The mad scramble for junior gold miners is on.
As the gold price fell from 2011 to 2015, major gold miners struggled to turn a profit. Years of rising gold prices left these companies with high costs. Once gold prices fell, they had to find ways to cut costs, starting with capital budgets.
[ad#Google Adsense 336×280-IA]Mines that were once the future of these companies proved to be too expensive to run. Newmont Mining (NEM), for example, closed its Hope Bay mine with a multibillion-dollar write-off in 2012.
As the bear market dragged on, the big miners ran through their reserves.
After four years, it became critical for these companies to find new sources of gold.
One way for gold majors to cut operation costs is by acquiring low-cost, high-quality assets.
We’ve seen a flurry of these acquisitions across the sector since late last year. And they give investors the chance to make quick, triple-digit gains…
It began when OceanaGold (TSX: OGC) bought Romarco Minerals last July. Romarco owned the Haile Gold Mine in South Carolina. Financial analysis of the project showed that it would be extremely profitable. The estimated cost to mine the gold was $477 per ounce. The total cost to run the mine and the company was just $624 per ounce.
That meant Haile was a robust business, even with gold prices around $1,050 per ounce at the time. With the price of gold up to nearly $1,300 per ounce today, OceanaGold’s decision to buy it looks brilliant.
But OceanaGold isn’t the only company to acquire junior mining companies with excellent projects. The table below shows five others from this year:
As you can see, these acquisitions helped to drive the stock prices much higher. The average return in 2016 from the five deals announced this year is 152%.
But it isn’t only the acquisition targets that are performing so well right now. The entire junior gold complex is rising, as you can see from this chart of the VanEck Vectors Junior Gold Miners Fund (GDXJ)…
GDXJ holds 47 junior miners. The fund is up 92% so far this year.
As you can see from the chart above… it’s a bull market. But it’s not too late to make a lot of money in mining stocks. If you aren’t in yet, consider buying today.
Good investing,
Matt Badiali
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Source: Growth Stock Wire