Today, Coeur Mining (NYSE:CDE) is one of the big winners in an otherwise down market. At the time of writing, CDE stock soared 12% as investors price in an announced $200 million asset sale for the company’s Nevada gold projects.
This deal between Coeur and AngloGold Ashanti (NYSE:AU) stipulates $150 million in up-front cash. Additionally, a $50 million payout will be received if further exploration determines this mine has at least 3.5 million ounces of gold reserves.
To date, existing exploration has determined this Nevada mine has a little less than one million ounces of gold. Accordingly, the $150 million initial payment may be all the company will receive. However, with a valuation just under $900 million after today’s rise, investors have a lot to like about this divestiture.
Let’s dive into what investors should make of this deal.
CDE Stock Soars as Mining M&A Activity Picks Up
This deal appears to benefit both parties, as AngloGold gets access to another Nevada project close to existing operations. The optionality on the deal provides Coeur with some protection should this mine prove to be more fruitful than expected. And the $150 million received in consideration should allow the company to ramp up production efforts elsewhere.
Overall, mergers and acquisitions (M&A) activity in the mining sector has been relatively muted despite higher gold prices in recent years. We have seen some major combinations play out during the “lull” years following the Great Recession. However, with a new wave of prospective deals, perhaps smaller gold miners may start to look more attractive as special situations bets for investors.
In totality, investors appear to like the certainty this deal provides. Yes, the company is perhaps leaving some money on the table by choosing not to go into production on this property. However, the $150 million is guaranteed and immediate, providing gains for investors today.
Coeur doesn’t pay a dividend, so this money appears to be earmarked for other corporate purposes. However, for investors betting on a brighter future for this company, there are a few more reasons to get excited about this stock today.
On the date of publication, Chris MacDonald did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
