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Red Back Mining's Tasiast Gold Mine in Mauritania.

The mining industry is in the middle of one of its perennial takeover binges, delivering huge profits to investors clever or lucky enough to position themselves with acquisition targets.

The payoffs are nothing to be sneezed at. Recently announced bids for Canadian companies have offered juicy premiums, typically ranging from 20 per cent at the low end to more than 40 per cent above the share prices prevailing before takeover bids are announced.

The gains haven't stopped there because once a takeover bid is announced, speculators and hedge funds inevitably pile into the stock of the target company, driving prices higher still. The latecomers are betting the odds are good that the first offers will be sweetened, or will attract other suitors.

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Takeover offers have ranged across the entire sector, from junior iron ore explorers to the current high-stakes battle by Australian mining behemoth BHP Billiton for Potash Corp. of Saskatchewan. Some of the most frenzied activity has been among gold producers, including the recent deals by Kinross Gold for Red Back Mining and Goldcorp for Andean Resources.

Analysts say the takeover frenzy still has legs, with the best gains likely to come from junior companies with attractive undeveloped deposits. Any companies like Potash Corp., with a lock on a key global resource, are also high on the takeover list.

"There is now jockeying for the potential candidates," John Ing, a gold mining analyst in Toronto at Maison Placements Canada Inc., says of investor reaction to the takeover wave.

Many junior companies have the potential to be "10 baggers," or capable of rising tenfold, contends Mr. Ing, if they make good discoveries and eventually attract takeover offers.

Among the companies Mr. Ing thinks could be picked off is Centamin , which has a nine-million-ounce gold reserve base and expects to raise output from 160,000 ounces this year to 500,000 by 2012.

A junior that could interest an acquirer is St. Andrew , a company with "a pretty good spread of land in Timmins," and East Asia Min. , which Mr. Ing says has one of the best undeveloped gold deposits in the world in Indonesia. "That's one that I think probably a year down the road the majors will be fighting for," he predicts. Another potential takeover candidate on his list is Aurizon , which is active in Quebec.

Mr. Ing isn't the only market player predicting that investors will be reaping more profits from takeouts, particularly among gold mining stocks.

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"There are lots of companies out there that I expect will be for sale and ultimately will probably be taken over by the big guys," says Charles Oliver, senior portfolio manager at resource-focused Sprott Asset Management.

Mr. Oliver says one name often mentioned as a possible takeout is Guyana Gold . It has a multimillion-ounce gold deposit in Guyana and a large, potentially valuable land exploration package there.

Detour Gold is also regularly caught up in takeover speculation. Mr. Oliver says the company is attractive because its assets are in politically safe Ontario and it has a multimillion-ounce resource basis.

A possible sign that a company may be in the gun sights of potential acquirers is when majors take a shine to it through minority interests.

Osisko is developing a gold mine in the Abitibi region of Quebec that is scheduled to open next year. Mining giant Goldcorp Inc. has taken a 13 per cent stake.

Another junior exploration company that has attracted interest is Oromin , which has a big exploration program in Senegal. It's partly owned by Iamgold Corp. and Mineral Deposits Ltd.

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Mr. Oliver says takeover offers are often bitter sweet from a money manager's perspective.

"For a short period of time you feel good because you got more money than it was worth the day before. [But]one of the dilemmas facing portfolio managers in Canada is every time you lose a company to a takeover you've got to try and replace it with something that was just as good."

Bonanzas for shareholders

March 22: Osisko offers to buy Brett Resources at a 52.5 per cent premium

May 12: Eldorado offers to buy Brazauro at a 92 per cent premium

Aug. 2: Kinross offers to buy Red Back at a 21 per cent premium

Aug. 18: BHP offers to buy Potash Corp. at a 20 per cent premium

Oct. 1: Gammon Gold offers to buy Capital Gold at a 20 per cent premium

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About the Author
Investment Reporter

Martin Mittelstaedt has had a varied reporting career at the Globe and Mail, covering politics, the environment and business. He opened up the Globe's New York bureau for the Report on Business, and has also been on the banking and capital markets beats. He's written extensively on investing themes. More

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