Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX, US$0.94) announced an equity raise that sent the stock tumbling. On the evening of July 7, the company announced, with the shares trading at $1.25, a raise of $13.5 million at $1.10 with warrants (three-year, half warrant) at $1.25. Given this represents about 13% dilution and given the stock had been trading above $1.25 for over two weeks (and the terms, therefore, appear very "generous"), the stock opened significantly lower, the market expressing disapproval of the size and the terms, taking it back to where it traded at the beginning of March.
The company did not need the money; at the end of the second quarter, it had about $6 million cash, sufficient for a year's fixed costs. Over the past few years, the company has done a very good job at monetizing its various assets, to postpone a dilutive equity raise. However, it has few assets remaining to monetize (other than the used mill that has been for sale for years now), and it did not want to get into a position where it was running low on cash, and the market started expecting a raise. That makes sense.
Final permit received, de-risking major project
The funds will be used to progressing the Mt. Todd project, where recent drilling has returned very promising results, suggesting continuous mineralization between deposits. This would enhance the value of the project significantly. Indeed, until the equity raise, all the news had been positive, with Vista receiving another $1 million payment on the sale of its Guadalupe project; and last month, receiving the final government permit to operate the mine.
This considerably de-risks the project, one of the largest undeveloped gold projects in the world, in a top-mining jurisdiction, with a net present value (NPV) of $1.7 billion. Even after the latest raise, Vista has a market cap of around $110 million. We suspect the receipt of the final permit will see increased interest in the project from major companies, though (as we have discussed before), Visa would prefer some sort of partnership rather than an outright sale. Raising another two years' worth of ordinary operating expenses would indicate the company is not in a rush to sell the project.
The stock trading at $0.94 and the offering at $1.10 raises the question of whether it will close successfully. It is a "bought deal," meaning the brokerage firm is committed to buying the shares it cannot place. The fact that the size of the offering was increased on July 7 (before the stock opened and traded down) from an initial $8 million to $13.5 million—an increase of almost 70%—suggests that the firm was receiving strong interest from its clients. Of course, clients can back out, leaving the firm holding the bag. We shall be looking carefully at that when the company announces the closing.
In short, we are disappointed at the size and terms of the deal. However, it puts the company in a strong position to negotiate deals of some type with majors and that is important, and also the money raised would indicate that the company will not need another equity raise. We are holding for now, pending closing of the equity raise. We want to see how it shakes out before adding to positions.
Fortuna Completes Acquisition to Become Solid Intermediate
Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE, US$5.30) closed its acquisition of Roxgold, creating a low-cost, diversified, growth-oriented intermediate gold and silver company. As discussed previously (particularly here), we are very bullish on this combination, and think that Mr. Market continues to provide us with an excellent opportunity to buy a quality company at a low price. Any time there is a merger such as this, there are some dissatisfied shareholders and sometimes shareholders whose combined position become too large. So there is always some selling (and, indeed, the short position in Fortuna was the largest gainer last week, suggesting some shareholders want to sell now before they have received their new shares). The stock price has dropped from almost $8 a share immediately before the merger announcement down to where it traded a year ago. This will not last long; Fortuna is a strong buyat the current price.
Peru Presents Buying Opportunity
Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ, US$28.50) has sold a package of royalties for CA$7 million, plus shares, to Maverix Metals Inc. (MMX:TSX.V; MMX:NYSE.American); Pan American was instrumental in founding Maverix and holds over 18% of the shares. Although a small transaction for Pan American, it helps strengthen their balance sheet while still retaining an interest in the royalties. The instability in Peru, with an extreme left-wing candidate winning the presidential election runoff but yet to be confirmed, has hurt the company, with four major mines in the country. This weakness presents us with an opportunity to buy this globally diversified miner.
Midland and Orogen Each Move Forward with Strategies
Midland Exploration Inc. (MD:TSX.V, 0.69) is on a roll, with three new exploration programs announced just in the last four weeks. These are a new drill program with partner Probe Metals Inc. (PRB:TSX.V), close to a discovery by Wallbridge; the first exploration in a strategic alliance with SOQUEM Inc. looking for zinc; and an exploration program on a new, 100%-owned property in James Bay. Though not unexpected, these programs continue to show a rapid pace of work. The stock has not reacted, trading at its lowest levels since lasts April. It is a strong buy.
Orogen Royalties Inc. (OGN:TSX.V, 0.375) is also on a roll, with another property transaction, this time optioning out another Nevada property, while drilling continues on several of its farmed-out properties. The stock is up from a low of $0.35 earlier in the week. Given we own already, we are not chasing, but it's a good buy on any weakness.
BEST BUYS this week: in addition to stocks discussed above, include Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE, US$13.35); Barrick Gold Corp. (ABX:TSX; GOLD:NYSE, US$21.13); and Lara Exploration Ltd. (LRA:TSX.V, US$21.13). If you do not own it, Altius Minerals Corp. (ALS:TSX.V, (16.73) can be bought.
Upcoming Conferences: In the coming months, we have the return of in-person investment conferences as well as some virtual affairs. It's not too late to sign up for the annual Resource Symposium, hosted by Rick Rule, a virtual show this coming week, July 15–17. There will be several live Q&A and panel sessions.
July 18, in the afternoon, Adrian Day will host a special private seminar for clients and friends in the San Diego area, together with Eric Angeli of Sprott Resources. This will be an informal affair, with space strictly limited. Please email [email protected] or call (410) 224-2037 for information and tickets.
This is followed by an in-person conference, FreedomFest, in South Dakota July 21–24: Hear from defender of women's rights in Islamic countries Ayaan Hirsi Ali, as well as radio-show host Larry Elder. There will be debates, including Bitcoin vs. Gold and a "mock trial" putting on trial the government's COVID response.
July, August, and September bring online conferences before the annual New Orleans Investment Conference, Oct. 19–22, which will be in person (but can also be attended virtually). Reserve the date, or better yet, sign up now. Details on these future conferences can be found on our website.
Originally published Sunday, July 11, 2021.
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."
Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Lara Exploration, Altius Minerals, Midland Exploration, Orogen Royalties, Fortuna Silver Mines. 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.
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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 Vista Gold, Fortuna Silver, Pan American Silver Midland Exploration, Orogen, Osisko Gold Royalties, Barrick Gold, Lara Exploration and Altius Gold, companies mentioned in this article.
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