A Favorite Explorer Is at a Good Price

Source: Adrian Day for Streetwise Reports 04/29/2020

Money manager Adrian Day reviews an exploration company that he rates a “strong buy.”

Lara Exploration Ltd. (LRA:TSX.V, 0.54) is a diversified prospect generator, mostly with copper and copper-gold projects in Brazil and Peru. It aims to generate royalties from properties it generators, whether by staking or in some cases acquiring.

Its main assets include a 30% free-carried interest, plus royalty, on the Planalto copper-gold project in Northern Brazil, into which Capstone is earning; last week, drilling at the property saw new mineralization to the west and northwest of the existing zone, extending the footprint, as well as a hole to the east in a new area, that also hit.

It also has a 2% royalty at Corina, a gold project in Peru, which Hochschild is buying through staged payments. Hochschild is awaiting permits to follow up with promising results from earlier drilling. Although earlier stage, the property is adjacent to an existing operation of Hochschild, where the mill has excess capacity, so mining at Corina could be permitted quickly and the ore processed cheaply.

Cash-flow ahead

In the near term is the royalty and 5% ownership Lara holds on a copper project in Brazil, called Celesta. Because of a missed deadline to be in production, Lara is now receiving monthly payments of $100,000, with production and royalty payments expected now in the 3rd quarter. This will provide Lara with payments of around C$750,000 per year, enough to cover most of its overhead.

In addition, Lara has over 20 projects, about half of which are 100% owned, ready for partners. Some are very promising with active interest from potential partners. The recent lockdowns and travel restrictions have slowed the advance of these potential joint ventures, but once things open up globally, we expect at least a few of these to get out of the door.

Disputed property has enormous value

And more uncertain, but potentially most valuable, is Lara’s 49% interest in the Liberdade copper project in Brazil, a joint venture with the Chilean state copper company Codelco,

which is currently before the Brazilian courts after Vale disputed ownership. Suffice to say, the value of this asset is not in Lara’s share price at all at present; a win would mean a value to Lara equal to its entire market cap today. Even without this, however, Lara is quite undervalued and has enormous potential.

A strong cash position with disciplined management

With around C$2 million in cash, an expected $2.2 million of payments this year, and an all-in budget of around C$2 million, Lara is in a strong financial position. Its management is very disciplined and quite frugal and has demonstrated the ability to reduce its burn rate when necessary. With top management that has achieved success before (Reservoir Minerals), a strong balance sheet, near-term cash flow, two partner-paid drill programs this year, and several high potential assets, Lara is a very solid exploration company. At the current share price, it’s a very strong buy for patient investors.

TOP BUYS: We remain cautious on both the broad market and resources, believing the risk of another significant decline in both areas is very real. Best buys at today’s prices, in addition to Lara, include Altius Minerals Corp. (ALS:TSX.V, 8.02); Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE,US$2.71); and Kingsmen Creatives Ltd. (KMEN:SI, 0.21).

Originally posted on April 26, 2020.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”

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Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Lara Exploration and Altius Minerals. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Lara Exploration, Altius Minerals, Fortuna Silver and Kingsmen Creatives. I determined which companies would be included in this article based on my research and understanding of the sector.
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Adrian Day’s Global Analyst disclosures: 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. © 2020.

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