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Income Up, Strong Operations and a Rebirth 
Contributed Opinion

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Adrian Day Developments at three companies, all of them "in varying degrees positive," receive recognition from Adrian Day of Adrian Day Asset Management.

Gladstone Investment Corp. (GAIN: NASDAQ 10.29, 7.6%) had a stellar quarter, with net income, unrealized gains, and book value all up; nonaccrual loans down. Net investment income is well above the current dividend, despite an increase in October; in the latest quarter, unusually, 177% above the payout, though much of this is due to one loan that came off nonaccrual, with $1.4 million of prior interest recovery.

The company now has $12 million of undistributed income and net realized gains, about $0.38 per share. This will be used to fund the semiannual extra distributions. Debt instruments, accounting for 73% of the portfolio, funds the regular monthly dividend, while gains are intended to fund the extra distributions.

Gladstone also made several investments this past quarter, though these are always lumpy. One, $31 million in debt and equity, went to a new company; $8.4 million went to additional investments in existing portfolio companies. Even after this, the company has plenty of capacity on its credit facility and said it was not looking to increase that. With interest rates rising, Gladstone's 97% of outstanding loans being at variable rates, is a positive.

Higher distributions ahead?
Even without another regular dividend increase, and assuming bonus distributions equal to those of last year—the company has the undistributed gains and realized gains for that—the prospective yield runs to 8.76%. It could likely be higher. Gladstone is a solid hold for us, and a buy, preferably on a pullback, if you do not own.

Mostly Strong Operations
Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX, US$80.96) saw stronger-than-expected revenues from several of its large royalties and streams, more than offsetting the already announced shortfall at Mt. Milligan, which accounts for nearly a quarter of net asset value. Half of Milligan's processing came back on at the end of January and it is expected to be fully operational by April. In addition, Rainy River, on which Royal has a stream, announced the start of commercial operations ahead of target.

The bad news included a couple of special items, such as a charge for the new U.S. tax legislation, and a currency charge.

Royal's balance sheet is not the strongest of the "big four" but it is in good shape, with liquidity of $950 million, more than sufficient for another major acquisition.

The decline in the stock price was overdone—Royal was not alone in that last week—and it is a buy at this level.

After a Long Wait, New Direction at Reservoir
Reservoir Capital Corp. (REO:TSX.V, halted) announced an agreement with a major shareholder in Nigeria's leading hydropower producer, which will result in Reservoir holding a 1.3% interest in the producer, while the shareholder, KPHL, will hold 77% of Reservoir's stock. We expect Reservoir to open higher on this news.

Top Current Buys
After last week, deciding whether to buy on weakness can be a difficult decision. At any rate, we would suggest buying the best not the cheapest; as Rick Rule has said, "Don't buy hamburger meat when the filet is on sale."

Best buys: Franco-Nevada Corp. (FNV:TSX; FNV:NYSE, US$69.03), Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE, US$10.31), Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE, US$19.03), Altius Minerals Corp. (ALS:TSX.V, 12.27), and Ares Capital Corp. (ARCC:NASDAQ, 5.45). There are others among our favorites—such as Midland Explorationor Almaden—whose stock prices have not dropped quite as much as others.

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: Gladstone Investment, Royal Gold, Reservoir, Franco-Nevada, Osisko Gold Royalties, Wheaton Precious Metals, Altium Minerals, Ares Capital and Midland Exploration. 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: Gladstone Investment, Royal Gold, Reservoir, Franco-Nevada, Osisko Gold Royalties, Wheaton Precious Metals, Altium Minerals, Ares Capital, Almaden and Midland Exploration.. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: Wheaton Precious Metals. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports (including members of their household) own securities of Franco-Nevada, Osisko Gold Royalties, Altium Minerals, Almaden Minerals, Midland Exploration, Reservoir and Wheaton Precious Metals, companies mentioned in this article.

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