Spring has sprung, and it's time for us to make room on our list for some new recommendations. We are selling two small resource companies, ones we know few of you own. Azucar Minerals Ltd. (AMZ:TSX.V; AXDDF:OTXQX) was a 2015 spin-off from Almaden, which we subsequently sold. (In a second spin-off, shareholders receives shares in Almadex, which we are still holding. Almadex holds a royalty on Azucar's El Cobre project.)
We are selling because of a paucity of news–the last substantive news was in November.
Cartier Resources Inc. (ECR:TSX.V) we bought in 2010, and progress has often lagged expectations. In addition, the repeated equity raises, taking the share count from fewer than 25 million when we bought to over 315 million today, have been a drag on the share price.
We have been patient with both, but it's time to move on.
Average Gain on Sales Now Almost 90%
We lost heavily on both. In U.S. dollar terms, Azucar started trading at US$0.15, down 57% from the current price. However, since on our table, we adjusted our cost basis for Almaden, our loss comes to 88%.
The loss on Cartier comes to 78%. This brings the total average gain on all our closed positions, adjusted for spin-offs, to 89.9%. These sales — and there may be more — opens up room for new buys.
Lara's Flagship Project Advances
Lara Exploration Ltd. (LRA:TSX.V) announced last month that Capstone had exercised its option under a joint-venture agreement to become the operator of the Planalto copper project in Brazil by increasing its interest from 49% to 51% and paying Lara US$400,000.
Capstone will fund work through to the feasibility study. By delivering the FS by the end of 2026, Capstone can increase its interest to 61%.
There are intermediate hurdles in order for Capstone to maintain its interest, including delivering a Preliminary Economic Assessment (PEA) by the end of next year with a payment to Lara of US$750,000.
In addition, there are exploration commitments and a final payment of US$1 million by June 2025. The terms of this earn-in agreement are very favorable for Lara, which recently amended the agreement to give Capstone more time, given the need for more exploration drilling to find the limits of the mineralization after new ground was brought into the project.
Planalto is Lara's flagship project, and Capstone's decision to become the operator, which necessitated its building a team in the country, signals its interest in the project. It is, however, still too early to say that the project will grow to a size that would induce Capstone to acquire the project, but it is certainly an encouraging sign.
Lara is a top Buy at the current level.
Ares' Decline With the Banks Is Unfounded
Ares Capital Corp. (ARCC:NASDAQ) stock has suffered, along with those of other business development companies, after the failure of three banks and growing fear of recession.
However, as Bloomberg credit team pithily put it, "Recession Risk? Ares has been there and done that," saying it will likely be able to manage through a recession "unless things go seriously awry."
Experienced management, disciplined portfolio construction, and the tight bond with US$23 billion Ares management were given as reasons.
We would add Ares' low leverage and duration match, which distinguishes them from the banks.
In addition, significant spill-over income helps it maintain its dividend (as throughout the covid years ever after).
CEO Michael Arougheti said that the qualities of private lenders have a "level of stability that people may under-appreciate."
Remember, with the BDCs, the stock price tends to be volatile; consistency in the dividend is the paramount concern. With the stock down from US$20 in February and currently yielding 11%, Ares is a Buy.
Nestle Says Most of Its Food Is Unhealthy
Nestle SA (NESN:VX; NSRGY:OTC) said less than half of its food and drinks are rated healthy under an international scoring system (though it should be "healthful").
The survey excluded pet food and vitamins.
Nestle said it wanted to set a new standard for transparency, as it pledged to set new targets to reduce fat, salt, and sugar in its products.
The main economic challenge for Nestle in the coming year is to maintain sales as it raises prices to offset higher costs. It raised prices by more than 7% last year without affecting sales, but that was not sufficient to match increased costs.
We are holding.
Exploration, Reserves, Copper, and Insider Buys
Midland Exploration Inc. (MD:TSX.V) has started a major exploration program for nickel in Nunavik. The new program, with a budget of CA$3.4 million, is part of the strategic alliance with BHP, and follows the discovery of mineral occurrences by magnetic surveys last year.
Buy . . . Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) said its proven and probable reserves fell 14% for gold and 22% for silver over the year prior, although resources increased by 32% for gold and held steady for silver, with inferred increasing even more.
Hold. . . Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) announced that following approval of its acquisition of Yamana by the Mexican regulators, the last required approval, the transaction will be completed by the end of the month, as previously expected.
Hold . . . Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) has taken to calling itself a "gold and copper" company, as the development of Reko Diq in Pakistan will help put Barrick among the front rank of copper producers.
Hold . . . Gladstone Investment Corp. (GAIN: NASDAQ) has seen a series of buys by insiders, including US$38,000 by the president and US$51,000 by a director.
TOP BUYS this week are mentioned above. We still think that the gold price could pull back after the strong run-up this month, while the broad market is not inexpensive and remains vulnerable. We are very selective in buying at this time.
HARRY SCHULTZ, R.I.P. An icon of the investment newsletter industry, who founded his letter in 1963, Harry Schultz has died aged 99. His letter was notable for its densely packed 16 pages with his idiosyncratic use of the language as well as diversions into areas outside the investment arena, and he for his somewhat flamboyant life and style. I dined with "the Chevalier" on many occasions in many countries, and he was always highly entertaining. His death truly marks the end of an area in this business.
GORDON MOORE, R.I.P. Co-founder of Intel Gordon Moore has died, aged 94. He is famous for Moore's Law, which says that computer power could double every two years. In 1965, two decades before the computer revolution began, he predicted "such wonders" as home computers, automatic controls on automobiles, and "portable personal communications equipment," all of which are ubiquitous today but in the mid-1960s read like science fiction.
Intel said, "We have lost a visionary; thank you for everything."
THAT'S ALL FOLKS At each of the last five press conferences following Federal Reserve meetings, chairman Jerome Powell exuded confidence in avoiding a recession, saying, "a soft landing is our base case."
At the latest presser, however, when asked if the Fed was still comfortable with that outlook after the banking crisis, he said it was "too early to say."
When asked about the possibility of future rate cuts, he shuddered, paused, and said, "Rate cuts are not in our base case...so, that's all I have to say," before somewhat abruptly walking off the stage.
CONFUSION ON BANK DEPOSIT INSURANCE Don't they talk to each other? On the same day that FedHead Jerome Powell was giving his post-communique press conference and twice said "all" banks deposits would be insured (emphasizing the word "all"), Treasury Secretary Janet Yellen was on Capitol Hill saying that regulators were not looking to provide "blanket" insurance, adding she had "not considered or discussed" such an idea.
This follows her painful exchange last week with Sen. James Lankford (see Bulletin 855). Of course, the Byzantine logicians in Washington will say there is no conflict since Powell didn't say "all of all" deposits were insured.
NOTHING TO DO WITH US Just as the Fed fails to acknowledge its role in causing inflation, so too with the Bank of England. Governor Andrew Bailey last week said that companies raising prices was the major cause of inflation, adding that if they would just stop hiking prices for a while, then all would be well.
Previously, he blamed workers asking for wage increases . . . oh and Russia, but never the Bank's own loose monetary policies, of course.
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