A Coming Wave of Buyouts, Mergers and Deals

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Twenty-two percent in one session. That’s how much gold explorer Egan Street Resources [ASX:EGA] shot up yesterday.

The strong bid came after the news that billion-dollar gold business Silver Lake Resources [ASX:SLR] wants to acquire the company.  

This news is why I’m sending a hat tip to my friend and colleague Greg Canavan.

He just sent out a research report calling for the big gold stocks to start buying up the most promising juniors. I suggested you check it out the other week.

I doubt this dynamic ends with this one deal. The Aussie gold stocks are cashed up and riding a gold price trading around its all-time high.

That’s not all. The burden is always on them to replace the ounces they’re currently pulling out of the ground…

Let’s have a closer squiz at Egan Street. I had this stock on my current watchlist.

I came across the business after attending a mining conference last year. The presenter was probably the most impressive part of the entire thing.

That’s not much of a compliment. The problem with mining companies is that they tend to stick their geologists up on the podium.

These geologists proceed to bore everyone stiff by droning on about drilling results and geological anomalies.

It’s important information, no doubt. But they seem to forget that the only thing anyone really cares about is the sort of money they could make from it all — and how fast.  

The guy from Egan Street spoke to the room with the audience in mind…emphasising why the payback would be fast and potentially rich for investors…and why.

I never recommended the stock because I had other ideas that took precedence over this small gold explorer. But I was keeping an eye on it.

What does Silver Lake like? Egan Street owns a gold project called Rothsay in Western Australia.

It’s located very close to one of Silver Lake’s existing operations — so there’s some nice symmetry in the geography alone. 

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Rothsay has reserves of 200,000 ounces, but potentially there’s a lot more gold in this territory.

Rothsay has ticked several boxes for government and operational requirements, too (it’s a slow process getting a mine going).

Plus, Rothsay brings additional exploration upside.

Back in June, when Egan Street last presented to investors, the company had a market cap of $32 million.

That’s not much for any company with a lot of financial muscle to gobble up…and so it could prove if Egan Street shareholders approve the deal.

The ‘good news’ for Egan Street is out now. That means the potential for profit for you and me lies in finding some other likely candidates. For Greg’s recommendations, you can check out his report here.

But this latest news also confirms another trend we’ve been tracking here at Profit Watch.

Signs of the bull market running

That’s the high potential for buyouts, mergers and deals to happen across the market.

I’ve nominated the cannabis sector as my favourite area for this to happen. But Greg’s analysis also looks spot on to me.

The Australian gold industry is very profitable at the moment. That gives the industry’s financiers and investors the confidence to back any proposal.

All this is consistent with what to expect in a general stock bull market. This is when the shackles of restraint and caution come off. Credit and money flow more easily.

It’s not just happening in cannabis and gold.

The Australian Financial Review points out that DuluxGroup [ASX:DLX] shareholders vote today on whether to accept Japanese firm Nippon Paint’s takeover offer.

Plus, we also have the recent news of Asahi’s $16 billion buyout offer for beer behemoth Carlton & United Breweries.  

The suggestion is that Japanese companies are hunting for income streams. Aussie firms offer plenty of those.

The interesting thing is that US and European firms could join the party for Aussie assets.

Interest rates are so low everywhere that the cost of borrowing is not going to hold anyone back.

And Australian firms tend to pay out a high proportion of their earnings as dividends.

We’ll see if this trend continues.

But it certainly confirms that now is the time to be running the ruler over companies that could look attractive to a bigger firm.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

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