Source: Adrian Day 12/27/2024
Global Analyst Adrian Day discusses developments at several companies on his list, some positive, some less so.
Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) has initiated international arbitration against Mali over its dispute over its Loulu-Gounkoto mine. This follows a tough statement in response to recent actions by the military junta, saying that conditions had deteriorated to the point where it may need to suspend operations at the mine.
In particular, the government has blocked shipments of gold, arrested local executives, and issued an arrest warrant for Barrick CEO Mark Bristow. Barrick, calling the situation “untenable,” asserted it had negotiated in good faith with the government. Even though its existing contract was valid, it had made “significant concessions.”
The mine, which represents about 11% of Barrick’s NAV, is also responsible for between 5% and 10% of Mali’s GDP. The likelihood is that Barrick would win its arbitration case, but it may take years before a decision is reached, and it is not certain that the government would honor any ruling. Partly, the move by Barrick is a decision to play hardball since its reasonableness has failed to achieve anything.
Barrick’s stock price has dropped significantly since the dispute came to the fore, from over $21 at the end of October, 25% more than the gold stock indices. That wipes out most of Loulu-Gounkoto’s value. It has the lowest valuations among the larger gold miners, particularly on an NAV basis, but this dispute highlights the company’s higher political risk profile.
More adventurous investors can buy Barrick here.
Franco Buys Another Large Stream, With Political Risk
Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) announced the purchase of a $500 billion gold and platinum stream on production from three of Sibanye-Stillwater’s mines in the Bushveld of South Africa. These are long-life mines; the platinum stream is capped at 294,000 ounces, though the gold is for the life of the mine.
Gold represents about 80% of the stream at current prices. Sibanye said the streams, which are immediately cash flowing to Franco, have an IRR of 4%, though some analysts estimate it significantly higher. Franco intends funding the purchase out of cash on hand, leaving them with approximately $700 million in cash, plus $1 billion undrawn on its credit facility.
Obviously, there is a political risk with this stream purchase, particularly as Franco does not have claims on other Sibanye production should something happen to its South African mines. However, the economics appears attractive due to the dependable and long-life mines.
Mixed Messages From Panama
Separately, First Quantum Minerals Ltd. (FM:TSX; FQM:LSE), owners of the Cobre Panama mine on which Franco holds a stream, reacted to comments from Panamanian President Mulino, who, following a government inspection of the mine site, said he saw no environmental threat from a stockpile of ore that the government has refused to allow FQ to export (and sell). But he ruined the mood when he added that “if” stockpiled ore has to be removed, “there also has to be payment to us, Panama, because it is our material extracted under a concession that no longer exists.”
First Quantum is spending $12 million a month to maintain the closed mine and says that “time is running out” for the government to make an agreement. Franco has written off its stream, so any resumption of the mine would be upside. Before the government ordered the mine closed, the stream represented over 20% of Franco’s revenues. Any restart of the mine, therefore, will have a meaningful impact on the company.
Given the rock-solid balance sheet, the diversified asset base, and the potential upside from a restart of Cobre Panama, Franco is a good Buy here.
Large Altius Royalty Asset Gets Funding Partner
Altius Minerals Corp. (ALS:TSX.V) reported that Nippon Steel had entered into an agreement with Champion Iron Ore for 49% of its Kami project in exchange for up-front payments and a pro-rate share of the development costs. Champion had sought a partner to share in the capex of what promises to be a long-life project. Kami was discovered by Altius, which now holds a 3% gross revenue royalty over the project.
Altius has indicated that its revenue from the royalty could be close to $50 million a year (net of the government royalty tax) once the mine goes into production early in the next decade, making it potentially its largest royalty. Separately, the provinces of Quebec and Newfoundland agreed to proceed with hydro projects aimed at getting power into Labrador for the iron ore projects there.
Two of Kami’s major risks were removed in one week. Altius is a core holding for us, offering exposure to a broad range of resources, a good balance sheet and top management, it has three key assets not fully recognized in its share price — Kami, the Silicon royalty, and the renewables business.
Although you can buy if you do not already own, we are holding off adding to positions following the strong reaction to the Kami news.
Osisko Will Benefit From Agnico Purchase
Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) stands to benefit from Agnico Eagle Mines Ltd.’s (AEM:TSX; AEM:NYSE) planned acquisition of O3 Mining Inc. (TSXV:OIII; OTCQX:OIIIF). I should have mentioned this last week, and I appreciate the company pointing it out.
OR holds various royalties over different parts of the Marban project, ranging from 0.5% to 2%. However, it also owns a CA$0.40-tonne royalty on any ore processed in the Canadian Malartic mill but sourced from outside the mine (on which it holds a royalty). This mill royalty, which we have highlighted before, is, I feel, underappreciated in the market and ensures it receives revenue from the Malartic project for many, many years into the future.
Osisko shares have held up far better than the gold stock indices since the late October highs but is a Buy here for the next gold leg up.
Altius Increases Orogen Ownership
Orogen Royalties Inc. (OGN:TSX.V) largest shareholder, Altius Minerals, bought an additional 3.2 million shares in a cross with a wound-up partnership that had to sell its shares. The transaction, at CA$1.35 in early December, brought Altius’ ownership to 19.6%.
Altius and Orogen, recall, each hold separate royalties over AngloGold Ashanti Ltd.’s (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) Silicon Deposit; Orogen has a 1% on the central Expanded Silicon Deposit (which includes the Merlin Deposit), while Altius has a 1.5% royalty over the entire Beaty District, though the extent of their royalty is in arbitration.
This share purchase is a strong sign of confidence. Unfortunately, the transaction, for some reason, was reported as a short by many services. This caused some confusion among shareholders, particularly given that its previous high short interest was less than 50,000 shares. It was an error that has now been sort of corrected, though the reports still show a short of 3.2 million and a subsequent cover. Ignore it. I am not sure what sensible, informed investor would want to be short of Orogen at this point!
Reader J.L. of New York pointed out that last week, I gave the stock price high as
$170 rather than $1.70. He also notes that Orogen trades on the venture
exchange, so the symbol should be “OGN.V.” This is valid, though to me, the
“V” stands for the Vancouver Exchange, which no longer exists and is now the
part of the “TSX Venture,” or Toronto Stock Exchange Venture.
Orogen’s share price has fallen significantly since its peak in late October, but less than many of its peers. There was, apparently, some consistent selling by the partnership referred to above before the cross. The large share volume reported as a short position could have added to the pressure, while the delay in selling the Silicon royalty could have concerned some shareholders who saw their profits disappearing.
In any event, Orogen is a Strong Buy at this price.
Midland Reports Final Lithium Results; More Drilling Ahead
Midland Exploration Inc. (MD:TSX.V) released the final assays from its drill program, in partnership with Rio Tinto Plc (RIO:NYSE; RIO:ASX; RIO:LSE; RTPPF:OTCPK), for lithium on the Galinée project. RTZ is earning into the project with an aggressive exploration program, which included 28 drill holes in 2024.
In a very rich option agreement, Rio can earn 50% of the project over five years by spending $16 million on the project, and cash payments to Midland. It can then earn 70% over the next five years by spending a total of $54 million. These amounts were increased from the terms of the original agreement with the addition of properties.
Drilling is scheduled to resume in March. Midland is well financed, with strong management and a breadth of projects being worked on, both 100% owned and in partnership (alliances, options, and joint ventures) with partners including BHP, Barrick, and Agnico. Midland stock, I feel, has been subject to investor fatigue, waiting for that elusive big discovery, and hit hard by tax-loss selling, taking it to its all-time lows at 0.28 earlier in the week (other than a spike down in August).
It is a Strong Buy here.
Additional Strong Drill Results for Fortuna
Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) announced new exploration results at Séquéla, one week after updating its resources.
On both the Kingfisher and Sunbird deposits, strike length was extended with good drill results, demonstrating the potential at this mine.
Fortuna is a Buy.
TOP BUYS this week, in addition to above, include Kingsmen Creatives Ltd. (KMEN:SI), Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American), and Lara Exploration Ltd. (LRA:TSX.V).
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Important Disclosures:
- O3 Mining Inc. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Barrick Gold Corp., Franco-Nevada Corp., Altius Minerals Corp., Osisko Gold Royalties Ltd., Agnico Eagle Mines Ltd., Orogen Royalties Inc., Midland Exploration Inc., Fortuna Mining Corp., Metalla Royalty & Streaming, and Lara Exploration Ltd.
- Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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Adrian Day Disclosures
Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. www.AdrianDayGlobalAnalyst.com. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2023. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.
( Companies Mentioned: ALS:TSX.V,
ABX:TSX; GOLD:NYSE,
FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE,
FNV:TSX; FNV:NYSE,
MD:TSX.V,
OGN:TSX.V,
OR:TSX; OR:NYSE,
)
