Midland Exploration Inc. (MD:TSX.V, 1.06 x 1.07) continues to explore aggressively on its joint-venture projects and (judiciously) on its own land. In all, for this year, the company plans 25,000 feet of drilling with a budget over $6 million. This includes a program just commenced on drilling close to Balmoral's Bug Lake discovery with its partner Soquem, and a major program, to include drilling, on its 100%-owned La Peltrie, near the high-grade Lower Detour zone. Undertaking some low-cost but well-defined exploration work on its own properties can improve the chances of finding a partner and obtaining more favorable terms. Midland has also reactivated its base metals projects, given the renewed interested in such properties.
Midland has strong partners and continues to attract new partnerships, including most recently a joint venture with Altius in the James Bay region. Midland continues to be well funded, with $14.5 million cash, which enables it to advance properties to a point where more attractive options are possible.
Favorite exploration company, with management, money and properties
Midland remains a favorite exploration company for the breadth of projects, strong partners, solid balance sheet and disciplined management. Warrants at $1.15 put a lid on the share price for now, absent a significant development or discovery. Midland, with its extensive, well-located property package and aggressive program, is in as good a position as any to achieve a discovery. If exercised, the warrants would bring in another CA$23 million to the treasury, which would put the company in an unassailable position. So we would continue to build positions without aggressively paying up. This is a good price.
Well funded and advancing project
Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX, NY 1.03) continues to be well funded. Following a well-timed equity raise last August, the company has cash of around $24 million, plus shares in Midas Gold worth around $5 million. With an annual spend of a little over $5 million, approximately half each on G&A and advancing the Mt. Todd project in northern Australia, Vista has the cash for final work to take Mt. Todd to a development decision.
It also has several opportunities to raise additional cash in a non-dilutive manner, including selling additional shares in Midas, selling its mill (in which there has been some renewed interest), or completing some sort of transaction on its Guadalupe de los Reyes project in Mexico. Following completion of metallurgical and other test work on Mt. Todd this summer, Vista intends to update its 2013 preliminary feasibility study, incorporating improved gold and currency prices.
Vista represents solid value here, particularly with the lack of any need for additional financing. But given the likely slow news flow in coming months, we would look to add to Vista on price declines, perhaps to the low 90 cent range.
Price drop makes Nevsun attractive again
Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT, NY 2.43) finally made clear to the market that the metallurgical issues at the new expansion at its Bisha mine in Eritrea are ongoing, with no solution apparent. At the same time, it slashed its dividend by 75%.
The market's response, not surprisingly, was vicious, with the stock falling from over $3.20 to the current level. At this price, Nevsun is discounting most of the issues at Bisha. More important, it becomes attractive for a copper company interested in the Timok project that it acquired when it purchased Reservoir Minerals last summer. We would not be surprised to see a company make a bid for Nevsun, concurrent with a move to divest itself of Bisha. The political issues associated with operating in Eritrea—including a lawsuit alleging that the government supplied slave labor to the mine—are too much for most global companies.
But the value of Nevsun today is less than the value which Lundin was willing to pay for part of Freeport's interest in the Timok project, so a bid for Nevsun is a strong possibility. With Nevsun's CEO Cliff Davis already having announced his retirement, the timing may be right as well. We would buy Nevsun here, as a potential take-over target. (We sold one of our two positions in December for $3.16. You can buy back over 20% cheaper!)
Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."
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1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Midland Exploration, Vista Gold and Nevsun Resources. 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 hold shares of the following companies mentioned in this article: Midland Exploration, Vista Gold and Nevsun Resources. I determined which companies would be included in this article based on my research and understanding of the sector.
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