The Gold Report: In the December 2014 edition of the Hallgarten & Co. Model Mining Portfolio, you outlined some reasons for investors to be cheerful. Please share some.
Chris Ecclestone: The first is the oil price. The mining space has been afflicted with capital and operating expenditure inflation for 10 years. One of the most sustained rises on the operating expenditure side has been energy costs; mining companies have been paying massively more for oil than they were 10 years ago. The 40–50% tumble in the oil price has reduced those input costs.
Another factor is that many of the commodity currencies have retreated heftily. The Canadian and Australian dollars, the South African rand, even the Russian ruble, have retreated to levels that essentially provide a “double whammy.” It definitely helps the producers in those currencies.
TGR: Are there other positives?
CE: I think there’s going to be a merger and acquisition (M&A) surge this year. We’ve already seen a few transactions. The obvious ones are not happening, yet some surprises are happening. Anything that’s out there could be subject to a takeover.
TGR: We’ve seen Osisko Gold Royalties Ltd. (OR:TSX) take over Virginia Mines Inc.; Tahoe Resources Inc. (TAHO:NYSE; THO:TSX) make a bid for Rio Alto Mining Ltd. (RIO:TSX; RIOM:NYSE; RIO:BVL); Goldcorp Inc. (G:TSX; GG:NYSE) buy Probe Mines Ltd. (PRB:TSX.V) and Coeur Mining Inc. (CDE:NYSE) take over Paramount Gold and Silver Corp. (PZG:NYSE.MKT; PZG:TSX). What are some takeaways from the deals we’ve seen so far?
CE: One is the marriage of partners that have not been the subject of speculation. Another is that companies are doing deals with stock in order to preserve cash. And no one is saying that these deals are at …read more