The BarkerLetter

I’m looking at this Lundin Mining (LUN.TSX) buy-out of Rio Narcea Gold Mines Ltd. (RNO.TSX).

Lundin wants to establish itself as the next major global mining house in the base metals sector. Actually I’ve been watching both Lundin and Denison Mines (DML.TSX) to see which gets to be a $20 stock first. They’re both similarly priced now at approx. $13 and $15 Canadian per share respectively, with similar market caps. Both have been aggressive acquisitors in this market, though Lundin has a precious metals and uranium focus.

Rio Narcea vaulted over $5 Cdn per share today, which is the pricing of Lundin’s offer. That’s a 22.90% premium over the 30-day weighted average trading price as of Tuesday … and a 3.7% premium to yesterday’s close.

I think they’re going cheap. In fact, I’ve seen a few juniors get swallowed up lately at prices which seem to be out of whack with the swelling value of base and precious metals. Personally I’d like to see these companies go the distance a little more; create more value for shareholders before selling out.

It could be simply that the juniors feel prices have hit the ceiling, or are close to it. In a dwindling commodities market the value of their property portfolios will be lower, not higher. So now is a popular time to sell.

That may be true with precious metals but I’m still bullish on copper and especially nickel. There are still bargains to be had thanks to the broader market’s relatively indifferent attitude towards non precious metals. In fact, Lundin is said to be very keen on Rio Narcea’s nickel assets including the open pit nickel-copper-PGM Aguablanca mine in Spain. They’re less keen on the gold, apparently, having agreed to dispose of the company’s Tasiast mine for US$225 million in cash and US$42.5 million in debt.

The message here is clear: Keep buying those penny nickel stocks.