Posted by: ProspectingJournal on Dec 07, 2011
SOURCE: ProspectingJournal.com – At this week’s European Union summit, the reaction upon Germany’s rejecting further injections into the region’s current bailout were swift, as European stocks tumbled at the mere mention of holding back.
This pull back plus recent North American downswings have left investors with a field of bargains to choose from in the aftermath. But among the sour news, those embedded in the metals sector are seeing hopeful signs on the horizon, with commodities like copper once again strengthening, and the fact that more stimulus has yet to hit the market from the European central banks in question. It’s at these low points that a strong move can emerge.
While increases in the money supply typically lead to increases in metal prices, it’s worthwhile to look at North American entities that stand to gain from operating in the European countries with depreciating economies. Operating costs become relatively lower, and opportunities to expand land positions open up.
One can look at a company like European Goldfields [EGU – TSX], which benefited overnight with an increase in share price from $9.96 to $12.34 today. Finance squeezes such as this benefit the slightly larger players, as banks become more hesitant to loan to small operations, but continue to lend to the big boys. With this comes an environment that breeds increased M&A.
An easy example of this would be yesterday’s acquisition of Quadra FNX by Polish copper miner KGHM for $3 billion. All it took for European Goldfields to start grabbing headlines in the aftermath was to announce that it too has been receiving approaches. With land positions in Greece, Romania and southeast Europe, EGU looks quite attractive when properties appear on an overlay on a map.
Shifting one’s gaze to another portion of the map in southeast Europe sits another Canadian-based player, a junior, with near-term production possibilities and funding already in place. Tirex Resources [TXX – TSX.V] and its significant land package in Albania has already attracted not only a billion dollar private company set to bring the company to production, but an incredibly rare vote of confidence from the European Bank for Resource Development (EBRD), in the form of funding; a first for any mineral exploration outfit.
Enjoying the spoils of first-mover status, Tirex’s land position holds an abundance of prior mines and is set for a modern-day overhaul. Led by a management team with a track record of wealth creation in these types of geological settings, Tirex is set for the near term with substantial cash flow from copper-gold production that’s been targeted.
On top of its production that’s set to commence, Tirex has announced plans to continue exploration targeting of world-class discoveries upon production startup. With huge backers for a small company like the $20 billion EBRD, and an enhanced climate for M&A, Tirex could be another entity ready to benefit from the current staggering going on at the European Summit.
But for companies like Tirex and European Goldfields, the gains from steady inclines of base metals like copper (which continues to steadily recuperate from the historic drop from $4 to $3 per pound) should increase cash flows for further growth. What will eventually happen to Europe in the fallout from these stalled stimulus talks is up for grabs, as headlines change with the tide. But then again, what will happen for companies with cash in hand in the land of depressed value is a much easier outcome to forecast.
G. Joel Chury
Disclaimer: The author does not currently hold any shares of any of the companies mentioned in the article. However, some members of Cordova Media Inc., which owns the ProspectingJournal.com, may or may not have interests in one or more of the companies mentioned at the time of publication. Staff members from the Prospecting Journal reserve the right to acquire interests in any of the companies mentioned after 36 hours have elapsed upon initial publication of this article. Tirex Resources is a sponsor of ProspectingJournal.com.