Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) sold its San Jose mine in Mexico to a local private company as reserves ended. The sales price was $6 million over three years, with an additional $11 million due on certain conditions not released; Fortuna was also granted a 1% royalty.
Although the sales price might seem low, it saves Fortuna the potential extensive closing costs and environmental liabilities, as well as ongoing fights with the local antagonistic environmental agency. The company had already announced, after an extensive study, that it would be winding down the mine. Separately, the company reported a record 455,958 gold equivalent ounces for 2024, driven by record gold production. In the fourth quarter, gold production was up from the previous quarter but down from the year-ago quarter, while silver output, also down from the year-ago quarter and up from the third quarter, was below guidance for the year.
This was not unexpected with the winding down of San Jose and silver output is expected to drop significantly this year, with the closure of San Jose; gold production will likely be a little lower. During the fourth quarter, it repurchased $30 million of shares at an average price of $4.77, representing nearly 42% of the shares available for repurchase under the company's "normal course issuer bid."
Why We Like Fortuna
Fortuna has very strong, conservative management with a strong balance sheet, and the debt taken on for the building of its Séguéla mine in Cȏte d'Ivoire was mostly repaid. It now has four mines, two in Latin America and two in West Africa, with both brownfields and greenfields exploration projects. Although production this year is expected to be relatively soft, it is expected to move back up in 2026 as output from Séguéla jumps about 20%. Fortuna is a top intermediate miner; we would not be surprised if it looks for an additional mine to replace San Jose in the next year or two.
It is a solid hold, and any weakness should be bought.
Pan American Achieves Guidance and Is on Solid Footing
Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) achieved its production guidance for 2024 following a strong performance in the fourth quarter, which saw strong silver output, driven by La Colorada, where production ramped back up after ventilation fixes. Gold was at the lower end of guidance.
The company ended the quarter with $887 million in cash following receipt of the proceeds of the sale of La Arena. Pan American has solid management, a very strong balance sheet and a breadth of mines. Following some rationalization of projects after the Yamana acquisition and with operations now on track following a string of problem quarters, Pan American is in a strong position.
The currently shuttered Escobal silver mine in Guatemala adds leverage. Nothing was said in Pan American's filings about the current state of the process for reopening, but there will no doubt be questions when the company holds its analyst call a month from now. It is our go-to large silver company.
We are holding.
Metalla Pays Down Debt as Revenues Ramp Up
Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American) said Beedie Capital had increased its equity position to just over 10% of the shares outstanding following conversion of an interest under its convertible loan. Metalla will also make an additional payment of around CA$2 million at the end of the month to pay off all accrued fees and interest on the loan facility, taking further steps to use new revenues to strengthen its balance sheet.
We would not be surprised to see some share buybacks after further reductions in debt. Metalla also said that production at Tocantinzinho, on which it holds a royalty, was 40,000 ounces in the fourth quarter, demonstrating a successful ramp-up of the mine. This will significantly boost the company's revenues since the third quarter had some delays causing lower-than-expected revenue. Separately, it announced that Chris Beer had joined its board. Beer was, for the past 24 years, the senior portfolio manager at RBC Global Asset Management, focused on commodities. He is also associated with a strong investor group that takes large positions in junior companies.
Why Metalla Offers Significant Upside From Here
Metalla has long been very undervalued on an asset basis, particularly after the acquisition of Nova Royalties, which saw several future-dated long-life copper assets come into the portfolio. It has a total of 101 royalty and stream interests (from 32 separate transactions), a large and broad portfolio for a junior. Now, with TZ ramping up and other larger royalty sources coming onstream over the next 18 months, Metalla's revenues will ramp up to make it a good value on a cashflow multiple basis.
The hard work of accumulating the royalty base is behind it, and the debt taken on to achieve that is now coming down. The company's ATM stock issuance program has been canceled, and we expect share buybacks later this year. The executive suite and board have been strengthened, and a broad transformation is underway.
Metalla is a Strong Buy
Barrick Follows Through and Suspends Mine
Barrick Gold Corp. (ABX:TSX; GOLD:NYSE), as expected, suspended operations at Loulo-Gounkoto in Mali when the government seized a gold stockpile after refusing the company a permit to export and sell the gold. The gold was reportedly valued at around $380 million. The announcement came as a seven-day ultimatum from Barrick expired nearly two weeks ago.
Though Barrick stock has long been undervalued on an asset basis, a long suspension or worse at the mine is not fully discounted in recent stock price action. Because of Loulo, Barrick will likely miss its fourth quarter and annual guidance, which may cause more stock weakness.
For investors willing to exhibit patience, Barrick can be bought here on any additional weakness.
Royal's Stream Sales as Expected
Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) pre-released its stream sales, almost 47 million GEOs, which was in line with expectations.
Streams represent about 70% of the company's total revenues.
We like Royal for its management, balance sheet, and arguably greater leverage to higher prices than its peers.
We are holding for now.
Orogen Continues To Be Active as Royalty Sale Draws Near
Orogen Royalties Inc. (OGN:TSX.V) announced another transaction on a Nevada project, whereby K2 Gold has acquired the Si2 project, replacing an option earn-in. Orogen receives a royalty as well as CA$250,000 in shares. This is a further illustration of the company's value and activity apart from its royalty of Anglo's Expanded Silicon Project. Now that the arbitration on the extent of Altius's royalty has been (almost) finalized, we expect both companies to move ahead with seeking bids on their royalties.
Altius' interest in the Silicon and Merlin royalties, as well as the key area of interest around those deposits, was confirmed, thereby awarding Altius, if not everything it sought, certainly the most valuable parts. Anglo is expected to provide an update on the entire Beatty project in mid-February, which may spark the final round of bidding on the royalties.
Though we would not be surprised — my surmise — if Altius does not receive the bids it wants and decides to keep the royalty — Altius is a large company, and the royalty would fit well into its business — equally, we expect Orogen to sell its royalty.
Altius Has Large Assets Coming to Fruition
In addition to Silicon, Altius Minerals Corp. (ALS:TSX.V) has two key assets that should provide significant added value in the coming years. The renewables division, recently taken private, will likely grow from 15% of revenues last year to as much as 25% this year, even as the net asset value of the division is boosted over its previous depressed public value.
The Kami iron-ore project is advancing now that owner Champion Iron has found a partner, and the 25-year life mine could generate as much as $50 million a year for Altius once operational. The Expanded Silicon Royalty could be sold or kept inside Altius, but either way, that represents several hundred million dollars of value with cash flow starting perhaps in four or five years. Both stocks have moved up meaningfully in recent weeks, but both remain good value. Orogen can be bought, while we will likely see a better opportunity to buy Altius in the coming weeks.
Orogen will see a near-term boost from the sale of Silicon and the anticipated spin-out of the rest of the company, while Altius is a core holding for us.
Key Retirement at Wheaton
Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) announced the retirement of its long-serving Chief Financial Officer, Gary Brown, who had worked at Wheaton for 17 years.
The current vice president of finances, Vincent Lay, will succeed him. Gary was well-known and respected in the investment community.
Hold.
TOP BUY this week, in addition to above: Midland Exploration Inc. (MD:TSX.V).
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Important Disclosures:
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Fortuna Mining Corp., Pan American Silver Corp., Metalla Royalty & Streaming, Barrick Gold Corp., Orogen Royalties Inc., and Altius Minerals Corp.,
- 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.
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