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The huge jump in Aurizon's stock price tells us the buyout deal was a complete shock to most investors.
But I wasn't surprised at all.
And neither were you – for one a very good reason.
You see, Peter Krauth predicted this deal – 16 months ago …
As editor of the Real Asset Returns advisory service, Peter is our resident expert on gold, gold miners and natural-resources stocks in general.
His track record has been amazing. And yesterday – with two takeovers in a single trading day – it was downright stunning.
Let me share Peter's story.
In September 2011, not long after we launched Private Briefing, Peter told me about a unique profit play that was emerging in the gold-mining sector. You see, gold prices had experienced a surge into record territory. But the shares of gold miners hadn't really budged.
The bottom line: Gold-mining stocks were getting so cheap that the big producers were going to realize it was cheaper to buy small rivals with discoveries already in hand than it would be to engage in actual exploration, which carries no guarantees.
"Bill, we could easily end up watching a takeover mania take hold in the gold-mining sector – and in mining in general," Peter told me.
The natural-resource expert capped our lengthy conference call on that night two Septembers ago by recommending two smaller miners: Both had excellent takeover potential – but they would also be good stocks to hold and profit from even if no buyouts emerged.
We published Peter's recommendations in the Sept. 19, 2011 Private Briefing special report "The Brewing Takeover Frenzy in Mining Stocks."
Aurizon was the first of the two recommendations.
And Peter's takeover prediction came true yesterday when Alamos said it would pay $793 million (USD) in cash and stock to buy Aurizon. Alamos has applied to list its common stock on the New York Stock Exchange (NYSE) under the ticker "AGI." And Aurizon's stock soared.
Peter's second recommendation in that report was MAG Silver Corp. (AMEX ADR: MVG), a Vancouver-based miner that owned 44% of world's largest undeveloped silver deposit (Juanicipio), in the oldest and most-prolific silver district in Mexico (a district that has been responsible for more than 4 billion ounces of silver production). MAG Silver also owned 100%-owned Cinco de Mayo Molybdenum Gold deposit.
That stock is up about 1% from where Peter recommended it. And he still rates MAG as a "Buy."
"That's a company that still has lots of potential," Peter said in an interview yesterday. "And it has some excellent assets."
Peter works out of an office in resource-rich Canada, which puts him close to the companies that he covers.
As he noted in the Dec. 21 Private Briefing ("Your Guide to Gold for 2013"), mining companies (big and small) remain very cheap. So you can expect to see more takeovers, Peter said.
"As we told subscribers in that report just before the holidays, precious-metals stocks remain depressed in price, which can only strengthen their prospects," Peter said. "The setup and outlook is extremely bullish right now as they offer tremendous value – especially in the contest of the much-higher prices for gold and silver that we see for this year."
Wall Street has grown more tepid on gold, with many of the investment banks ratcheting back just a bit on their target prices. But most also see prices heading up to and beyond the $2,000 level this year, meaning they see a potential gain of 20% or better.
Peter's target price is a bit more aggressive: He sees gold trading as high as $2,200 an ounce – 32% above current prices in the $1,670 range.
As Peter noted during our discussion yesterday, the last time gold peaked was September 2011 – which, coincidentally, was also the last time there was a debt-ceiling debate.
The fact that we're heading into a similar controversy now is highly bullish for gold, Peter said. And it's probably also going to rev up the amount of dealmaking that takes place.
"The pace of takeovers is almost certain to accelerate – especially in the context of the much-higher gold and silver prices almost everyone is now expecting for this year," he said. "We saw Avion Gold taken over by Endeavour Mining Corp. (TSE: EDV) last October. And we've seen China buying, and can tell it wants to buy more and more gold-mining assets. These are just the first swells of an incoming tide that has a ways to go before it crests."
And, as we discovered yesterday, that mining-sector dealmaking won't be limited to gold miners.
Peter has a knack for picking buyout targets – before the deals are announced. As I said at the start of this column, he actually scored twice yesterday.
In addition to the Aurizon deal, there was also news yesterday that Uranium One Inc. (TSE: UUU) is being bought out by its Russian majority shareholder, a state-run company called ARMZ, for $1.3 billion.
Uranium One is currently in Peter's Real Asset Returns "Resource Portfolio." He added it on Jan. 3, meaning the stock is already up 18%.
Ask any veteran investor and I'm sure they'll tell you that they feel lucky to reap one buyout windfall every couple of years … twice in a single day is amazing.
Molycorp Update: While we're on the topic of takeovers, it was interesting to see that the 3.5% surge seen in Molycorp Inc. (NYSE: MCP) shares yesterday was being attributed to takeover speculation. We believe we've seen some version of that story now every single day since Jan. 3 – when we published the report "Is Molycorp in Play?"
The latest report reiterates the point that we made to you nearly two weeks ago: Even with some of the problems the company faces, the fact is that Molycorp is a "turn-key" operation, and that there's actual value there.
Interestingly enough, that's pretty much the point that Popular Mechanics makes in a story that appeared on its Website yesterday. The headline of that story: "One American Mine Versus China's Rare Earths Dominance."
As the "kicker" (the sub-headline) states: "China uses its near monopoly on rare earth metals, which are found in everything from phones to drones, as a political weapon. A reopened American mine could change that."
It's a pretty good read, but then, Popular Mechanics and Popular Science have always done great stuff. Take a look for yourself and let me know what you think.
See you tomorrow.
[Editor's Note: We recommend investors employ a 25% "trailing stop" on all holdings.]