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TICKERS: AEM, ALS, ABX; GOLD, FSM; FVI; F4S, MD, OGN, VGZ

Analyst: Good to See Majors Investing in Exploration Firms
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Adrian Day Adrian Day sees a significant lack of new discoveries in the mining business and says it's "good to see some majors making investments in exploration companies."

It’s a rather light week for significant news on companies on our list, but there were some interesting developments nonetheless.

Agnico and Altius Make Investments in Exploration

 

Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) has made two investments in junior companies. First, it invested CA$14 million in the Green Star subsidiary of Star Royalties, a junior royalty 
company, giving it a 35% interest in the unit which Star intends spinning off when appropriate. Green Star originates carbon sequestration projects.

Separately, Agnico exercised options in Rupert Resources (RUP:TSX.V), an exploration company operating in northern Finland. The CA$11.5 million exercise puts Agnico as a 15% shareholder. Agnico operates the nearby Kittila Mine, the largest primary gold mine in Europe; it holds the largest mineral resource of any of the company’s mines. Agnico would be an obvious acquirer of Rupert, though it has no need to make an acquisition at this time.

Of all the major miners, Agnico has historically been more active in taking positions in juniors and exploration companies which gives it a foothold to buy assets.

Agnico is a hold now.

Altius Minerals Corp. (ALS:TSX.V) also made an investment in a junior exploration company in Scandinavia, though on a far smaller scale. It invested $750,000 as part of an 
equity raise by Gungnir Resources, and, for an additional $250,000, purchased an option to buy a royalty on the company’s nickel projects in Sweden. Altius will hold a 15% 
equity interest, with options to acquire more.

Altius is a buy on weakness.

A New Chairman at Orogen, and an Upgrade for Barrick

 

Orogen Royalties Inc. (OGN:TSX.V) has appointed Justin Quigley as chairman. He joined the board in August. He was previously vice president for Rio Tinto Exploration, and has 
extensive commercial and legal expertise in the mining business, with experience in M&A. The company has been without a permanent chairman since the last one resigned 
in February 2021. Orogen is a buy at this price.

Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) had its long-term debt rating upgraded by S&P to BB+. Moody’s had previously upgraded the company, in October, to a similar rating. With net cash of $130 million, an undrawn $3 billion credit facility, and no significant debt repayments until 2033, Barrick is in a very strong financial position. Hold.

ERRATUM In discussing Fortuna Silver Mines Inc.'s (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) balance sheet last Bulletin, I omitted one word, but a crucial one. The company, as of Dec. 31, had $107 million in cash and net debt of $59 million. (I omitted the “net”.) Given the lines of credit and given it is constructing a mine, this is a strong balance sheet. I apologize for the error. Fortuna is a buy.

YOUR QUESTIONS Several readers wrote in after I invited questions. Keep them coming!

Certain conservative financial advisors have long urged small investors to move their shares from street name at the stock broker to direct registration at the transfer agent. 
This can certainly result in many significant problems: foreign tax withholding accounting, dividends, transfer hassles, and much more.

I do not know which “conservative” financial advisors have urged this. In my experience, it is more often promotional writers attempting to gain attention. Having an investment in one’s own grubby hands is indeed ultimately safer than having it held elsewhere, but in this case, the risk is very low while the practical hassles overwhelming, in my opinion. You mention some of these. Others include: having an account at a foreign transfer agent would involve reporting of a foreign financial account, attempting to deposit the stock with a broker when you want to sell it can take time, and for junior stocks there are “penny stock” restrictions (see below), and on an on. This is an idea I’d call “nice in theory” but a potential nightmare in practice.

Should Canadian investments be reduced because of what Justin Cas-treau's government could do: higher taxation, nationalization , etc.?

I was aghast at the recent actions taken by Trudeau’s government; they exemplify the dangers of giving governments, any government, emergency powers. A British commentator wrote, “Canada is no longer boring; we liked it better when it was.” That may be a little unfair, eh?

I don’t think, however, that this episode means we should reduce Canadian investments, particularly, as I suppose you mean, passive stock investments. All governments, from Canada and the U.S. to Argentina and Zambia, are liable to increase taxes and control over investments, particularly resource investments that cannot easily be moved elsewhere. We need to stay alert to changes in the way the wind blows.

Gold Royalty has made an offer for Elemental Royalties. Should we accept?

There is little question that there are too many small royalty companies and that putting them together would diversify assets and income, and reduce the cost of capital. However, I am not recommending accepting anyone accept this offer.

Gold Royalty Corp.'s (GROY:NYSE) stock price has declined significantly from the $5.15 when they announced the offer to $4.22, which values their offer now at CA$1.42, below where Elemental Royalties Corp. (ELE:TSX.V; ELEMF:OTCMKTS) is trading (CA$1.53).

In a letter sent to Elemental shareholders last week, Gold Royalty stated (bolding theirs): “Elemental is raising capital at a lower price than Gold Royalty’s offer. Elemental recently announced a financing at CA$1.51 per share — significantly below the unaffected CA$1.78 value of Gold Royalty’s offer at announcement.” Though technically correct, it is disingenuous. The GROY offer may have been valued at CA$1.78 when the offer was made, but that price is based on a price spike at the end of the trading day before the offer was made to a price it had not seen for a month prior, and has not seen since. Mmmm…

Merrill Lynch will not allow me to purchase a Canadian company I want, telling me that they prohibit clients from buying "penny" stocks.

A comment rather than a question, this is in response to my discussion in the last Bulletin about brokers prohibiting clients from buying certain stocks. Many of you wrote in with specific examples. Merrill, now owned by Bank of America, is not alone in this, and the big firms are the worst. In this case, they have taken an SEC directive on OTC stocks and magnified it into a broad ban. Many of the affected stocks trade on the QB tier of the OTC, which is not meant to be affected by the SEC directive, but it’s just easier for these firms to paint with a broad brush than to figure anything out. Their aim is to protect themselves rather than to serve their clients.

Most firms classify any foreign stock trading for less than $5 a share as a “penny” stock, which carries a pejorative connotation. It’s perverse, since in many foreign markets (Hong Kong, Japan) stocks typically carry low per-share prices while in others (Germany, Switzerland), they frequently carry high per-share prices. This does not affect the valuation of a company, let alone its quality. A million shares at 10 cents is the same as two shares at $50,000 each!

Other firms make it very difficult to transfer so-called “penny stocks”. In my experience, TD required excessive paperwork proving how you purchased a “penny” stock before they will accept it. (This, by the way, is another reason not to hold certificates yourself, per earlier question.)

BEST BUYS NOW In addition to above, Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX); and Midland Exploration Inc. (MD:TSX.V). Most stocks have moved up over the past couple of weeks, so we would not chase. 

QUESTIONS? I welcome your investment or economic questions, which I shall attempt to answer here. Please write to [email protected] 

Originally published on April 3, 2022.

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."

Disclosures

1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: All. 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.
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 LLC 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 decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Agnico Eagle, Altius Minerals, Orogen Royalties, Barrick Gold, Fortuna Silver Mines, Elemental Royalties, Vista Gold, and Midland Exploration, companies mentioned in this article.

Adrian Day's Disclosures

Adrian Day's Global Analyst is distributed by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. 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. ©2021. 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.

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