Barrick Mining Corp. (ABX:TSX; B:NYSE) is considering splitting the company into two, according to a Reuters report quoting anonymous sources. According to the report, the board is examining separating the North American assets from Africa and Asia. This would be a way of unlocking value in the company's assets.
As former CEO repeatedly proclaimed, Barrick is undervalued on a sum-of-the parts basis. The North American assets, including Pueblo Viejo in the Dominican Republican, could be valued at as much as 80% of the total portfolio. The board is also looking at simply selling the higher-risk assets in Pakistan and Africa. At the same time, according to management, the board gave the go-ahead for the next round of capital investment at Rek Diq in Pakistan. We discussed a possible split-up of Barrick and other strategic options in Bulletin #982.
Record Cash Flow Allows Dividend and Share Buybacks
This report followed the release of the company's third-quarter financials, which were somewhat soft. Production of both gold and copper came in a little lower than anticipated, while costs were higher. Not surprisingly, given the gold and copper prices, cash flow was up, to a record.
The company increased its base dividend by 25% (and paid a bonus 5 cents under its dividend formula), and increased its share buyback by half-a-billion. It bought another $589 million of shares during the quarter, and indicated it would continue to do so. The company expects to meet its full-year guidance, though with gold production in the lower half of the range. It ended the quarter with a net cash position of $323 million.
In the call, though interim CEO Mark Hill said the strategy had not changed from that of his predecessor — clearly not the case if the Reuters report on board discussion is correct — he emphasized North American, saying the Nevada Gold Mines was Barrick's most important asset, generating over half of the company's gold production, with much upside. Hill also said there would be a renewed focus on operational stability.
Barrick Hedges Gold Production, but Not a New Strategy, Says CEO
Perhaps the most unexpected development was the revelation that the company has put on a gold hedge in the form of a collar (with floor and ceiling price) in connection with an acquisition it was considering that ultimately did not transpire. No specifics were provided by the company. The floor price on the collar was intended to lock-in profitability on the transaction, which was under consideration during Mark Bristow's tenure. The collar is for 9% of Barrick's gold production over the next three years, with a ceiling price of $4,300. Although gold is below that level today, it is quite likely that over the next three years, Barrick will be losing money on this.
Without further details on the proposed transaction, I suspect the hedge of a significant part of the company's gold production will become a major negative for the stock. Gold investors do not like hedges. The irony is that Bristow started his career at Barrick, following the combination with Randgold, by eliminating the hedges that had so hurt Barrick, only to add them at the end of his tenure. CEO Hill emphasized that this should not be seen as a change in strategy for the company.
Despite the recent run-up in Barrick's stock price — which was underway even before Bristow departed — the stock remains undervalued on an asset basis relative to its peers, perhaps only half of the PNAV for Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE). Nevada, which represents over half the NAV, arguably should be trading at a premium valuation, while the rest of the world is not worth nothing.
Given this, as well as the potential for a transaction, which would likely be well received by the market, we are holding.
Altius, With Strong Cash Pile, Weighs Opportunities
Altius Minerals Corp. (ALS:TSX) had a strong quarter, with net earnings of CA$5.72 per share, boosted by the gain on the sale of Orogen Royalties Inc. (OGN:TSXV; OGNNF:OTC) to Triple Flag Precious Metals Corp. (TFPM:TSX; TFPM:NYSE) and Altius' subsequent sale of its Arthur royalty to Franco. Though G&A was up slightly, due to one-time retirement payments (see Bulletin #982), the company expects a reduction in base salary costs going forward of about 40%. Royalty revenue, showing gains particularly in potash volume and prices and higher copper deliveries, had been pre-released (see Bulletin #984). The company paid off its revolver ($9 million) and repurchased shares ($1.5 million).
Following the sale of most of its Arthur royalty, the balance sheet was meaningfully strengthened, as discussed, with cash of $353 million and total liquidity available of $540 million. There is $91 million of debt under its term debt facility. In addition, Altius holds various public holdings which, while not for the most part intended for sale — at least not in the near term — do support the balance sheet. These include $105 million of shares in Labrador Iron Ore, $25 million in Lithium Royalty, and $44 million in its Project Generation equity portfolio.
Many Assets See Growth Opportunities
The outlook is positive. With better commodity prices comes the expansion of operations, driving up royalty revenue in two ways. There are several potential expansions at existing royalties, including potash in Saskatchewan and the Chapada copper mine. In addition, there has been increased market activity for renewables. The company has 13 operating royalty with another five under construction, plus longer-term potential. Altius' 0.5% Arthur royalty could generate CA$30 million a year at current spot prices (equivalent to nearly half of its last 12 months' total royalty revenues).
CEO Brian Dalton said the "effort of figuring out how we might best deploy our capital resources is well underway," with the company looking at both external opportunities and internal, which includes supporting development of existing projects and share buybacks. As he has explained before, whenever there is an opportunity to make an acquisition, Altius always stacks that up against its existing portfolio and simply buying back shares. There is a lot of market activity and opportunities, and the company expects to see portfolio growth in coming quarters, though will remain patient in spending its cash pile.
Altius is a core holding; hold.
Metalla Has Strong Quarter, With Assets Ramping Up
Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American) had a record quarter, with its first ever of positive net income. Revenue of $4 million was up 48% on the last quarter and 150% from the year-ago quarter. Results were ahead of most analyst expectations, as there was stronger production across most of the portfolio and first GEOs received from the re-started Endeavor. Despite a slower-than-expected ramp-up at Tocantinzinho (TZ) and ongoing delays at Amalgamated Kirkland, the company should meet it's full-year guidance, albeit at the lower end.
With TZ stable and a full year of Endeavor, we expect next year to be solid before more assets come on in 2027. Metalla, as we have said for a while now, is turning the corner from asset-rich but revenue-poor, and the next several years are likely to see dramatic growth as several important assets are advancing. Costs are now under control. Metalla ended the quarter with cash just of $11 million, and $13 million drawn on its line of credit.
It is a Buy.
Pan American Reduces Costs as Opportunities Advance
Pan American Silver Corp. (PAAS:TSX; PAAS:NYSE) reported earnings in line with some mixed production results, due to lingering technical issues at some mines, but improved costs, allowing the company to increase its dividend for the second time this year. The incorporation of 44% of the Juanicipio mine from the acquisition of MAG silver, completed in early September, is already reducing company-wide costs, with All-In Sustaining Costs down to $18.27 an ounce.
Two areas of growth for the company are progressing, one more certain than the other. CEO Michael Steinmann said that discussions to bring in a partner for the development of La Colorada skarn deposit were advanced, and an announcement is expected before the publication of the PEA on schedule for the second quarter of next year.
On Escobal, separate discussions by the Mines Ministry with the Xink, the company, and other government departments have taken place and continue, though there is no timeline on when the consultation process might be completed.
We are holding Pan American.
Or Shows Its Strength and Growth Profile
OR Royalties (OR:TSX; OR:NYSE) held an "investor day" hard on the heels of its third-quarter earnings (see Bulletin #987), so there was little new information provided. The main messages emphasized were the quality of OR's assets and its deep growth pipeline, with the best geopolitical risk profile in the sector.
CEO Jason Attew mentioned that the deal pipeline was very active, though the company's emphasis was on going good quality deals, not just growth. They were "open for business" with regard to any M&A, preferring to be the acquiror than the target. OR has strong silver exposure, representing 30% of its Gold-Equivalent Ounces. As for other commodities, it prefers gold "with a side of copper." It does look at other commodities, but gold (silver) and copper is its preference. For those wanting to get a good feel for the company, the two-hour session, available on the company's website.
OR can be purchased if you do not own.
Ares Has Strength To Withstand Weak Economy
Ares Capital Corp. (ARCC:NASDAQ) reported a solid quarter with core earnings per share stable on last quarter, while NAV increased marginally to $20.01 as non-accruals improved to just 1.8% at cost, below the industry average as well as its own historical average. Other credit measures improved as well. The company held its regular dividend of 48 cents per quarter steady, for a current yield of 9.5%. There is spillover income equivalent to $1.26 per share, more than sufficient to support any quarters where the net income is below the dividend.
The largest, arguably the most conservative, and one of oldest BDCs, Ares has had only four quarterly losses over two decades, with fewer than 20 bps of average annualized debt losses since inception in 2004. It is very broadly diversified, with 587 companies in 27 industries, averaging just 0.2% of the portfolio, with the largest less than 2%. The diversification, the spillover income cushion, and the low 1.02x leverage, should enable Ares to maintain its dividend in all but the most extreme circumstances.
Deal Flow Strong as Ares Deploys Capital
The company noted that deal flow is picking up after some uncertainties in the economy eased; it currently has a $3 billion deal backlog, its largest ever. In the last quarter, it made almost $4 billion new commitment, more than 50% higher than the prior quarter. Of these 60% were with new borrowers, supporting the assessment of a more active M&A environment.
We are holding Ares. With nervousness in the private equity space, we expect ongoing volatility in the stock price and will look for opportunities to buy.
Lara Loses Option, Regains Property
Lara Exploration Ltd. (LRA:TSX.V) announced that Minsur had relinquished its option to acquire the company's 45%-owned Lara Copper Project in Peru. No reason was given. The option dates back to 2020. Lara remains a buy for its flagship Planalto Copper Project in Brazil.
TOP BUYS this week, in addition to the above, include Fox River Resources Corp. (FOX:CSE), Midland Exploration Inc. (MD:TSX.V), Kingsmen Creatives Ltd. (KMEN:SI), and Fortuna Mining Corp. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE).
Important Disclosures:
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Barrick Mining Corp., Agnico Eagle Mines Ltd., Orogen Royalties Inc., Triple Flag Precious Metals Corp., Altius Minerals Corp., Metalla Royalty & Streaming Ltd., Pan American Silver Corp., OR Royalties, Lara Exploration Ltd., Fox River Resources Corp., Midland Exploration Inc., and Fortuna Mining Corp.
- Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: None. My company has purchased stocks mentioned in this article for my management clients: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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