Position for Deals Here Now

Pilbara Gold Mining - Mining in the Pilbara region Australia

EDITOR’S NOTE: Exciting news! We’re making some changes to your daily Profit Watch service. I’m going to bring you a broader array of analysis and ideas to help your trading and investing.

I also need some help to carry the workload. Writing every day is great fun. But my premium trading service Catalyst Trader is now ‘officially’ live…and I’ve got dozens of stocks to track and trade.

Profit Watch will merge with the newsletter from where it came…The Daily Reckoning Australia! You may not know I was the chief editor of this before I set up Profit Watch. Soon you’ll receive your daily note under this banner. But don’t stress.

You’ll still hear from me at least twice a week. The benefit is now you’ll hear from my former desk buddy Shae Russell too — Australia’s best gold analyst, in my opinion.

You don’t have to do anything. We have your email and, I hope, your attention.

We’re still here to brighten your day, sharpen your mind and challenge your preconceived notions…and maybe even give you a laugh every now and again. I’ll keep you posted on the timeframe for this slight shift. Thanks for your continued support!


Dear Reader,

Looks like my colleague Shae Russell over at Rock Stock Insider is right.

We’re beginning to see some merger and acquisition activity in the mining space!

I think this type of thing is going to be important to have a shot at making money in the last few months of 2020.

Why do I say that?

Keep reading to find out…

I watched the market for most of yesterday. It seemed rather flat and boring for most stocks.

It’s hard not to get the impression that the rally since March is beginning to flag.

That’s not to say you can’t make money. You saw with DroneShield yesterday that there are still big moves happening.

But that’s the point. DroneShield’s surge came off a specific announcement.

It wasn’t based off momentum or buying strength in general in one particular sector.

Sometimes a rising tide really does life all boats — just consider the buy now, pay later names in 2020.

If — and admittedly it is an if — momentum and buying strength is dissipating, then you’re going to have to change your strategy to trade the market.

I made my pitch the other week for positioning for ‘catalysts’.

Mergers and acquisitions fall into this basket.

Let’s think about this in the context of the gold sector…

Yesterday, gold in Aussie dollars was trading around $2,677.

That’s an excellent price, no doubt. But, as I have said a few times now, the gold price has jammed around this level for quite a while.

That means gold stocks are trading in accord with this level. This price is now priced into the relevant producing stocks.

For them to make a sustained run up from here we need to see gold go substantially higher again.

That may be possible. But so would a further retreat for gold for a little while.

Such an outlook doesn’t have me slobbering to enter gold stocks right now to ride pure momentum and buying pressure.

But that doesn’t mean gold stocks can’t provide a potential lucrative trade…

That brings us to the top of today’s note.

Last week I saw that a company called IGO Ltd [ASX:IGO] announce to the market they had received ‘unsolicited’ approaches from a ‘number of parties’ in relation to their 30% stake in a big gold mine.

What’s going on? Clearly some players in the gold industry are prepared to buy it off them.

Producing gold miners have big profits and cash to spend

They’re going shopping! Just as my colleague Shae foretold us they would do in previous missives.

IGO is up 5% in the last two days.

A technical analyst would have found no clue of such a development in the chart of IGO previous to their announcement.

But anyone with some knowledge of this company may have deduced this stake could become the subject of an offer…and bought the company under this expectation.

Obviously, the ‘news’ about IGO and its Tropicana stake is out now. There’s likely no profit for us now.

But there must be all sorts of interesting gold projects out there…some undervalued and some overvalued.

How to tell the difference?

Don’t ask me. Ask Shae!

It seems to me to be a very reasonable proposition to acquire junior or mid-tier gold companies on the expectation we’ll see more deals happen here.

And you get a second kick if the gold price does break over AU$3,000 any time soon.

Now, of course, perhaps no deals come…and the gold price goes down. That’s the risk you run in the share market.

But the gold price in Aussie dollars has a lot of fat on it and has done so for several years now. This idea could work even if gold gets the wobbles in the short term.

Best wishes,

Callum Newman Signature

Callum Newman,
Editor, Profit Watch

PS: Something I haven’t mentioned in Profit Watch previously. I have a book on Amazon.com.au that you’re welcome to check out. Let me know what you think!