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Mixed Results at Major Resource Companies
Contributed Opinion

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Adrian Day Global Analyst Adrian Day reviews more of the recent quarterly results and other developments from more of the gold and resource companies on his list. Some of these (Barrick and Royal) are from the beginning of the month. Day didnt review all the companies last week, focusing on those with more significant news or that were "Buys" at the time. This week, he completes the review of quarterlies as well as companies with other developments.

Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) reported another disappointing quarter after production had been pre-released. Performance was an improvement on the prior quarter, while the fourth quarter is expected to be stronger yet.

But production for the year is still likely to come in below the guidance range, while costs, despite a decline in the latest quarter, are expected to be above guidance. The main cause of the lower gold production was the slow ramp-up at the Pueblo Viejo expansion, as well as ongoing maintenance issues in Nevada. Copper production is expected to be within the guidance.

The lower gold production made per-ounce costs higher than otherwise. Adjusted earnings were actually higher than expected, driven by a lower tax rate. If the stars align, however, Barrick could have a very strong fourth quarter, though it won't be sufficient to meet annual guidance. This is on track to be the fourth consecutive year of declining gold production and rising costs, and more importantly perhaps another year of missing guidance. This won't be the first time that the company has given optimistic guidance.

Barrick's Costs Are Good, With Strong Growth Prospects

It should be noted that although costs have been increasing and are above guidance, they remain low for the industry, with cash costs expected to close the year at around $900 and AISC at around $1,280 (my estimates). The company has consistently increased its reserves, valued at $1,300 an ounce, has a strong balance sheet and dividend policy, and has been buying back shares cautiously.

It has very strong organic growth prospects, including at Reko Diq, the massive copper project in Pakistan where construction is expected to start in 2025. Bristow said the theme of his earnings presentation was "value today and growth tomorrow," chiding investors for being too focused on the short term. The stock's valuation is compelling, selling at 0.67 times NAV, well below its historical levels; on a price to book, it is today trading at its lowest multiple ever, other than the last quarter of 2015.

Barrick is a Hold, and we'd be buying more on a pullback.

Wheaton Beat Analyst Expectations, as It's on Track To Meet Guidance

Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) reported revenue above analyst expectations on higher-than-expected GEO production, driven primarily by Salobo and Constancia. These two assets should continue to see higher ounces for Wheaton as they ramp up. The resumption of production at Peñasquito after a four-and-a-half-month stoppage should add to year-end numbers.

Production guidance for this year, as well as five- and 10-year production guidance, was reiterated. In the last few months, Wheaton has continued adding some small streams. Then, last week, it added a major package of three new streams for $530 million. These are on Ivanhoe's Platreef in South Africa (gold as well as PGMs), Kudz Ze Kayah in Canada (silver), and Curraghinalt in Northern Ireland (gold).

Platreef represents nearly 80% of the total value. The projects are in various stages of development but should be producing by 2029. Wheaton has a rock-solid balance sheet with $834 million in cash and a $2 billion undrawn credit facility.

Wheaton is a long-term holding for us; after a rally from under $40 since early last month, we are holding.

Royal Hit by Production at Three Mines

Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) reported financial results somewhat lower than expectations after pre-releasing streaming sales. The latest quarter was better than the prior quarter, primarily on higher gold production at Cortez, in Nevada, and up on the year-ago quarter. The company believes its full-year production will come in at the low end of guidance or just below.

Production has been negatively affected this year by Peñasquito (see above for Wheaton), the slow ramp-up at Pueblo Viejo, and reduced production at Mount Millian (Royal's largest asset). The balance sheet remains strong, even after large-scale purchases in the last year, with just over $100 million in cash and $675 million available on its credit facility after paying down $75 million during the third quarter. It has now fully repaid from cash flow the $200 million drawn at the end of last year to fund the second royalty acquisition on Cortez. Just under 80% of revenues came from gold, while Canada and the U.S. contributed over half, putting Royal is a strong position relative to peers.

We are holding, ready to add on a pullback.

A Record Quarter Should Convince Fortuna's Skeptics

Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) reported record production and financial results for the third quarter, capping previous quarters of solid results, as the company's newest mine, Séguéla in Côte d'Ivoire, contributed to results. All important metrics are at records, including gold-equivalent production up 38% compared with the prior quarter, sales up 53%, and earnings above analyst expectations.

Séguéla's very low costs — all-in-sustaining costs of $788 per ounce — helped the company's overall cost profile. Cash costs fell to below $900 cash costs, and it anticipates company-wide costs to fall further in the coming months.

The company is tracking near the upper end of its guidance for most of its projects. Following two years of investment, the company is entering a cash harvest phase, with debt reduction a top priority even though the net debt-to-EPITDA is already a low 0.5x. The company paid down $40 million of debt during the quarter, leaving it with a net debt of $133 million. Fortuna has always been conservative in its financial stance.

The second priority is to continue exploration programs, with 11 rigs turning on its properties, with the West African projects seeing most of the activity recently, though Lindero in Argentina will receive some exploration funding next year.

Fortuna Wins in Mexico

Separately, the company received good news on its San Jose mine when a Mexican court re-instated its 12-year mining authorization for the San Jose Mine. This was the subject of a long-running dispute with the environmental agency SEMARNAT. We have commented several times that following the San Jose fiasco, the heavy capex spend, and a few specific mine misses, Fortuna needed a few quarters of solid performance to get the market's confidence.

This last quarter delivered, and the stock has jumped from $3 just prior to the results (and the low $2.60s at the beginning of last month). It remains at a valuation discount, and we expect continued re-rating as the company continues to deliver strong cash flow from solid operations without any major hiccoughs.

We are holding after the strong run but ready to buy for the long term on any pullback.

Franco Hurt by Reduction in Panama

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) received more bad news from Panama when First Quantum said it had started to reduce ore processing at the Cobre Panama mine in response to an illegal blockade at the mine's nearby port. This blockade has affected the delivery of supplies for the power plant at the mine as well as hindering the loading of concentrate onto ships.

The Supreme Court is expected to rule next week on two lawsuits against the mine while a referendum is still up in the air. Since First Quantum's contract was called into question a month ago, Franco has lost over 12% of its value, more than quadrupling the loss in the index. The $3.5 billion wiped off its market cap represents over half the value of its stream on Cobre Panama. Given that, in the worst case, Franco would recover some value (see Bulletin #885), this decline is overdone.

Franco is a Buy.

Lara Finds More Copper at 100% Owned Project

Lara Exploration Ltd. (LRA:TSX.V) released the final results from the recently completed drill program at its Planalto Copper Project in Brazil, showing copper mineralization in the northern extension of the Cupuzeiro target, as well as to the east and north of the original Homestead target. Early last month, Capstone Copper relinquished its option to earn into the project, and these results are the last results from the Capstone-funded drilling.

Lara has indicated it intends to continue moving the project towards completion of a maiden resource and a Preliminary Economic Assessment (PEA), in the first half of next year. We suspect that this study will demonstrate a robust project, one simply not large enough for Capstone but one of interest to other parties.

Lara is a Buy.

Vista Running Low on Cash Without Deal

Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX) recorded a quarterly loss of $1.5 million, as expected. With no current source of revenue and the cash balance drawing down, the company has made strong efforts to reduce costs. Expenditures at Mt. Todd, including holding costs and some exploration, have declined moderately quarter-on-quarter, from $900K to $800K.

Its G&A has also declined, and the company is aiming to cut these costs by about 7%. The company ended the quarter with $4.8 million, down from $8.1 million at the end of last year.

With annual expenditures estimated at $5.4 million, the company will clearly have to raise funds unless it sells its used mill (on the market for several years) or does a transaction on Mt. Todd. There is no reason to believe a transaction is imminent (see discussion, Bulletin #879); an equity raise would be damaging to the stock price, I feel, even though the stock has been trading this past week as its lowest level ever.

Hold for now.

TOP BUYS this week, in addition to those above, include Altius Minerals Corp. (ALS:TSX.V), Midland Exploration Inc. (MD:TSX.V), and Nova Royalty Corp. (NOVR:TSX.V). As we approach the end of the year, be alert to the possibility of tax-loss selling that can see prices down sharply, particularly in smaller companies.

NEWSLETTER LINKS It appears that the links in last week's newsletter were not working properly for all recipients, though did for most. If links do not work for you, you could cut and paste into a browser. Two of those links from last week are not really relevant any longer, but I repeat below my recommendation for the full set of speeches and workshops from the New Orleans conference.

The New Orleans conference earlier this month was one of the best conferences ever, with a wealth of information over 40 hours from dozens of speakers, including Brent Johnson, George Gammon, James Stack, Peter Schiff, Peter Boockvar, and keynote Konstantin Kisin. If you have not heard Mr. Kisin before, you are in for a treat. I had the privilege of interviewing him. The complete set of conference recordings is now available for the low price of $199. I recommend highly: order here.

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Important Disclosures:

  1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Barrick Gold Corp., Fortuna Silver Mines Inc., Franco-Nevada Corp., Lara Exploration Ltd.
  2. Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: All. I determined which companies would be included in this article based on my research and understanding of the sector.
  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. 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.

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Adrian Day Disclosures

Adrian Day’s Global Analyst is distributed for $990 per year 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. © 2023. 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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