Growth Ahead for Altius Agnico Fortuna & Kingsmen

Adrian Day

As the investment world focuses on banks from Silicon Valley to Credit Suisse, Adrian Day of Adrian Day Asset Management catches up on developments at a few more of the companies on his list.

Altius Minerals Corp. (ALS:TSX.V) reported record royalty revenue of $103.5 million for the year, up over 23% on the prior year, even though the fourth quarter was down a little on the year prior.

The record was based on higher commodity prices, particularly potash (up 115% on the year) and coal (up 67%), as well as the rapid ramp-up of Altius Renewal Royalties (ARR), with the first positive operative cash flow recorded. 

Assets Building for Future Revenue

Although revenue this coming year may be lower — based on a pullback in potash and other prices as well as the end of the 777 mine —there are multiple developments across the portfolio that are increasing NAV and auger well for increased revenue two to three years out. Chapada is examining expansion after a new discovery on the property.

The IPO of Lithium Royalty is underway, and Altius expects to receive its first lithium royalty revenue later this year. An updated feasibility study on the high-quality Kami iron ore deposit is underway. And the Silicon project is progressing expeditiously. Altius holds royalties in these projects, as well as equity in Lithium Royalty.

Altius deployed $48 million during the year in new investments, just over half in new shares in Labrador Iron Ore Royalty Corp. It ended the year with $15 million in cash, net debt of $30 million, and $93 million unused on its revolver. The cash excludes cash held at ARR of which Altius owns 58%.

Altius only gets better with time. If there is any weakness, particularly as the market appreciates that revenue may be down this year (depending on commodity prices, of course), then weakness should be bought. Imaginative and counter-cyclical management, a good balance sheet, and broad diversification in its assets make this a core holding.

Agnico May Divest Australia and Add Lithium as It Focuses on Canada

Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) has already reported its year-end, but recent presentations and a one-on-one meeting in Fla. revealed some additional interesting aspects of the business.

With the Kirkland acquisition a year ago, and now some assets acquired from Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE), Agnico has a lot on its plate. It calls last year a transformational year, with this being a year of optimization. With Malartic going underground and mining higher-grade ore, there will be meaningful excess mill capacity, and the company is evaluating plans to utilize that capacity.

It had been consolidating land around Malartic for this reason and picked up nearby deposits from both Kirkland and Yamana. Without the need to build a mill, these deposits will be relatively low cost. Agnico is also weighing what to do with single assets in Australia and Finland. All its other operations are in North America.

Agnico has said many times that it does not see itself as a global mining company, despite being the third-largest gold miner in the world, so much as one that focuses on a small number of specific jurisdictions where it has several operations and a competitive advantage. It operates in five regions in four countries, with five operating mines.

Bigger in Fewer Areas?

It acquired the Fosterville mine in Victoria from Kirkland but said, however good the mine may be, it does not want to be there for one mine. It will “go big or get out.” The same applies to a lesser extent to Finland. Although it has only one mine there, it does have equity interests in other nearby exploration companies. The Yamana acquisitions, giving it 100% control of Malartic, as well as the optimization at Detour which could see production reach close to one million ounces a year, reinforces Agnico’s homegrown roots.

It has been in the Abitibi region for six decades, while in Nunavut, it represents 30% of the total economy. The company is going to review all its operations and then make decisions later this year.

Although there are opportunities in Australia, including (perhaps) the opportunity to buy some assets that an acquirer of Newcrest might not want, we suspect that Agnico may decide to divest itself of Fosterville while keeping Finland. It has commented more than once that it has no particular competitive advantage in Australia. 

More Resource Diversification Ahead?

Another new factor is the increased interest in copper, nickel, and lithium, and Agnico may take an increased interest in those metals in its core regions rather than gold mines in more jurisdictions. It was recently approached by GM and has held talks on an alliance whereby Agnico can look for those important resources for GM. Again, CEO Ammar Al-Joundi said the company would look to optimize what it has–including all the recently acquired mines — and then revisit the entire portfolio.

Solid management, among the best in the business, a strong balance sheet, great operations in top jurisdictions, and a deep pipeline all add up to making Agnico the number one large miner.

If you do not own it, it can still be bought. 

Fortuna Wins Again in Mexican Courts

Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) obtained a permanent injunction allowing its San Jose Mine in Mexico to operate under its 12-year permit until a final resolution of a long-running dispute.

Separately, it said that the new mine in the Ivory Coast, Séguéla, is now 95% complete with the first gold pour expected in July. The mine will produce for at least 10 years, at between 120,000 and 150,000 ounces per year in the initial years, at an All-In Sustaining Cost of $1,000, making it a very low cost mine.

It is one of the highest-grade gold mines in West Africa. Significantly, the new discovery of Sunbird is not included in the mine plan yet. The company has $150 million in total liquidity, including $80 million in cash, with $170 million of debt.

Fortuna continues to trade at a discount to peers, unjustified given the conservative management, strong balance sheet, and diversified assets with growth ahead.

Hold and buy on weakness.

Kingsmen Is Back!

Kingsmen Creatives Ltd. (KMEN:SI) announced two new contracts in the last month. marking a resumption of Kingsmen’s growth path after a three-year pause due
to covid and associated restrictions. It has been awarded a contract worth about S$36 million by the Singapore Tourism Board for the Singapore Pavilion at the 2025 World Expo to be held in Osaka, Japan.

It also announced a joint venture with Good Vibrations company, an operator of family-oriented “destination attractions,” to develop branded location-based entertainment in North America. The initial ventures will be the first North American location for Nerf Action Experience and the first Planet Playskool, due to open late this year in New Jersey.

Good Vibrations said the new projects were “just the beginning” of what they plan to do together in North America. 

The Dividend Resumes

Separately, Kingsmen reported an annual profit of over $4 million, reversing a small loss in 2021, as revenue jumped, particularly in the second half of the year, enabling it to resume paying a dividend, the first since 2019. With solid management, a strong balance sheet, and a low-risk business model, these new ventures will boost revenue.

Kingsmen is a long-term holding for us. After recent steady appreciation in the stock price, we will wait to buy.

In coming issues, we will update Franco Nevada, Vista Gold, and more.

BEST BUYS now include, in addition to above, Midland Exploration Inc. (MD:TSX.V) and Ares Capital Corp. (ARCC:NASDAQ)

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Adrian Day Disclosures:

Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2022. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.


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