At certain points in the mining cycle, it makes sense for big companies to buy new resources rather than to keep digging into low-grade ore.
We’re at that point now.
As I’ll explain shortly, awareness of this will give you an investing edge.
Let me set the scene…
As I told my paid readership group, small-cap resource stocks have lagged behind bigger miners and producers for years.
As a junior mining investor, it’s frustrating to see the price of commodities rise, yet the explorers of these commodities—sometimes sitting on vast undeveloped deposits—attract no interest from investors.
It’s frustrating, but it’s important to understand that this is perfectly normal at this early stage of the mining cycle.
And the best news… It means investors still have their pick of opportunities in the market!
But the time to move is now.
Because as soon as metal prices start ticking higher, investors should make their long-awaited rotation back to junior mining stocks.
How can I be so sure?
Well, I’ve seen it many times before.
As momentum builds in the commodities space, sentiment flows down the mining pecking order in a very specific sequence:
First, the producers, the developers, and finally, the small-cap explorers.
Once we reach this more speculative phase of the mining life cycle, share price gains among the producers typically become stunted relative to small-cap juniors.
I believe we’re getting closer to that point now.
And a key factor in understanding WHY is mergers and acquisitions.
Things are heating up here, and there’s been plenty of action at our paid readership service, Diggers & Drillers.
Let me walk you through the latest moves to show you what I mean…
THREE Takeovers in 6 Months
In July, BHP and Lundin Mining jointly bid on our copper-gold play, a company known as Filo Corp [TSX:FIL].
This stock is developing a giant resource in Argentina.
Three months later, another one of our recommendations was hit with a buyout offer…
This time, the lithium miner Arcadium [ASX:LTM] accepted a multi-billion offer from Rio Tinto, the world’s second-largest miner.
Then, two months later, Australia’s largest gold miner, Northern Star, put in a $5 billion bid on our gold recommendation, De Grey Mining [ASX:DEG].
THREE takeovers in 6 months.
As I told my readers on Tuesday, we’ll take that in any market, especially in a bear market for junior mining stocks!
But the key point I’m trying to make is this:
Rising M&A activity is extremely positive for the mining sector.
Aggressive acquisitions point to the bullish turning of the commodity cycle, where conditions could become far more speculative in the months ahead.
This M&A clue offers valuable insights into what might come next…
Your ticket to this speculative phase
At Diggers & Drillers, one of our key strategies is to find stocks primed for acquisition.
As I’ve shown you, this strategy paid off in 2024, but I believe it could gain even more traction next year.
I’ll share more on the opportunity in just a moment.
But before I do, I want to show you the specific features you should look for when trying to find a junior mining stock primed for acquisition.
Of course, we can’t predict the next buyout target with absolute certainty, but there are strategies to put the odds in your favour.
And I believe the best place to start is the geology.
That probably sounds biased coming from a geologist!
But it’s important to understand that the big miners aren’t interested in the company.
They buy junior mining stocks based on the rocks they own. It’s all about the land and the geology sitting beneath it!
This is the primary asset; everything else is just frills.
Solid management, skilled staff, roads, and infrastructure are positive features, but they’re not the critical element.
So, what specifically should you target?
At this point in the mining cycle, I’m steering my readership group toward juniors who have yet to enter production but are holding a KNOWN resource.
What do I mean by that?
Well, I’m not talking about explorers.
I mean companies with a significant undeveloped deposit.
These companies command only a slight premium over smaller explorers—stocks still scratching the ground for an asset!
And this particular set of junior mining stocks remains especially unloved and deeply underappreciated by the market.
But you can’t just buy any company that already has a resource.
As an investor, you should be looking at these projects from the perspective of a major mining firm, in other words, what’s on their buyout checklist:
Key metrics like grade, metallurgy, or the potential for additional discovery.
Ultimately, all these factors play into the underlying economics of a future mine.
But there’s one major feature you should look for above anything else…
Size is king in the acquisition arena
The larger the deposit, the more likely it’ll attract a major’s attention.
That might sound simplistic, but take the latest example from Australia’s biggest gold producer, Northern Star and its bid on De Grey Mining.
De Grey owns one of Australia’s largest underdeveloped gold deposits, approximately 10 million ounces… It’s a beast!
The scale of the project made it highly attractive for a buy-out.
I explained that to my paid readership group as a key reason behind our original recommendation in this company.
So, why is the size of a deposit such an important feature?
Well, it boils down to economy of scale…
The return on investment to develop a mine tends to be far superior for a project with a multi-decade mine life versus one with less than 10 years of production.
That’s why giant (but low-grade) copper-gold porphyry systems in South America tend to attract major investment attention over smaller, higher-grade copper deposits.
And it’s exactly why BHP has committed a further $14 billion to expand its massive Escondida copper mine (in Chile) despite future mining entering the lower-grade outer fringes of the pit.
But here’s another point on why the majors focus on large deposits:
These firms already spit out millions of ounces or tonnes each year.
They must focus on large projects to shift the dial on their annual production.
Anything else is immaterial and a waste of time and effort.
At full production, De Grey’s giant Hemi gold deposit is set to produce up to 700,000 ounces of gold each year.
That would move the dial on any of the world’s largest gold firms.
And that’s precisely why I focus on the world’s largest underdeveloped deposits for our Diggers and Drillers portfolio.
And I’m not just talking about gold…we look at copper, silver, titanium, graphite, and zinc…whichever the commodity, we hunt down the largest global projects!
But only those still sitting in the hands of a junior mining company.
2025
So, what does this all boil down to?
As I told my paid readership group earlier in the week, there’s every reason to be optimistic going into 2025.
Rate cuts and a re-injection of global liquidity are setting the stage for markets, but Donald Trump, the market-loving real estate baron, should only juice this further!
And given that resource stocks are still heavily undervalued compared to virtually every other sector, there’s potentially more upside on offer.
Especially among the specific types of stocks I’ve discussed here.
Whether it’s the broad market set-up, deep value in commodity markets or emerging buyout action, the time to consider moving on juniors holding massive deposits is now.
Our briefing, which includes the names of the stocks I’m recommending to my readers, is available here.
Make sure you check it out before the global race for these projects gains even more traction!
Until next time,
Regards,
 |
James Cooper,
Editor, Mining: Phase One and Diggers and Drillers
Comments