Today, expert Adrian Day reviews the latest acquisition by Agnico Eagle Mines Ltd. and shares his thoughts on some of the resource companies on his list.
Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) acquired 50% of the San Nicolas copper-zinc project in Mexico to own jointly with Teck Resources Ltd. (TECK:TSX; TECK:NYSE). This was a surprising development: Mexico had been the lowest priority of its various operating regions; it is a joint venture (Agnico has one other such jointly owned mine, the Malartic Mine, a special case); and it is primarily base metals, a divergence from the company’s historical gold focus.
About 20% of this high-grade mine is gold and silver, and once in production, the mine would represent about 15% of Agnico’s total production. Mexico would jump from 3% to 18% of production.
The transaction terms are favorable for Agnico, with no upfront payment and only US$50 million for a total of US$290 million over the first two years.
Viewed on its own, the transaction is very attractive but is a departure for Agnico. However, the deal is a good one, and CEO Ammar Al-Joundi emphasized to me that the company still likes Mexico and remains primarily a good company.
Agnico, the most conservative of the big-cap miners, is a Buy.
Pan American Is Getting Close in Guatemala
Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) reported a 35% increase in resources at its La Colorada skarn deposit, with indicated and inferred of 870 million ounces of silver equivalent. The deposit remains open in all directions.
In my meeting with CEO Michael Steinmann, he was cautiously optimistic about the current consultations over the halted Escobal mine in Guatemala between the government and the local indigenous group.
The consultation is scheduled to be completed in February, when the recommendation will go to the Supreme Court, after which the ministry of mines could approve Pan American’s permit to operate the mine. I do not believe a restart of Escobal is reflected in the stock price.
Steinmann noted that the Dolores underground, which suspended operations earlier, could come back online if prices moved higher, though that was not their base case at present. The impairment and quarterly loss came from one phase of the open pit, not the underground suspension.
In anticipation of Pan American receiving the green light to restart Escobal, the stock, very close to a more-than two-year low, is a Buy.
Osisko Also Goes Off-Piste With Copper Acquisition
Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) acquired a 1% royalty on the Marimaca copper project in Chile for US$15.5 million. A feasibility study is expected to commence later this year. Osisko owns a silver stream on the nearby Mantos Blancos copper mines, operated by Capstone.
The company remains primarily a gold royalty company but indicated a willingness to acquire royalties on certain other resources, including copper, at the right price.
For Osisko, as with many other gold companies, the second half of the year is normally the stronger, while Osisko also sees some projects improving output (including Mantos and Eagle), while it is likely that by year-end, it will be able to stop incorporating the results of 44%-owned Osisko Development into its own results, which will be an important step, removing confusion from the market.
Osisko is a Buy.
How Does Fortuna Succeed When Others Fail?
Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) reported that the Séguéla mine construction is 78% complete, with most of the “riskier” parts of the build complete. The mine remains on schedule and on budget, a rarity among recent mine builds. The first gold pour is expected in the middle of next year.
I asked CEO Jorge Ganoza how Fortuna was able to build a mine on schedule and on budget amid so many failures. He noted the company had a good construction team that had worked together two or three times before. He also emphasized planning; the company took the time to plan the build and assemble personnel before commencing actual construction.
Lastly, he said that West Africa, in general, and Ivory Coast, in particular, was a place where a mine could be built efficiently. Ganoza also noted that Paul Criddle, who stepped down in August as West Africa COO, remains a consultant to the company.
Both Séguéla and Lindero can exhibit 10 years of reserves ahead, and while the company continues to look at opportunities, it has “lots of value to be harvested” from its existing portfolio, particularly in West Africa.
Fortuna is a Buy.
No Deal Yet for Vista
Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX) updated its process seeking a partner or other transaction on the Mt. Todd gold project, saying many interested parties have reviewed the data and carried out independent testing, as well as conducted site visits.
Vista said it continues to engage “in constructive discussions” but noted that current uncertain market conditions “have resulted in . . . parties adopting a more cautious near-term business strategy” and added that “completion of an acceptable transaction may be dependent on improvement and stability in the economy and capital markets.”
From my conversations with CEO Fred Earnest, several points are clear. No satisfactory offer has yet been made, and one is unlikely in the near term. There has been much interest. Its extensive technical work has been validated, and no objections were made to the project overall.
For most majors, this is not the time to make a large-scale acquisition on a project with a large capex. I also believe that the company’s obvious preferred route of retaining an interest, rather than an outright sale, may be slowing offers.
Alternatives for Vista
Given the value of the project, the company could decide to put a sale on hold until the market improves, but that might be another equity raise. The company has cash of just over US$11 million, which, at a current spend rate of US$500,000 per month, will take the company a little more than a year before it would have to raise more funds. It is looking to bring down its burn rate.
Alternatively, it could decide to proceed with building a smaller-scale operation itself, but I do not believe that will be the outcome. Or it could decide to accept a less-than-optimal offer, perhaps with an option sweetener, exercisable on certain conditions.
We are holding for now.
Anglo Talks up Orogen’s Royalty Property
Orogen Royalties Inc. (OGN:TSX.V) has received positive news concerning its royalty on Silicon property in Nevada. Owner AngloGold is acquiring properties south of Silicon, including an extension of the Merlin deposit.
By consolidating the area, Anglo, which has been tightlipped on the project’s potential, may now be more prepared to discuss it. And indeed, at the Denver Gold Forum last month, it highlighted the project with very positive comments, referring to “a three-decade plus operation,” saying the company intends is “focusing significantly” on Nevada; a pre-feasibility is underway on Silicon.
We expect Orogen to be involved in some M&A activity soon, though in what form is unknown.
With current cash flow and the valuable Silicon royalty, Orogen is a Buy.
Midland Finds Lithium, Attractive Icing
Midland Exploration Inc. (MD:TSX.V) has solidified its land position around the Mythril projects in James Bay and is evaluating the lithium potential. The price of the
battery metal has gone up over 250% this year (and is up 10-fold since the beginning of last year), sparking a land rush after a nearby discovery.
Midland may sell or joint venture its lithium-potential land. Having moved up from US$0.35 a month ago, we would look for a pullback to Buy.
TOP BUYS this week, in addition to any above, include Ares Capital Corp. (ARCC:NASDAQ); Gladstone Investment Corp. (GAIN: NASDAQ); Franco-Nevada Corp. (FNV:TSX; FNV:NYSE); Lara Exploration Ltd. (LRA:TSX.V); and Hutchison Port Holdings Trust (HPHT:Singapore).
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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. www.AdrianDayGlobalAnalyst.com. 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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