Yamana Sees Meridian Bid Rejected But Finds Support at $11
Wednesday, August 1, 2007 at 10:32AM
Gold Prices in Gold Mining Companies
Yamana Sees Meridian Bid Rejected But Finds Support at $11


Yamana Gold has been a troubled gold stock recently due to the Meridian negotiations. Yamana is attempting a hostile takeover of Meridian, but a few days ago, the Meridian Board of Directors urged their shareholders to reject the offer, something that might just be a positive move for Yamana.

Many investors that are looking to ride this next leg up in the gold bull market are looking for investment vehicles that offer substantial leverage to rising gold prices. Some of the larger gold mining stocks are slower to move upwards as they are larger companies, and the smaller gold stocks can jolt up and down in an instant. Well there are gold stocks inbetween these two extreme, which we will call Goldilocks Stocks or Goldistocks. These are gold stocks that are not too big as to be slow to move, but not to small that they fail to provide sufficient liquidity and so behave with severe volatility. They fit other criteria such as having good management and projects in politically stable countries. So these are the Goldistocks, as for us, they are just right.

Yamana is a Goldistock. We signalled a BUY to our readers on this stock at $9.37 on 27 September 2006 and so at one point it showed a gain of over 65% in a few months. We are still holding on to a decent profit in this stock, but due to these Meridian talks, we are concerned that perhaps Yamana Gold will become too large and therefore move out of the Goldistocks criteria.

So if this Meridian deal does not go through, we will be satisfied as investors as this means Yamana will stay as a slightly smaller gold stock, which offers more leverage and therefore is perhaps a more profitable investment. If Yamana does take over Meridian, then it is still possible that this new entity can remain a Goldistock as it will not be as large as say Kinross Gold, which we still consider to be a great stock and it’s a BUY in our gold portfolio.

We will watch the situation closely for the time being, and we shall monitor what Yamana Gold does, after the takeover deal has blown over, completed or not.

The worst thing Yamana could do is to pay too much for Meridian. This is usually gets viewed very badly by the market, as was the case when Iamgold bought Cambior. We had Cambior down as a BUY on this website at the time and we took a tidy profit when they were taken over. We were also owners of Iamgold but after that deal we decided to sell and since then it has performed rather badly, falling 10% in the last year.

We hope that this does not turn out to be the case for Yamana, but we will watch the situation closely and keep our readers informed of our thoughts. Yamana’s 50dma has now broken down through the 200dma, as we thought might happen, so this is a bad sign, but the stock has found support at around $11.00 so we continue to keep this gold stock as a BUY in our gold portfolio.

Yamana Gold trades a AUY on NYSE, YRI on TSX and YAU in London.
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