There's value in the market. That's the message the market is sending through the recent strategic acquisitions in the energy and gold mining spaces.
Last week it was announced that Sinopec, a large Chinese oil and gas company, is purchasing Canadian energy company Daylight Energy for $2.1 billion in cash. The deal was struck at a whopping 120 percent premium to Daylight's share price prior to the announcement and a 43.6 percent premium over the 60-day weighted average price, according to Reuters.
Back in July, the first large-cap company to go discount shopping was BHP Billiton when it purchased Petrohawk Energy for just over $15 billion. The deal, which gives BHP access to the highly coveted shale gas reserves, was struck at $38.75 per share, a 49 percent premium from where Petrohawk shares were trading prior to the announcement.
Not to be outdone, the gold mining sector got into the action when B2Gold announced it was purchasing Auryx Gold in a $160 million cash, all-stock deal. The deal represented a 74 percent premium on Auryx Gold's shares from the previous week's close.
It was also announced that Agnico-Eagle had gained access to promising gold prospects in Mexico via Canada by agreeing to purchase Canadian gold miner Grayd Resource Corp in a $463.5 million deal. At $2.80 per share (Canadian), the buyout represents a nearly 66 percent premium over the trading price prior to Agnico's announcement.
The strategy behind each deal is specific to the purchasing companies but all four deals crystallize the inherent value in the equity market. Junior exploration and development companies in both the energy and gold mining sectors have suffered steep declines during the market selloff that began in April.
Large-cap companies in both energy and gold mining must continually replace diminishing reserves.