AuRico Shares Flying on Deal Talk

Shares in AuRico Metals are flying, up nearly 50 per cent in three weeks on heavy trading volume, since Master Investor exclusively broke the news that the company is a takeover target.

At the end of last month, we reported that Vancouver-based Sandstorm Gold was circling AuRico’s assets, including a portfolio of cash-flowing gold royalties in Canada and Australia. Sandstorm has since confirmed the story, disclosing to the Toronto Stock Exchange that it has been buying shares in AuRico on the open market.

Initially, Sandstorm disclosed a 10 per cent stake in AuRico, but it has since upped its holding to more than 12 per cent. Shares in AuRico have meanwhile shot higher, up from C$0.49 at the end of July to C$0.71 at yesterday’s market close, equal to a gain of 45 per cent in less than three weeks.

AuRico’s sudden move is in stark contrast to bloodshed across the wider sector, as commodity prices have tumbled on deepening fears of a slowdown in China. Gold has reacted positively, up 2.9 per cent in 10 trading days, but has failed to break out of its lacklustre performance this year, down 14 per cent in the last 12 months.

Streaming group Sandstorm Gold, which has its eyes fixed on AuRico’s 1.5 per cent royalty over the Young-Davidson gold mine in Ontario, is led by young gun Nolan Watson, one of the youngest mining bosses in the industry. The company is firmly locked in acquisition mode, snapping up royalties earlier this year over a portfolio of gold properties and Rio Tinto’s Diavik diamond mine in Canada.

According to investment banking sources, Sandstorm’s share purchases in AuRico have been led by the Vancouver office of National Bank of Canada’s M&A division. As Sandstorm has upped its holding, the move has increasingly resembled an earlier takeover Sandstorm made in 2013, rapidly building a 59 per cent stake in Premier Royalty, before buying the company outright.

AuRico has meanwhile tacitly confirmed that it is bracing itself for a corporate manoeuvre, introducing a shareholder rights plan at the beginning of August to defend the company against “coercive take-over strategies.” More commonly known as a “poison pill”, the clause is aimed at obstructing unsolicited, hostile bids.

Whilst poison pills are common among mining companies in Canada, they are also legally contentious and are frequently overturned once bids do turn hostile. In addition to Sandstorm, AuRico’s directors, including chairman Scott Perry and chief executive Chris Richter, are also aggressively buying shares in the company.