva, a mining research analyst with Fraser Mackenzie in Toronto, shares her list of likely targets and suitors in the zinc, copper and precious metals spaces.
The Gold Report: Sasha, what are four or five must-haves for investing in junior mining companies in today's market?
Sasha Bukacheva: To start, I prefer metal producers to developers and explorers, especially in this market.
In terms of specific criteria, number one is quality of the asset base. To me, that means mines with the higher grades and healthy volumes to sustain operations for at least 10 years. Second, I want companies that have manageable growth. A company should be able to deliver growth at a reasonable price and not overspend on a new mine with lower return on capital. Third, I like companies that are unique in some way: in their commodity exposure, exceptionally high grade or mine concentration in a friendly jurisdiction. My fourth criterion is a good management team; the assets are only as good as the people who run them. Fifth is low political risk; everything else being equal, a company with a project in Nevada is more appealing than the one in Ecuador. It's rare that you can find a company that fits all of these parameters, but it's a good frame of reference.
TGR: Do you think it could raise the target prices of some of your companies?
SB: Most of my companies still have a way to go to reach my target prices. I am comfortable with my target prices because they are based on certain long-term price assumptions that forecast a slightly more stable world than the one we live in today. I have not changed my commodity prices either. I may revise my price deck in a few months if necessary.
TGR: In addition to the good news from the ECB, we may see more quantitative easing from the Federal Reserve. There also is a new round of merger and acquisition (M&A) activity in the small-cap junior precious metal space. Inmet Mining Corp. (IMN:TSX) has a takeout offer out for Petaquilla Minerals Ltd. (PTQ:TSX; PTQMF:OTCBB; P7Z:FSE). Endeavour Mining Corp. (EDR:TSX; EXK:NYSE; EJD:FSE) has an off-share offer for Avion Gold Corp. China's Western Mining Group has a bid out for Inter-Citic Minerals Inc. (ICI:TSX; ICMTF:OTCQX). Does this signal the start of serious M&A activity?