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Progress with Joint Venture Companies
Contributed Opinion

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Adrian Day Fund manager Adrian Day reviews several companies in his portfolio and finds that two are strong buys at current prices.

Lara Exploration Ltd. (LRA:TSX.V, 0.73) released results from the first drill hole at its prospective Planalto Copper Project in Brazil. Results from three more holes should be forthcoming over the next month or two. All the assays together should provide a better, if initial, sense of potential deposit.

Elsewhere, partner Codelco continues to wait for a court ruling on ownership of the Liberdade copper project in the case brought against it by Vale. The case seems reasonably clear, and the current anti-corruption environment in Brazil means the case should be decided on its merits. A win for Codelco—followed perhaps by some sort of settlement with Vale to prevent an appeal—would be a huge win for Lara which has a 30% carried interest in the project.

Cash and revenue ahead

At Curionopolis, its partner Tessarema is waiting for its production permit. Once up and running, the project, in which Lara has a 5% carried interest and a 2% royalty, should distribute between $500,000 and $1 million a year to Lara for five to 10 years. There is a penalty of $1 million due if the mine is not in production by November.

Lara also has other projects, including two joint ventures in Peru, where it continues to pick up properties.

With $2 million in the bank, plus shares worth about $1.4 million, as well as potential income this year, Lara has sufficient working capital for the next 12 months. Within that time frame, one or other of these ventures should have advanced favorably and be generating cash. Lara is a solid buy at this level.

Active program ahead

Midland Exploration Inc. (MD:TSX.V, C$0.87) is my favorite exploration company. It has resumed work, together with its partners, on several projects at varying stages, with drilling currently active on two projects.

Midland follows the prospect-generator model in Quebec, with properties in gold as well as base metals. Partners include Agnico, IAMGOLD, Altius, Osisko and Teck among others. This year, $6 million of exploration is budgeted, including 20,000 metres of drilling, so the company will be active and there should be a steady news flow.

Of particular interest is follow-up drilling on a gold zone discovery by Soquem on a property east of Detour Lake, currently underway. The Vortex discovery returned high-grade intervals, including 1.38 g/t over 26 metres (of which 7.87 g/t over 2.2 metres and 14.55 g/t over 0.8 metre). The companies added a second rig for this round of drilling. Drilling has also resumed on the Agnico joint venture at Maritime Cadillac, and another two drill programs are set to start imminently.

In addition, assays are awaited from drilling at Hev, a joint-venture with IAMGOLD, while Midland is continuing exploration at Willbob following discovery of a high-grade zone, and at base metals discoveries (zinc, and copper and nickel) at its Altius joint-venture.

With $13 million cash (and no debt), top management including CEO Gino Roger and a respected Quebec geologist team, Midland is in a strong position for discovery and continued success. The current dip into the 80s is a strong buying opportunity.

New royalties for Altius

Altius Minerals Corp. (ALS:TSX.V, 14.04) has also been active. It recently acquired an additional stake in the Potash Royalty LP for C$65 million, taking Altius' interest from 52% to 91%. Potash Royalty holds royalty interests on six producing potash mines in Saskatchewan. The seller, Liberty Metals, had co-invested with Altius in the original transaction.

To pay for the acquisition, Altius used its revolving credit facility, taking outstanding debt to C$128 million. The company has $60 million in cash and about $130 million in public equities. It plans to seek long-term financing for this part of its debt.

With the additional interest in the Potash Royalties, Altius now projects revenue this year of between C$64 million and $69 million.

Separately, Altius bought another interest in Alderon, the iron ore company it spun off some years ago, also from Liberty Metals. Altius now holds 39% of Alderon. It is in the process of spinning out another unit, the Chilean copper exploration assets in a company to be called Aethon.

Well positioned for commodity rally

Currently with 15 producing royalties and streams, mostly in Canada, in a diversified group of resources, including copper, zinc, cobalt, iron ore, potash and coal, as well as royalty interests in a host of exploration projects and exploration ground available to deal, Altius is in a very strong position for the next leg up in commodities. It is a core holding. We would, however, look for a pullback before adding to positions.

Earnings decline but new projects ahead

Kingsmen Creatives Ltd. (5MZ:SI, 0.615) recorded a decline in revenue and profit in fiscal year 2017, just ended, with earnings per share down 16%. The weak 2017 results were mostly the result of a soft retail environment as well as adverse foreign exchange movements. Completion of major projects and scheduling of new projects also played a role.

Core areas remain buoyant, however, with a deep pipeline of projects. Kingsmen is also deepening its reach into new areas, including hospitality, corporate interiors, and mall public areas. Among major new projects, Kingsmen announced a joint venture with Hasbro to create and build NERF family entertainment centers across Asia Pacific. The NERF brand consists of foam-based shooters and other toys. The first will open next year in Singapore.

With a p/e of 12 (and earnings expected to rise this coming year), a yield of over 4%, and low debt, Kingsmen remains good value. We will wait for a pull-back, however, before adding to positions.

Positive results amid higher share count

Cartier Resources Inc. (ECR:TSX.V, 0.195) has reported strong results from its Chimo property, including 8.5 g/t over 3.5 metres, at the deepest drilling at the property. It has also now earned into 50% of the Fenton project. With $16 million, Cartier is well funded, and has an active 2018 exploration program, including four rigs currently at Chimo. The prospects for the year ahead appear positive; the major drawback has been ongoing dilution from issuing new shares. Hold for now.

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: Altius Minerals, Lara Exploration 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: Altius Minerals, Lara Exploration, Kingsmen Creatives, Cartier Resources 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: None.  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 Altius Minerals, Lara Exploration and Midland Exploration, companies mentioned in this article.

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