I prefer the riskier and more unloved smaller producers and developers that have more a pricing to value arbitrage, and that are more undervalued to their peer groups (in cases where there aren’t reasons that warrant such a big differential).

For clarity, I date stocks and don’t marry them, so my investment objectives are shorter term and higher risk than value investors wanting to position in the bigger names for the ride up in the longer term bull market. I hold very few mid-tiers as a result (but there are a few mid-tiers doing over 100,000 ounces per year that are still flying under the radar). My focus is more on miners doing less than 100,000 ounces per year of gold, or with development stage projects, or Exploration drill plays.

It can also correct by going mostly sideways for a long time.

As for technicals not reflecting a buyout, don’t be so sure. First, it just might be carrying a “buyout premium” with that $1.1 billion market cap and, second, someone always knows something before everyone else when it comes to such deals.

To be clear, I am not saying that KDX is about to fall significantly, but I do think it will rise less than the average of its peers should the sector go higher anytime soon. The same goes for RIC.

Among the ones I would choose instead is SSRI — and pick up Claude in the process.

Thanks Matthew. Yes, I agree that much of the anticipated “Buyout Premium” may already be priced into Klondex and Richmont and that is why I’m looking for higher Beta smaller distressed producers or under-followed Producers or Developers that represent more torque to the upside as their margins & economics improve.

Having said that, I’ve noticed plenty of times where a buyout came out of left-field and there was nothing on the charts to indicate a move up of 30-50% in a few minutes 🙂 To be fair, those are instances that the marketplace was surprised by the announcement and not ones that were more anticipated.

A good parallel for Klondex would be how Lake Shore Gold was acquired. It wasn’t really a surprise to anyone and a dozen newsletter writers or people on Seeking Alpha had been anticipating that for a while. As a result the premium wasn’t very juicy on that takeover considering how valuable Lake Shore Gold’s assets were and they got taken out in the bottom of the cycle.

Matthew, I do agree with you that if one is picking up a large Mid-tier or Major, that Silver Standard (with Claude inside it) may offer more oomph, but even then, they are much to large for my tastes and are less likely to be a 5-10 bagger than some of the smaller Jr Gold & Silver companies.

Speaking of Claude…….

I’m much more interested in a company like Pure Gold that is exploring and developing Claude’s old Madsen project than picking up a big juggernaut of a company. Pure Gold has been hitting some great high-grade drill results and have some of the old Madsen Mine infrastructure still in place. They also have Mark O’Dea as a director, and as you know, he is amazing at developing mining companies that get acquired 😉

http://puregoldmining.ca/investors/presentations

You guys are bring up some good points with Klondex. I do like the Company but feel it is getting a “little too much love” which can actually hurt the buy out potential as other companies will not pay the premium on the share price. That said I am not a fan of the chart. the monthly is looking weak and if that picks up steam could really come back. the weekly is not looking great either but that could bottom in 3-4 weeks.
They are a good Company but it might take some time pop again.

Agreed with both points Cory.

1) if quality companies get too much love, then their valuations get lofty and actually dissuade other companies from taking them over
2) Klondex could definitely correct down from the levels it’s at now, but it is a quality company and just may take more time, or we’d need to see a big pop in metals prices for it to really take off.

For me the risk/reward aspects just aren’t attractive enough to buy Klondex at these levels, but I see it as a solid mid tier producer and it will survive any tough times, and longer term it will do fine. Honestly that’s how I feel about most of the Majors and Mid-tiers though.

The reason I’d be more interested in starting a small position if it pulled back 20% from here, is that it’s odds of having a larger company make an offer on it would increase in that environment. Larger companies like to acquire when things are on sale as well.

Exactly right, Cory.

Excelsior, an offer to buy a company like KDX never comes out of left field. Too many expect it and that’s what keeps premiums as low as 25 to 50%. Here’s a perfect example:

http://www.mining.com/fronteer-gold-acquired-by-newmont-mining-in-a-2-3-billion-deal/

(My average price for Fronteer was closer to a dollar. 🙂 )

I like PGM but don’t like the constant dilution and “insiders” premium (O’Dea, McEwen, AngloGold Ashanti).

I still might own it again.

http://stockcharts.com/h-sc/ui?s=PGM.V&p=W&yr=2&mn=9&dy=0&id=p73921995821&a=445306505

Thanks Matthew. Yes, I said that that Klondex buyout was anticipated, and therefore would not come out of left field. My point was that charts don’t anticipate buyouts on the mergers where they do come out of left field.

As for the recent capital raises in Pure Gold and the dilution that any company has when they do a financing, the question is why are they raising funds? If it was because they were mismanaging finances or because the management was getting paid too much, then I wouldn’t be positive.

In this case Pure gold raised in Jan & Feb where their shares were very strong (more bang for the buck and much less dilutive than many Jr companies doing emergency financings at the bottom). The purpose was to fund their 2017 drilling program and for consolidating the land around the Madsen Gold Project. Both iniatives are a wise use of capital to grow the company.

__________________________________________________________________________

Pure Gold closes acquisition of patent claims consolidating the Madsen Gold Project
March 10, 2017

“Pure Gold Mining Inc. (PGM – TSX-V) is pleased to announce that it has closed the transaction announced on March 6, 2017 in accordance with the purchase and sale agreement entered into with Orefinders Resources Inc. As part of the Transaction, Pure Gold acquired a 100% interest in the 219-hectare Derlak Gold Property. Consideration for the property purchase included $0.5 million in cash and 1,290,322 common shares of the Company.”

“The Derlak property consists of 11 patented mining claims filling an important keyhole gap in the Madsen Gold Project claim package. The acquisition secures the future large-scale exploration potential of Madsen’s northeast plunging Austin Horizon which remains open to depth, and combined with existing 100% owned Madsen claims provides exposure to a contiguous 47 square kilometre land package.”

http://puregoldmining.ca/news/pure-gold-closes-acquisition-patent-claims-consolidating-madsen-gold-project

Insider stakeholders like Mark O’Dea, Rob McEwen, and AngloGold Ashanti’s are exactly why I feel comfortable with Pure Gold for the long haul.

There is typically a premium for following management teams and strategic investors with a successful track record.

The reasons for the dilution are not in question but the more dilution there is, the harder it will be for the shares to rise until the raised funds result in significant added value.

I bought PGM because of the property and value but, at 14 cents/share when it had far fewer shares out, I was happy to get O’Dea, too.

I tend to shun companies that have industry stars running them if the cat is already out of the bag. The average retail guy loves a story more than a good value — just look at the tech stocks 17 years ago.

At 4x book and C$115 per indicated ounce of gold, PGM is not very cheap.

I think Newmarket did merge with Kirkland Lake.

Matthew – Solid points as per usual. Unfortunately for Explorers and Developers, without any revenue yet, then issuing more paper IS their currency to fund growth. Good companies use the dilution to build value, and poorly managed companies squander these funds on G&A and wild goose chases.

In this case I believe the dilution to finish consolidating their land package at Madsen and fund the drilling campaign will bring Pure Gold that longer term value to the company. Their drilling results have been stellar over the last 2 years and I’d expect them add a great deal of resources in the ground this year as a catalyst.

Dave – Thanks for the clarification. I lost track with Newmarket and Kirkland lake, because they were on, then it was off wjem Goldfields and Silver Standard made a bid, then there were stalls and lawsuits, but then they were moving ahead. I was pretty sure they had merged and posted a number of press releases during that process but finally gave up trying to figure it out. I just went and looked at their news from 2016 and see where they did get it wrapped up.

What a journey from Crocodile Gold to Newmarket to Kirkland Lake.

The mining industry….. You gotta love it!

OK Matthew – I really do value your input and your chart has me concerned, as does your comments on their book value (which I normally ignore on exploration companies because great drilling or poor drilling will send the valuations all over the map).

I’ve decided to sell my position tomorrow and wait for a better entry point.

Your insights are always appreciated, and you’ve taught me a lot man.

I’ll shut up about Pure Gold from now on and try to find better value. You live and you learn as they say….

Ex, I want to reiterate that I like PGM and think it will do well longer term. I just think it will underperform many of its peers for the short to medium term.

The daily chart points to more short term upside but gold better hold its own or that could change quickly:

http://stockcharts.com/h-sc/ui?s=PGM.V&p=D&yr=1&mn=0&dy=13&id=p57487930882

Yes, I agree with you and can’t deny the points you highlighted on your previous chart up above. It will likely under-perform other exploration and development companies. I still like it for the longer term as well, but will look to rotate back into it down the road.

I’ve got 26 Gold companies and 13 Silver stocks, so I need to lighten up the load anyway.

Looking at the weekly chart, I think it will be range-bound until gold impresses:

http://stockcharts.com/h-sc/ui?s=PGM.V&p=W&yr=3&mn=0&dy=13&id=p56018307974

That’s quite a few, Ex! 😮

Agreed. I don’t like that the 20 week MA crossed down through the 50 week MA either. I’m just going to roll this into Americas Silver as noted to DT down below.

I’ve been a little too wild with my interest in the precious metals stocks and am going to reign that in some and diversify a little bit more into other sectors.

Yes, the selloff in the miners, in a large correction would be more short-lived due to current valuations relative to the markets, currencies, and even the metals.

The difference in 2008/2009 was that the miners were at very lofty levels along with the conventional markets so it really shocked everyone and was a Liquidation event. However, the Precious Metals and mining companies recovered much quicker than general equities and most other sectors in 2009 and 2010 , and outperformed to the upside – culminating in 2011.

The difference now is that miners have just bounced off their bottom over the last year and are still much more undervalued relative to the S&P, DOW, or Nasdaq. Also, we’ve had 8-9 years of Central Banking tinkering on a global scale that is unlike any other time in history as it relates to interest rates, and negative real rates in almost every country from Europe to Japan…. and the first signs of inflation creeping in. Precious Metals do well in negative real rates when inflation starts showing up.

If it gets down to $0 I’ll be buying with both hands…..