Gold Co. Loses Partner but Value Enhanced!
Contributed Opinion

Lara Exploration Ltd. (LRA:TSX.V) announced that Capstone was ending its earning option into the Planalto copper project in Brazil, and returning the project 100% to Lara. No reason was given, although it is thought that the project did not meet the intermediate copper producer's hurdle, particularly after its acquisition last year of the Mantos mine in Chile. Increasingly, the market had been expecting Capstone to buy the project, especially after it renewed its option and set up shop in the country earlier this year.

So, at first blush, this news might appear negative. In fact, it may be very positive for Lara, particularly in the longer term. First, it is worth noting that Capstone did not give up the option because of bad results or other negative factors affecting the project. Rather, it was seemingly because the project did not meet its size threshold — which had always been a risk — and the changed circumstances of the company itself.

So it is important to emphasize that nothing has changed for the worse at the project or in country. Capstone spent more than $10 million on the property, including over 26,000 metres of drilling. We understand that Lara had been very happy with Capstone as a partner; we never heard any hint of criticism. That exploration now revolves to the benefit of Lara.

Two Major Deposits Join

Along with the Capstone news, Lara released results of drilling indicating that the two targets, Homestead and Cupuzeiro, form a single body of mineralization extending over 1,000 meters north to south. (See Bulletin #876.) This had been a major question about the project and has been answered favorably.

Going forward, Lara expects to release results from the rest of the drilling, including more holes between the two main zones, within 60 days and possibly sooner. Thereafter, Lara is going to move ahead with announcing a maiden resource in the first quarter and completing a Preliminary Economic Assessment soon thereafter. Although this might seem a departure from the "prospect-generator" model, I think the moves make sense.

Capstone had already undertaken some of the work, and Lara, without the deadline specified in the joint-venture contract, believes it can complete this work for less than the US$1.4 million that Capstone had budgeted. Finishing this work will likely enable Lara to obtain better terms in a new transaction. Very rough, back-of-the-envelope numbers suggest the project could be worth 10 times Lara's market cap.

And it now owns the project 100%. (This is my valuation. A resource and PEA will enable us to refine this very approximate estimate.) In short, this move has the potential to be very positive for Lara, though extending the timeline somewhat. The muted stock reaction suggests that the market understands that losing Capstone is not a major negative.

Lara is a Strong Buy here.

Another Solid Quarter for Fortuna

Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) reported strong third-quarter production, led by its newest mine, Séguéla in the Cȏte D'Ivoire, where the mill is already operating above nameplate capacity. Lead and zinc byproducts at Caylloma were also strong, though silver production was lower than expected largely because of lower throughput at San Jose.

At Lindero, the large gold mine in Argentina, production was down from the year ago quarter by about 30%, but this had been anticipated because of the lower grade of ore placed on the leach pad. The company said the mine was now operating well, and production increases are expected in future quarters. In all, it was a record quarter, and the company is on track to achieve the higher end of its full-year guidance. Fortuna has experienced a series of misses and other issues, but another quarter or two of strong, trouble-free performance should see a re-rating in the stock.

It is a strong buy. Midland Exploration Inc. (MD:TSX.V) Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) and Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE)

More Spodumene Pegmatites for Midland

Midland Exploration Inc. (MD:TSX.V), no sooner had it announced the discovery of spodumene-bearing pegmatites on property in joint-venture with Rio Tinto (see Bulletin #879), said it had identified more such pegmatites on the Elrond project, in James Bay, which is in partnership with Brunswick.

Field crews began work only last month, and although the exploration is in a very early stage, spodumene-bearing pegmatites are indicative of lithium. Midland is well financed, with six projects under active exploration and three drill programs underway now or shortly.

Midland is a Buy here. 

Mine Restart Will Help Royal and Wheaton

Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) and Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) received good news when Newmont said it had reached agreement with workers unions for a restart of its suspended Peñasquito mine in Mexico.

Both companies have payments from the mine, Royal a 2% royalty, and Wheaton a stream on some of the silver.

At around 8% of the company's revenues, the mine is more important to Royal than to Wheaton.

Both companies are Buys now.

BEST BUYS THIS WEEK include, in addition to those above, Nestle SA (NESN:VX; NSRGY:OTC), Gladstone Investment Corp. (GAIN: NASDAQ), Barrick Gold Corp. (ABX:TSX; GOLD:NYSE), Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE), Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ), and Nova Royalty Corp. (NOVR:TSX.V).

Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Lara Exploration Ltd., Fortuna Silver Mines Inc., Midland Exploration Inc., Barrick Gold Corp., Franco-Nevada Corp., Agnico Eagle Mines Ltd., Pan American Silver Corp., Nova Royalty Corp. 
2. Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: All. I determined which companies would be included in this article based on my research and understanding of the sector.
3. Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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