Resource World Magazine

D E C E M B E R / J A N U A R Y 2 0 1 5 www.resourceworld.com 37 • Permitted state-of-the-art heap leach processing facility • NI 43-101 compliant gold resource of 552,000 Measured and Indicated and 165,000 Inferred ounces of gold • Contiguous land package covering more than 25,000 acres PershingGold.com | PGLC FAST-TRACKED TO PRODUCTION Mustard says most of the projects that have been the subject of M&As have had higher than average grades. "Grade is king now, and anything that can be sold as shovel-ready, and that is in a jurisdic- tion with clear permitting protocols, that is not subject to being derailed, and that has low to modest capital expenditures, will be sold," he said. "The large capital expendi- ture projects that require billions of dollars are clearly out of favour now." Mustard says the current M&A activity is an indication of how the mining and min- eral exploration industries have changed. "Over the past two to three years, those companies that went shopping said they wanted near-term production," he said. "For a gold project, the common theme was 100,000 ounces per year for 10 years."Many projects were examined in detail and found to be either flawed or in the wrong location or very often too low in grade. "Now, I perceive well-located, techni- cally solid mid-level exploration projects to be of more interest," Mustard said. "From the incoming team of buyers' perspective, they believe they can better execute on the projects than the current owner." Mustard has some advice for investors who want to capitalize on M&A activity. "Pick only high quality assets, and com- panies that are able to either raise capital or have sufficient funds now to both advance projects and cover general and overhead expenses for a period of time," he said. "They will be the survivors." Investors can use a rule of thumb to tell if a company might become a take-over target. "They are the ones with high-grade deposits, good management that is focused on creating shareholder value, and trade at a discount," Mustard said. Occasionally two financially distressed companies will merge. What are the chances that the new corporate entity will be suc- cessful? "It's unlikely it will be a success without an injection of capital, and only if the resulting issuer is re-structured and a new management team or key management is changed from the management that led the company to distress," Mustard said. Melanie Shishler, a partner in the M&A practice at Davies Ward Phillips Vineberg LLP, says there are three common reasons for mergers and acquisitions: growth, access to synergies and strategic acquisitions. "Growth, in the manner of 'bigger is bet- ter,' was a big reason for M&As between 2008 and 2011, but it is less common theme now," Shishler said. "Today, the majors are trimming their portfolios back to only their best assets. The growth they want to show is in their production profiles." Access to synergies is attractive in today's falling commodity market. "There are cost benefits from acquiring projects that are either nearby or are similar in some other way," Shishler said. Strategic acquisitions – consolidation in region or market – can happen at any time. Shishler says that, although signifi- cant premiums are often paid for targets of acquisitions, it's not easy for investors to know in advance which companies to buy. "It's hard to predict with any certainty, and it's difficult to find targets before rumours have already inflated their share price," she said. "My advice is to stick to the fundamentals. Buy companies with good assets in good jurisdictions, with strong management teams with a good track record." n

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