In today’s briefing, we update developments at several companies, mostly positive news, with several “buys” on our holdings.
Vista Moves Toward a Deal on MT Todd
Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX) appointed CIBC as strategic advisor to assist Vista in evaluating “a broad range of alternatives to unlock the value” of the company’s Mt Todd project, following publication of the company’s feasibility study on the project. CEO Fred Earnest said some companies were undertaking due diligence, some wanting additional testing (such as metallurgical testing), and he expects to have ongoing announcements in coming months. He also said that there would be “significant value created overnight” when a transaction was announced.
Several executives of the company have acquired shares recently, including Earnest. The company has around $15 million in cash, including the $2.5 million received as a final payment of the sale of the Los Reyes project in Mexico. Fixed costs are about $6.5 million per year.
Although the stock has risen from less than 70 cents in January just prior to the release of the feasibility study, the current valuation of the company ($114 million) remains at a fraction of the value of the Mt Todd project ($1.5 billion). With the end-game approaching, Vista can still be bought.
Osisko Raises Money After Accretive Deal
Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) announced it was raising $250 million in a bought-deal equity financing at US$13.45 per share, a 5% discount from the previous day’s close. As often happens, the stock fell to the offering price and below, giving an opportunity to buy the stock at its lowest price in March.
The raise follows the purchase of a $90 million silver stream on the producing CSA copper mine in New South Wales, Australia as part of a package financing the acquisition of the mine by Metals Acquisition Corp. Osisko will receive all of the silver mined.
Metals Acquisition has the option of drawing an additional $100 million for a copper stream. The acquisition gives Osisko additional immediate cash flow in a top-tier jurisdiction. Osisko can be bought if you do not own it.
Fortuna Increases Reserve and Resources
Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) reported year-end reserves and resources, with modest overall increases. In particular, a first inferred resource at a new deposit at the Sequela project increased the NAV of that project by 15%, offset by a decrease at the Yaraoko mine in Burkina Faso. It is the first year that reserves at Sequela and Yaraoko have been included in Fortuna’s reserves, following he acquisition of Roxgold last year.
At Fortuna’s legacy mines, reserves at Lindero increased about 7% because of more pad capacity; San Jose in Mexico saw a conversion of some inferred material, though overall reserves fell; while resources at Callyoma jumped by 90% though it is the smallest mines in the portfolio. Overall, resources increased modestly over the old Fortuna and Roxgold’s numbers. Fortuna is a buy.
Important Exploration Program to Commence for Midland
Midland Exploration Inc. (MD:TSX.V) said that Rio Tino had commenced work on Midland’s Tete Nord nick-copper property, over which it has an option. This initial work is early stage, mostly a helicopter-borne electromagnetic survey. Rio must spent $4 million over four years (and make some a cash payment of $500,000) to earn 50%, with first-year expenditures a minimum of $500,000.
Across all projects, Midland expected nearly $8 million is drilling, most by partners, on five different projects. Midland stock has traded in a very small range (mostly from 0.47
to 0.52) from early December, after declining from the mid-60 range, as the market awaited exploration detail. The Rio program as well as a resumption of work by the BHP
on its alliance land in the second quarter will regenerate the Midland story. Midland is a buy.
Profits up at Kingsmen as It Adapts to Post-COVID
Kingsmen Creatives Ltd. (KMEN:SI) half-year operational profits fell 16% as revenue fell about 5% on static costs of goods sold. However, due to several large extraordinary expenses in 2020 which were reduced or eliminated, the company moved from a net loss in 2020 to a profit in 2021. On a per-share basis, it went from a $2.87 loss to a $1.34 profit.
During lockdowns, which saw a sharp decline in new contracts, the business shrunk with an emphasis on cost control. The largest decline was in the Exhibitions and Attractions division, down 27% from the prior year. Kingsmen switched gear to attract several virtual projects.
The interiors division, for retail and corporate space, saw an increase of 24%. The company believes that as economies open, “differentiated experiences” will be future drives of the business. The company has secured several joint-venture arrangements in this area. The company said the volume of work had increased, with the core business remaining “robust”.
Selling at less than half times net asset and with a strong balance sheet, Kingsmen is well-positioned to benefit when business recovers. It’s a buy for long-term investors.
Light Ahead for Reservoir?
Reservoir Capital Corp. (REO:TSX.V) provided an update on the dispute with a Nigerian shareholder which has resulted in half the income Reservoir should have received from
Nigerian hydro company for the last two years being withheld. Reservoir now said that in the event of an agreement, the Nigerian shareholder would drop litigation and release
the funds ($2.5 million), a statement which implies that an agreement may be close. Any agreement would be subject to the trading halt on the stock, in effect since August, being
lifted.
TOP BUYS now in addition to any above, include Lara Exploration (LRA, To., 0.58), Orogen Royalties (OGN, To., 0.455), and Ares Capital (ARCC, Nasdaq, 20.40).
SEC WANTS EMISSIONS DATA: The SEC, in a rather expansive interpretation of its mandate, wants top public companies to disclose data on carbon emissions. However,
the proposed rule goes beyond a company’s own carbon emissions. Rather their report must include the emissions of all companies in their supply chain and the emissions of all
customers who buy their productions. This will be quite a task for, say, Apple or Microsoft, and indeed any business.
UPCOMING CONFERENCES: I’ll be speaking at three upcoming live conferences.
First up is the Money Show, Las Vegas, May 9th to 11th. Speakers include Steve Forbes, Keith Fitz-Gerald, Mark Mobius and Ed Yardeni, covering the economic and investment
waterfront. Next up is Vancouver Resource Investment Conference, May 17th and 18th, with multiple exciting speakers including Grant Williams, Robert Kiyosaki, David
Rosenberg, and Ross Beaty. And in July, we head back to Las Vegas for Freedom Fest, 13th to 16th, for a mix of economics, philosophy, politics, and money, with speakers Glenn
Greenwald, Jim Rogers, Lisa Kennedy, and — now for something completely different — John Cleese (yes, that John Cleese!).
After two years of restricted travel and meetings, it would be nice to see you are one or other of these promising-to-be-great conferences.
Originally published on March 19, 2022.
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."
Disclosures
1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Vista Gold Corp., Osisko Gold Royalties Ltd., Fortuna Silver Mines Inc., Midland Exploration Inc., Kingsmen Creatives Ltd., and Reservoir Capital Corp. 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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