Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE, 39.35) has been active, with two new streaming deals, bringing its investments for 2021 to $1 billion. It has acquired a gold and platinum stream on the Marathon platinum group metals project in Ontario for C$240 million. Wheaton will initially purchase 100% of the gold and 22% of the platinum, reducing to 67% and 15% respectively after hurdles have been met. Following an immediate $40 million deposit, the payment will be made in four tranches during the construction period.
At spot prices, the transaction has a 5% IRR, with production to start in mid-2024. On balance, the transaction adds an additional precious metal in a favorable jurisdiction, but the returns are low and cash flow is not immediate. However, reserve could increase and the mine life be extended, giving a more attractive return in the upper single-digits.
The company also announced a transaction to buy 8% gold and 50% silver streams on the Blackwater mine, for a total of $441. The streams were acquired from two different sellers, with the gold stream being quite expensive, but again it increases diversification among precious metals. The mine will be a long-life operation.
Wheaton is debt free, with $372 million in cash and $2.4 billion in available liquidity. After a fourth-quarter rally from under $37 to as high as just over $45, Wheaton fell, dropping over 10% in the last week on silver weakness. Wheaton is a good buy here.
Pan American’s good news does not last long
Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ, 22.99) reported that the legislature in the Argentine province of Chubut approved a bill allowing for open pit mining in certain areas, a measure voided five days later by the executive following protests. The measure would have allowed Pan American’s world-class Navidad to proceed. Given the foreign exchange restrictions in Argentina, the company is likely in no great rush to proceed, preferring to move ahead first with the re-start of the huge Escobal project in Guatemala.
Notwithstanding the protests and repeal, the fact that the legislature passed the measure in the first place shows some progress. Pan American has demonstrated patience and a willingness to work with the province to amend its mine plan in order to gain more support. The area of the province where the mine would be located is remote and needs
jobs. The opposition mostly comes from other parts of the province where wealthy Argentinians have second homes and from anti-mining protest groups. Eventually, it will receive approval, we believe.
The share price jumped 14% when the bill was originally approved to just over $25. The double-whammy of the reversal on the mining approval as well as silver price weakness, saw the stock price slide back. At this level, Pan American is a very strong buy.
Fortuna gets its permit
Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), 3.63) announced a few days before Christmas that it had received a 12-year extension on its mining permit at its San Jose mine in Mexico. In mid-November, the environmental agency had unexpectedly rejected Fortuna’s renewal application (see Bulletin 793). The approval follows heavy lobbying from local and national elected officials. The company said the mine has been the subject of 13 environmental audits and has never been cited for pollution or environmental damage.
But the mine has been controversial. As the largest employer in the region, there is support from workers, though environmentalists and other anti-mining groups have long opposed the mine. There have been blockades in the past. And just last week, it has been reported that the Oaxaca assembly passed a resolution calling for the new permits to be revoked. So although Fortuna has its permit renewal, it does not appear that it will be smooth sailing ahead in this difficult part of Mexico.
After the permit was renewed, Fortuna’s stock price jumped 33% over a week, but that is still a recovery of far less than half of what it lost when the permit was denied. Now, with the local assembly resolution, and a decline in the silver price, Fortuna’s share price has dropped again. We already own Fortuna; it’s a diversified gold and silver company, with growth both in Argentina and West Africa, a conservative management, and a current valuation well below that of its peers. But there could be further stock price slippage, so we shall wait before buying more. Hold.
Positive news ahead for Altius
Altius Minerals Corp. (ALS:TSX.V, 16.76) anticipates a good quarter after a slightly negative third quarter, which saw royalty revenue down 5%, mostly on the back of weaker copper and other base metal royalties. Potash was also down on planned annual maintenance and other shutdowns. Given that the potash revenues have a lag in being recorded, the fourth quarter should be strong. Also copper and nickel had a price recovery.
In a year-end report on its prospect generation business, Altius reported that the value of its junior equities portfolio rose 8% to just over $55 million; it also generated $16 million from sales during the year. Several new equities were added from the sale or option of exploration properties.
The balance sheet remains strong, with just over $30 million in cash, up from under $20 million at the end of Q2. Net debt is $87 million, with $106 million available on its revolver. (Altius also holds $70 million cash in Altius Renewal Resources, which is consolidated, but we have excluded this.) Altius has long been conservative in its balance sheet and given that it is now more in harvesting than planting mode, we suspect more cash flow will go to reducing debt.
Altius stock price had a strong, if volatile move from early November, up from $15 to almost $18 before dropping sharply in the last two days. The stock price has always had broad swings, so we will look for a lower price to add to positions. Hold.
Originally published on Jan. 10, 2021.
Adrian Day, London-born and a graduate of the London School of Economics, is editor of Adrian Day’s Global Analyst. His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."
1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Altius Minerals Corp. and Fortuna Silver Mines Inc. 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, which is unaffiliated with Adrian Day’s newsletter, hold shares of the following companies mentioned in this article: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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