Katusa's Investment Insights
April 14, 2017
How to Safely Make a Lot of Money in Gold This YearBy Marin Katusa
Editors Note: Next week, you'll get some incredible facts and data that explain why I believe many deep pocketed majors are about to go on an acquisition binge to invest in and buy up the world’s best small cap miners. In addition to the above-mentioned facts, I will publish my Q&A with Rob McEwen who will reveal his thoughts and his favorite junior gold exploration companies.
Of all the ways to make money quickly in the gold market, few can match the power of “the buyout.”Own a small gold stock on Monday… then, suddenly, overnight, you’ve made double or triple-digit gains by Tuesday.
A buyout occurs when a gold miner sees an opportunity to grow and buys all the shares of a smaller gold company – often at a large premium. The result is an overnight windfall for the smaller company’s shareholders.For example, on December 11, 2008, miner IAMGOLD announced a buyout of Orezone Resources…for a 150% premium over its share price at the time. Orezone shareholders reaped overnight windfalls in the process.Or what if you owned Orbis Gold on October 13, 2014? That’s when mining major SEMAFO bought Orbis out… for a 96% premium over its share price at the time.These “overnight gold windfalls” are rare, and don’t happen every day. But as it turns out, they’re more frequent than you think.What if you knew how to find these situations… before they happened?You could make some of the biggest short-term gains you’ve ever seen in your life, overnight. That’s what this essay is all about.
Cracking the Code of Gold Buyouts
Despite the incredible wealth building power of the gold buyout, the process behind it is a mystery to many people…even to supposed gold “experts” that follow the sector.For decades, people have tried to crack the code behind gold buyouts…the qualities large gold companies look for when they shop for smaller companies. Their efforts have largely resulted in failure and frustration.For every stock someone named as a buyout target, there are five “run of the mill” companies that went out of business.As you probably know, I’ve devoted my professional life to investing in natural resource projects. I’ve flown more than one million air miles to visit over 400 resource projects in over 100 countries. Along the way, I’ve become friends with some of the world’s top gold executives, mining engineers, and geologists. My friend Ian Telfer, Chairman of gold mining giant Goldcorp even wrote a blurb for my New York Times Bestselling book, The Colder War.The purpose of this letter isn’t to brag, however. I’m referencing my experience to show you that I have insight into the world of gold buyouts. Through friendships, due diligence, and my status as a top financier, I’ve learned exactly what the guys making buyout decisions are thinking when they pull the trigger.
Develop a reliable “model” that pinpoints gold stocks most likely to hand gold investors overnight windfalls via buyout.
Why Buyouts Are So Attractive to Gold Majors
Buyouts occur in the gold market for a simple reason…Every time a gold miner pulls an ounce out of the ground and sells it, it depletes its balance sheet a little.If a gold miner doesn’t direct some of its revenue into the acquisition of new gold resources, it will mine itself out of existence. It will consume its asset base and cease to exist. And that is why “buyouts” frequently hand gold investors massive overnight gains.You see, when it comes to adding gold resources to its balance sheet, a big gold miner has two options…Option #1: The Hard WayIt can spend hundreds of millions of dollars on the risky business of mineral exploration. It can spend a fortune wandering around deserts, jungles, and Artic regions looking for gold deposits.When you consider that less than 1 in 3,000 mineralized anomalies ever becomes a mine, you realize that exploring for gold is a “long shot” activity.Also consider: If by some fortunate event the miner actually finds gold, it is now looking at 5 to 10 years of development headaches. In its quest to build a gold mine, the miner will wrestle with crooked politicians, red tape, lawyers, environmental activists, and bankers.And then you have…Option #2: The Easy WayThe gold company can bypass the headaches that come with Option #1 and simply buy another company.That’s it.No long shot drilling programs in the middle of a desert. No swatting mosquitos in South American jungles. No hacking through miles of red tape to get mining permits.Just one simple transaction, executed from the comfort of an office….and the gold miner adds a lot of gold to its balance sheet. Now put yourself in a gold executive’s place…Is it worth paying a premium to buy proven, productive gold assets…and sidestepping the expenses and risks of Option #1?You’re darn right it is.In some cases, it’s worth paying double a gold company’s stock market value.That’s why high-quality operating gold mines are some of the most highly coveted assets in the world. It’s why buyouts can hand you overnight windfall gains……And it’s why knowing exactly what kind of gold projects large miners want to buy is an incredible “blueprint” for making money in gold stocks.But as I mentioned, nobody has been able to unlock the secrets of gold buyouts and know in advance when gold windfalls will likely occur…until now.My team and I recently performed an enormous amount of work in this area. We studied 35 years of data and 340 individual gold buyouts of at least $50 million since the early 1990’s. We’ve determined exactly what large gold miners are looking for.We compiled the 6 most important qualities a gold producer must have in order to attract a premium buyout offer. Below, I describe each “key” for a buyout.I’ve prepared a large report that goes into these qualities, but in the interest of keeping this letter relatively short, I’ll name the qualities and go over them quickly…Key #1 Big Enough to Move the Needle: Big miners are only interested in significant deposits that can make it worth their time to acquire and develop.Key #2: Ability to Grow: Big miners aren’t just looking for mines with sizable current gold production. It’s expensive and time consuming to move people and equipment around the world. That’s why a big miner wants to acquire properties it can mine that also have the potential to yield new gold discoveries.Key #3: Low Costs, High Margins: Big miners want to buy deposits with good economics. Enough said.Key #4: Short Payback Period: Big miners want to see their investment get paid back in a relatively short amount of time, like less than five years.Key #5: Simple Gold Recovery: In the mining world, as in life, simple is always better. The more complicated a project’s geology is, the, the more difficult it will be to extract gold from the ore, the more it will cost to mine it, and the lower your profits will be.Key #6: Excellent Mine Safety Record: An underrated and rarely discussed – but very important – quality a gold mine needs to have to be a buyout candidate is a good mine safely record.
A Gold Formula Worth Millions
I know reviewing our criteria is a lot to take in.But really, it’s all just common sense.Major gold companies want to acquire gold mines with substantial current gold production… that can grow in the future… have good economics… and are operated with the safety of workers in mind.Based on our extensive study of 340 mining deals over the past 35 years that have generated overnight windfalls like 150%, 108, and 96%, we’ve developed the specific criteria above based on those simple principles.Using just the six keys listed above will put you ahead of 99.9% of your fellow resource investors.I believe monetary and political instability will drive the price of gold much higher over the coming years. By using our gold buyout system, I plan to make a series of large capital gains with my readers during that time. We’re won’t just be buying stocks that fund managers and individual investors want to own, we’ll be buying elite assets in the ground that deep-pocketed gold miners will jump at the chance to buy.Regards,Marin