A day late and a dollar (in this case, a penny) short: The day after our last recommendation, Evrim Resources Corp. (EVM:TSX.V, 0.42 x 0.44) opened above our limit and has moved up dramatically ever since, trading as high as 47 cents on Jan. 12. Another respected letter writer listed Evrim as one of his top picks for 2018 on the same day as our recommendation.
Don't forget who actually owns the property!
On Jan. 9, First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE), Evrim's partner on its Ermitano project, put out a release discussing the results of its 2017 company-wide exploration. It highlighted some of the drill holes from Ermitano, which had been awaiting release. The information was sketchy; there was not even a map showing where on the property the drill holes were. And for whatever reason, nowhere in the release did it even mention that First Majestic did not in fact actually own the property. They are earning in to the property on certain conditions. A couple of so-called analysts put out their so-called research pieces regurgitating the press release, but whether through ignorance or laziness, also failed to mention that someone else owned the property.
In any event, the results look good; it will be interesting to find out where these drill holes are located. It is definitely positive news for Evrim. Either First Majestic steps up its program and meets the conditions set for earning into the property this time next year. (FM will earn 100% of the property in exchange for some modest payments and a 2% royalty for Evrim); or FM, failing to meet the terms, will make an offer to Evrim, perhaps for all three of its properties near FM's Santa Elena mine (and Evrim will hold the upper hand in any such negotiations); or the property reverts to Evrim. Any one of these outcomes would be positive for Evrim, and we will know a year hence.
What to do?
We will look to revise our recommended limit once things have settled down. We would note that Evrim does have the right to force exercise of their warrants if the stock trades above 35 cents, and a forced exercise can cause some weakness since holders sell stock to raise cash to exercise warrants.
Another equity raise
Miranda Gold Corp. (MAD:TSX.V, 0.05 x 0.055), as expected has announced an equity raise, planning to raise up to $1.5 million. The terms are not overly generous, with the unit priced at 5 1/2 cents (current offer) and warrants exercisable at 12 cents, over twice current market. With potential cash coming in over the next 15 months, on new deals, this should be sufficient until the royalty income on the Lucky Shot mine commences. As discussed, Miranda is bottoming and if plans are executed over next year or more, should recover nicely.
Freeport-McMoRan Inc. (FCX:NYSE, 19.72) is close to an agreement with Indonesia on the future of the Grasberg mine. A multi-party memorandum of understanding is being signed by the parties today, in Indonesia. We await the fine print.
Temporary problem exaggerated in market reaction
Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX, US$84.99) plunged after announcing that the Mt. Milligan mine, its largest royalty asset by asset value and revenue, had ceased mill processing operations temporarily. The move, by operator Centerra, was due to a lack of sufficient water resources (due both to a rain/snow shortfall and extremely cold weather that froze the tailings facility). The company expects milling operations to be partly resumed by the end of the month, and fully resumed following the spring melt.
At worst, the shortfall in production—which will be recorded in the middle quarters of this year—will be a timing issue; the stock price move, down over 10% in two days, was an exaggerated reaction. It reflected the ongoing problems Royal has experienced with Mt. Milligan, I think, more than this specific issue. With the past week's move in gold, the stock has mostly recovered—its low was just over $78—but we think it has much further to go.
Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."
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1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Evrim Resources, Royal Gold. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Evrim Resources, Freeport McMoRan, Miranda Gold and Royal Gold. I determined which companies would be included in this article based on my research and understanding of the sector.
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