There are certainly few screaming buys in the market today. However, I’ve continued to pound the table on Kirkland Lake Gold (TSX:KL)(NYSE:KL) stock for some time.
Besides the obvious value that having some exposure to gold in a well-diversified portfolio brings, there’s a key catalyst I see as a potential game changer for this stock.
Let’s dive into why Kirkland Lake stock could be one of the most overlooked and undervalued stocks on the TSX right now.
Upcoming merger bullish for Kirkland Lake stock
Kirkland Lake is currently set to merge with Agnico Eagle (TSX: AEM)(NYSE: AEM) in a US$13 billion deal. Technically, Kirkland Lake will be acquired. However, should the deal go through, the companies’ management teams will be combined to form quite the team.
That is, if the deal goes through.
There’s been increasing banter on Bay Street about the potential for another bid to come into play. Speculation that other mega-cap gold miners may want to acquire Kirkland Lake’s assets make sense.
After all, Kirkland Lake has a rare combination of high-volume, low-grade mines as well as high-quality, low-volume mines. This is diversified miner with global operations in some of the best mining jurisdictions globally. Kirkland Lake stock also only trades at 13 times earnings at the time of writing. Accordingly, it’s unlikely other companies aren’t looking at making a bid, considering how low Agnico Eagle’s initial offer was.
Now, Barrick Gold has come out and explicitly said it’s not interested. However, there are other big names such as Newmont that have been rumoured as potential suitors.
Time will tell whether another suitor will eventually jump aboard with an offer. However, given the discount Agnico has provided to acquire Kirkland Lake, such speculation appears to be worth listening to right now.
Where does this deal stand?
Currently, it appears shareholders from both Kirkland Lake and Agnico Eagle are supportive of this deal. A vote is scheduled for Nov. 26 in which both companies will place their votes.
If the agreement is confirmed, Agnico Eagle could become the world’s third-largest gold miner. There’s something to be said about scale. Accordingly, whether or not another offer materializes, Kirkland Lake stock is likely one with upside here.
Speculations are that other companies like Barrick Gold, Newmont, and Newcrest Mining are also in a race to acquire Kirkland. Barrick has also been vocal about an M&A with Kirkland previously. Considering Kirkland’s presence and the quality of mines is imperial, the company can open avenues in the Canadian as well as global market.
Bottom line
I think investors in Kirkland Lake stock have little to lose but much to gain, regardless of the outcome in this case. While I think another bid could materialize, the reality is that this is a massive deal. Accordingly, in all likelihood, Kirkland Lake investors will need to be satisfied with owning shares of a top-three global gold miner.
That said, I like the speculative near-term upside with this stock. I also like the longer-term fundamentals of the gold mining space. In this regard, either Agnico Eagle or Kirkland Lake stock look like screaming buys to me.
