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Barrick Misses Again, With Higher Costs
Contributed Opinion

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Adrian Day Several resource companies provided preliminary fourth-quarter results, with mostly misses on guidance (notwithstanding higher production), higher costs, and weak outlooks for 2024. Global Analyst Adrian Day believes market reactions were overdone, however, making for some very good buys.

Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) reported higher production in the fourth quarter when it released preliminary results, though full-year gold production missed the company's guidance; copper came in right at the lower end after missing fourth-quarter guidance.

Costs for the quarter, however, are expected to come in meaningfully higher, particularly for gold, notwithstanding the higher production, though Barrick has not provided precise numbers yet, nor has it provided any guidance for the coming year.

Barrick Progressing With Organic Growth Opportunities

Separately, Barrick is now downplaying reported discussions with First Quantum Minerals Ltd. (FM:TSX; FQM:LSE) shareholders (see Bulletin #890), emphasizing that no formal approach has been made. This suggests a lack of positive response as First Quantum looks for avenues to reduce debt, including the sale of minor mines. Barrick said it is focusing on organic growth, such as at its Lumwana Copper Mine in Zambia. It said it would begin a $2 billion expansion there near the end of this year, expediting the project, with the first production expected in 2028.

Separately, an Iranian missile strike in the Baluchistan province of Pakistan, where Barrick is developing its massive Reko Diq mines, only emphasizes the company's high political risk profile. Upon release of the preliminary fourth-quarter results, the shares dropped sharply from $17.70. The second-largest gold miner in the world, Barrick has a solid balance sheet, several world-class mines with long lives, and a strong pipeline. However, it also operates in several high-risk jurisdictions and has missed guidance in the last few years.

However, we would buy Barrick here.

Pan American Sees Higher Costs Ahead After Good Fourth-Quarter Results

Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) had a reasonably strong fourth quarter but a weak outlook for the year ahead. In particular, Pan American is forecasting higher costs before an expected improvement towards the end of the year. The full-year 2023 results include mines from the Pan Am acquisition of Yamana, which closed on March 31.

Gold production with within Pan Am's guidance, though silver output, up 11%, fell short. With 2024 including a full year of the Yamana mines, the company is expecting another increase in gold and silver production.

Going forward, Pan American is separating its mines into the gold segment and the silver segment, with costs on a byproduct basis. The company is forecasting cash costs for 2024 of $1,181 per gold-equivalent ounce and AISC of $1,500, about 15% higher than last year. Higher labor costs, including at its Mexican mines, and lower byproduct revenue contribute to the higher cost estimates.

More Asset Sales and Mine Improvements

The company still expects further asset sales following its acquisition a year ago of Yamana, as well as improved operations at El Peñon and La Colorada and an expansion at Jacobina; the potential re-start of Escobal appears more possible after improvements in the situation in Guatemala.

The shares, already weak after the high capex estimates for La Colorada skarn deposit announced at the end of the year (see Bulletin #893), fell further on the silver production miss and the cost outlook, taking them close to their five-year lows. The company has the prospect of additional asset sales to further strengthen an already strong balance sheet and the potential for improved operations at several mines.

Pan American is a Buy.

Fortuna Brings Forward Mine Closure Amid Higher Costs

Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) fell sharply after it estimated sharply higher costs for the year ahead, as well as a nearer-term closure of its San Jose mine. For the fourth quarter, the company reported record gold-equivalent production following the start of the Séquéla mine at the end of the first half; silver output fell, however, by 19% quarter-on-quarter.

For this year, Fortuna is guiding to an increase in gold and gold-equivalent production, though a decline of up to 32% in silver production, with cash costs up between 6% and 20% to $935 to $1,055 per ounce. The two West African mines, which Fortuna acquired when it purchased Roxgold, continue to operate well.

The most problematic mine was San Jose, where an illegal blockade during the year, as well as operational challenges, brought production down almost 25%. Although exploration continues at a newly discovered vein, with encouraging results, the company said it was bringing forward by six months the planned mine closure to the end of this year. Costs increased over the past year, and they are expected to increase in the coming year as the mine winds down. New labor mandates in Mexico will boost costs by about 21%, and overall, its cost-per-ounce will increase to over $20 per ounce of silver.

Mostly Strong Operations, Cash Flow, and Improved Balance Sheet

The year-ahead guidance was a disappointment, but following strong 2023 results, the share price reaction is well overdone. Apart from San Jose, operations are strong, and the company continues to pay down the debt it took on to build Séquéla. It also has strong brownfields potential at most of its mines, with an exploration budget for the year of $31 million.

Take advantage of the overreaction to the results; Fortuna is a Strong Buy

Altius Eyes Higher Revenues From Some Units, Plus Potential Upside

Altius Minerals Corp. (ALS:TSX.V) reported preliminary revenue for the fourth quarter below expectations, largely due to a lower-than-expected dividend from Labrador Iron Ore Royalty, lower copper revenue on delivery delays at Chapada, and lower coal revenue as the Genesee plant converts to natural gas.

Potash recovered a little from the third quarter, though it remains down from the first half. Revenue for this year is estimated at about $75 million, up a tad from 2023's $74 million. Increased deliveries from Chapada are anticipated, as well as increased revenues from Altius Renewables, the latter forecast to increase by 32% to contribute about 13% of Altius' total revenues.

The full-year results, though soft, were not unexpected, as we have discussed (Bulletin #885). The company has several potential wins ahead, including a possible award in a takings lawsuit over the Genesee plant and an anticipated production decision by Champion Iron on the Kami deposit, which Altius discovered and over which it holds a royalty.

Take advantage of the weak sentiment following these results; Altius, at its lowest price since mid-2022, is a Strong Buy.

Strong Exploration Results Continue at Midland

Midland Exploration Inc. (MD:TSX.V) announced encouraging assay results on two different projects. First, the company discovered high-trade lithium at its Galinée property, under option to Rio Tinto. The global major, which is paying for the exploration under its earn-in agreement, is understood to be happy with the results to date. A new exploration budget is to be set for this year shortly.

Separately, at La Peltrie property near Detour, which is under option to Probe Gold, a mineralized copper-gold zone has been extended with high-grade copper showings, indicating the potential for an extensive mineralized system. Probe said it was currently preparing an exploration program to follow up on this new discovery. Midland, well–financed with strong technical management, has multiple exploration projects underway, some in partnership or under option. It has as good a shot at making a major discovery as any.

Meanwhile, the shares are languishing close to all-time lows. Midland is a Strong Buy at these levels.

Lara's New CEO Gets To Work

Lara Exploration Ltd. (LRA:TSX.V) new CEO Simon Ingraham, visited the company's flagship Planalto project in northern Brazil last week and was reportedly pleased with what he saw. A new resource estimate followed by a PEA is expected by mid-year.

Lara is a Strong Buy.

TOP BUYS this week, in addition to above, include Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American), and Orogen Royalties Inc. (OGN:TSX.V)

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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 [Pan American Silver Corp., Fortuna Silver Mines Inc., Altius Minerals Corp., Midland Exploration Inc., Lara Exploration Ltd., Franco-Nevada Corp., Metalla Royalty & Streaming, and Orogen Royalties Inc].
  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, Street Smart, or their officers. The author is wholly responsible for the accuracy of the statements. 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. Any disclosures from the author can be found  below. 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 and is not a solicitation for any 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. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. 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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