Editor of Adrian Day’s Global Analyst, Adrian Day explains what he sees in the future for two gold companies and reveals his pick that had an $11.8m market value increase.
In this bulletin, we review developments at a few resource companies on our list, though it was a slow week for material news. We also address more of your questions.
Growth Ahead for Yamana and Barrick
Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) held an investor day at which it reviewed its previously released 10-year plan (see Bulletin #807), which sees production increase by 50% to 1.5 million gold-equivalent ounces within six years. Most of the increase comes from expansions at existing mines. Wasamac, in the same gold belt as 50%-owned Canadian Malartic, is expected to come onstream by 2026.
Another undeveloped project, Mara, is considered too large for Yamana, which is studying alternatives including taking it public. A feasibility study is underway, and a decision is expected this year. Hold.
Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) announced that the Dominican Republic government had completed its study on the location of a tailing facility for the Pueblo Viejo expansion, intended to prevent an anticipated production decline and extend the mine life beyond 2040. The expansion has been the subject of local protests. Barrick also studied alternative sites, and now two potential sites are receiving additional review.
Barrick expects its share of the 60%-owned mine to exceed 400,000 ounces this year. It is also a major employer and taxpayer in the country, paying $527 million in taxes last year alone.
In and of itself, the news is not especially important, but just a step in the process; it’s a slow news week! But is shows that the Dominican government is working to find an answer acceptable to various local groups. It also is an illustration of the amount of work on multiple fronts that goes into a new mine or expansion.
We are holding.
Altius’ Investments Continue to Perform Well
Altius Minerals Corp. (ALS:TSX.V) released its quarterly report on its prospect generator and junior portfolio. The market value increased to CA$67.3 million, up from CA$55.5 million at the end of the year, with most of the increase attributable to shares it received from three different companies for the sale of properties. New investments exceeded equity sales for a net cost of CA$1.4 million.
During the quarter, Altius bought additional shares in Orogen, bring its ownership to 16.5%, excluding warrants it holds. Hold.
TOP BUYS this week include Vista Gold (VGZ.NY, 1.02); Midland Exploration (MD,To., 0.50); Orogen Royalties (OGN, To., 0.45); and Lara Exploration (LRA, To., 0.62).
The best buys this week are junior companies. The seniors and mid-tier have moved strongly in the last couple of months while the juniors have tended to lag. Even Fortuna, for example, which I rate a buy because it is fundamentally undervalued, has moved from $3.24 in February so could slip back if gold retreats. Other large companies are equally vulnerable to a drop in the gold price.
Your Questions: Do Institutions Take Delivery of Certificates?
I wanted to follow-up on the question in last week’s issue regarding taking delivery of certificates. How do mutual funds and institutions handle this?
Funds and most institutions will use a single custodian, buying shares through several different brokerage firms and have the shares electronically delivered to their custodian.
They do not hold in certificate form, though a fund or institution can instruct its custodian not to lend our their shares. Individual shareholders can also request that their shares are
not loaned out at many firms, though some put up obstacles.
The source of the advice to take delivery was, as I thought, James Sinclair. Whatever his attributes, I would not describe him as “conservative.”
My broker will allow me to sell my position in Polymetal’s ADRs but not to buy any more. Would I have been better off buying the London shares?
From what I have gathered, the firms that allow buys in the London shares also allow buys in the ADRs and those that prohibit new buys in the London shares do not allow buys in the ADR. This––the latter––applies to IB, for example. If you want to buy, you should ask your broker. I am informed that TD has now changed its policy and is now allowing buys of AUCOY, Polymetal’s ADR. If they are allowing that, I should think they would also allow purchases of the London shares, but do not know.
So while it may not make a difference whether you could or could not buy the shares, it would make a significant difference to the price you pay. On Friday, for example, POLY in London was trading at the equivalent of US$3.85, while the ADRs were trading at $4.06 and as high as $4.20. This is an unusually wide difference between an ord (the main listing) and an ADR, due to the specific nature of Polymetal at this time.
Ords, OTC. or ADRs?
My general rule is to buy the ordinaries in the home market unless the stock is listed on a U.S. exchange (New York or Nasdaq). If the company has a sponsored ADR, they are usually acceptable as well, while unsponsored ADRs, and even worse the OTC trading ofthe ordinary shares, are usually to be avoided. The liquidity can be extremely low, with large bid-ask spreads, while ADRs (more so unsponsored ADRs) clip fees from dividends and on trading.
Take, for example, Hutchison Port, which trades millions of shares each day in its home market of Singapore — often as many as 40 million shares — with a half-cent spread.
These shares trade over-the-counter in the U.S. (HCTPF); they traded 10,000 shares on Thursday (none on Friday), with volume of 10,000 shares and a bid-ask spread wide enough to drive a truck through (0.233 x 0.262, that’s 12.5% spread). Before that, it last traded on March 31, trading just seven days throughout the month. On March 18, the only trade in the U.S. was at 27 cents in the U.S., while in Singapore the high trade was 24 cents. I go into this detail so you can see exactly the issue. Many foreign stocks are worse; another Singapore stock on our list, Kingsmen Creatives, last traded in the U.S. (KMNCF) in November!
How much will you actually get when you sell?
But it gets worse: if you want to buy a stock on the OTC, there will usually be a very small number of shares offered; I can guarantee you that if you go to buy even a few thousand dollars worth of a stock, you will fill one or two hundred at the offer and then the ask will mysteriously move up. It is even worse when you go to sell a stock. You can use a limit, but may miss the trade. Some brokers are good at working the OTC market and searching for shares, but most, particularly with small orders, just place them.
Of course, the above has exceptions (which is why it is “my general rule” and not an absolute one). Sometimes you may prefer not to buy in the local market, or, as in the case of Brazil, Taiwan and Korea, it may be very difficult. Your broker may not have access to a particular foreign market, Thailand, for example, so you would have to buy over-the-counter — and be very careful so doing.
Equally, some OTC stocks or unsponsored ADRs have sufficient liquidity to obviate most of the above. Nestle’s ADRs (NSRGY), which are unsponsored, have reasonable liquidity (258,000 shares with a 0.5% spread). On the home market, Nestle trades several million shares a day with a miniscule spread, so I would still prefer buying the ords, but won’t go apoplectic is you buy the ADRs.
QUESTIONS? I welcome your investment or economic questions, which I shall attempt to answer here. Please write to [email protected]
Originally published on April 10, 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.”
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