Gold miners Primero acquires Brigus, and Goldcorp targets Osisko -- Who's next?

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Gold miners Primero acquires Brigus, and Goldcorp targets Osisko -- Who's next?

Mergers and acquisitions in the gold industry may well be on an upswing this 2014 as gold miners are on sale with select junior producers having targets on their back.  New junior gold producers have attained production only after they have endured a long journey ripe with the strife of financings, high exploration costs, falling commodity prices, rising labor and fuel costs, etc. -- only now to be coveted prey to large producers looking to add ounces and add cash flow. Market Equities Research Group provides a case study below of some of the unique advantages a larger producer may have in targeting a new junior gold producer. Our analyses could focus on any number of a handful of juniors uniquely positioned in the market today for upside revaluation, however we have chosen Metanor Resources Inc. (TSX VENTURE:MTO) (Pink Sheets:MEAOF) (Frankfurt:M3R) the first Gold producer in Quebec's Plan Nord.


Metanor's underground Bachelor mine is a very rich deposit with grades upwards of 26 g/t gold with an average grade of 7.38 g/t gold (fully diluted using long hole). Metnaor's 100% owned newly refurbished Bachelor high-grade gold mine and mill is now operating near capacity and has recently experienced accelerated production results; MTO.V achieved a near 50% increase in production rates this December compared to September. MTO.V is still undergoing production ramp-up, blending high grade production stope ore with development ore, and the combined rate is improving. MTO.V appears to have stabilized gold production over 4,000 oz per month. The stage is now set for a cash flow positive scenario, and a push to stabilize in the higher range of a 4000 - 5000 oz per month Gold target (at 800 TPD). Managements near-term plan is to increase the mill capacity by ~50% at low capex (~$4 million) and target 80,000 - 90,000 oz Gold/year in 2015.
Metanor appears an inevitable buy-out candidate:
Inevitable does not necessarily mean imminent, however the reality is that as MTO.V approaches their run rate targets, not only are they undervalued, they are increasingly on the radar. The Bachelor operation is one that would shine under a larger player as the elimination of duplication (management salaries, admin, etc.) and debt would allow MTO.V to cash-flow superbly. The recent acquisition (December 2013) of Brigus Gold Corp. (TSX:BRD) by Primero Mining Corp. (TSX:P) demonstrates that even junior miners with Sandstorm deals (as Metanor does) are highly-desirable targets. A near-term 100% premium to the current share trading price of MTO.V is certainly a realistic scenario as the inevitable may become reality sooner than later.


In light of the recent hostile takeover bid of Osisko Mining Corporation (TSX:OSK) by Goldcorp Inc. (TSX:G) it is important to also look at potential hidden asset(s) that will be realized upon consummation of a deal -- a company such as Goldcorp may need to shelter income from corporate income taxes, hence when it acquires a new gold producing company it is able to deduct the losses of the new gold producer against its own. Therefore in Metanor's case, should a takeover occur by a profitable entity, it would immediately be able to realize a cash savings from income taxes due to a loss carry forward of >$50 million, resulting in a cash gain (assuming a simple 33.33% corporate tax rate) of more than $17 million. The current market cap of MTO.V is ~$40 million, therefore deducting the cash tax savings amount from $40 million means the other assets of MTO.V (the properties, the gold in the ground, the mill, etc.) are currently worth ~$23 million -- the share price of MTO.V is clearly undervalued and appears poised to rise.


Metanor has two projects of significance (Bachelor and Barry) that together many believe will take MTO.V to near mid-tier producer status (between 150,000 oz - 200,000 oz Gold per annum) within a few years. The Barry deposit is a potential 10M+ ounce target; the independent international professional geological firm SGS Geostat has identified Metanor’s Barry deposit as comparable in potential to rival other multi-million ounce deposits such as Osisko's Malartic gold deposit & Detour Gold's Detour deposit.


MTO.V with ~267 million shares outstanding (~290M fully diluted, however most warrants are deep out-of-the-money and will expire unexercised) provides an ideal vehicle for investors seeking exposure to precious metals. Shares of MTO.V are currently trading under C$0.15 and the time to pay attention is now while MTO.V is trading at a fraction (less than 1/4) of its infrastructure (replacement) value alone, ignoring the ~1.6 million oz Gold resource in all categories (on all properties), and ignoring the large resource growth potential. Metanor is experiencing accelerated production, it announced that it had produced 4,514 ounces Gold for the month of December. Metanor also announced it poured 1,193 ounces of gold during one week of production, which translates to a 5,113 oz per month run-rate equivalent (extrapolating 1,193 divided by 7 days, and multiplied by 30) -- this demonstrates the theoretical maximum (as indicated in its 2011 prefeasibility) is attainable, proving its current mill capable of 5,000 oz Gold per month run-rate.


Who's next?


The following related research links on Metanor Resources Inc. have been identified for further DD:

- Recent comprehensive Mining Journal article: (recommended reading)

- Metanor Resources Inc. Corporate Website: 
- SEDAR Filings for Metanor Resources Inc.: 

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Contact information:
Simon Levinson, Editor in chief

Market Equities Research Group
[email protected]