Source: Adrian Day for Streetwise Reports 06/01/2019
Money manager Adrian Day discusses recent results from Midland’s drilling at Myrthril, as well as recent results from several other major gold companies, noting some are good buys.
Midland Exploration Inc. (MD:TSX.V) (0.95) released its eagerly awaited maiden drilling results from its Mythril property in James Bay. They were not a blockbuster, as some had unrealistically been expecting, but nor were they “dusters”; rather, they offered encouragement. After a break for the goose-hunting season, Midland plans a stepped-up drilling program early next month.
The initial results, from a 2,500-meter, 10-hole program, showed some good copper grades on a few holes, and demonstrated thickness. Each of the 10 holes intersected high-grade copper-gold-molybdenum mineralization. President Gino Roger said the results shows that the property was “fertile,” emphasizing that to date, Midland had touched only 8–10% of the property.
What’s next for Mythril?
The next drill program, of six to seven thousand meters, utilizing two drills, will last through the end of July. It is therefore significantly more extensive than the first program. It will test to depth below the two most promising of the initial holes, and will test to the south, where geophysics suggests the mineralization gets stronger.
The world’s largest mining company, BHP, which invested in Midland in April, is sending some ore to its lab to test the age of the rocks. This is important because indications are that the rock is Archean, and porphyries from that era, though not unknown—including in Quebec and India—are relatively unusual, meaning there are few analogs to help guide an understanding of the deposit. Results are expected around the middle of June.
Activity continues
Separately, Midland announced results from an IP (induced polarization) survey and channel sampling around the Elsa gold showing, also in James Bay; grab samples returned some strong assays. This demonstrates more than anything else that Midland has a deep bench of projects that it is continuing to work, notwithstanding the focus on Mythril. It has CA$19 million in the bank, more than sufficient for current programs.
Given we already hold Midland, we would look for additional weakness—possible, given the gap before the next Mythril results and the onset of summer with its typical low trading volumes. But if you do not already own, definitely look to be buying for exposure to a company with top management, a strong balance sheet, and multiple projects and partners, plus exposure to what could be the early stage of Canada’s next big area play.
More Records from Core Holding
Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) (74.18) released strong financials, with earnings above consensus on the back of record metals revenues, boosted by an increase in oil and gas revenues. The results were aided by Candelaria, where operations are now back to normal after a pit wall slide in late 2017 that hurt production over the past year; Stillwater, on the back of strong palladium prices; and Sudbury.
Guidance for the next major revenue source—Cobre Panama—remains unchanged, with first copper shipment this quarter, and significant ramp-up throughout the year.
With over $1 billion in available liquidity, Franco is in a strong position to make other acquisitions, perhaps helping companies wanting to purchase one or more of the mines expected to be sold by Newmont and Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) following their major acquisitions (Goldcorp and Randgold respectively). Franco remains our core gold holding, though having moved from $69 in last April, we would wait for a pullback before buying.
Solid Results at Newly Combined Company
Newmont Goldcorp Corp. (NEM:NYSE) (31.41), which we acquired following its purchase of holding Goldcorp., released latest results showing solid operations on lower costs. Newmont has issued conservative forecasts on Goldcorp’s assets; we anticipate a cut in reported reserves at some of these properties. Goldcorp’s mine Penasquito, in Mexico, remains closed amid a blockade by contractors. With a low geopolitical risk profile, a deep project pipeline, and a strong balance sheet, Newmont could do well in any positive gold environment. We would, however, look for a pullback toward $30 to buy.
Difficult Quarter but Risk Is Low
Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) (9.90) reported lower “production” and higher development expenses than estimates; it included an impairment charge on its Renard diamond stream, following a charge by the mine’s operator. Osisko maintained its guidance for the full year, however, indicating improvement in coming quarters.
The company has a reasonable balance sheet, with net debt of $216 million and an investment portfolio valued at quarter end at $404 million (up from $397 million at year-end). Though the entire portfolio could not be sold (and is not for sale), it does provide a source of liquidity from time to time.
Osisko is also continuing its major share repurchase program, buying 1.7 million shares so far this year. With the stock price down from over $11 for most of this year until this month, it would be reasonable to assume the repurchase program is continuing, and provides some downside protection. Osisko is a buy at this price.
Affiliate Lends Gold
Almaden Minerals Ltd. (AMM:TSX; AAU:NYSE) (0.435) and spin-off Almadex Minerals Ltd. (DEX:TSX.V) announced a secured gold agreement by the former from the latter. Almaden can borrow up to 1,597 ounces of gold (currently around $2 million), at 10% interest on loaned amounts, with a 1% fee on any unborrowed gold. Almadex also received warrants; the loan’s maturity is March 2024, though it can be extended for two years at the lender’s option. Almadex is already well cashed and had no need of the gold itself, which will be repaid from production from Almaden’s Ixtaca mine.
For Almaden, it’s a good deal, generating additional funds for advancement of Ixtaca without additional dilution. Of course, the risk for Alamadex is that the mine does not come on stream by the time the loan is due. Security is “certain equipment related to the Rock Creek Mill not required for Ixtaca,” and we can’t judge that’s liquidity.
We are holding both companies. Given the phase of development of Ixtaca, there seems no rush to add more, while Almadex stock recently shot up (from $0.26 to $0.34), so we will wait for additional pullback. It is however very undervalued based on its hard assets, plus various royalty interests, and exploration projects.
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 shares of the following companies mentioned in this article: Midland Exploration, Franco-Nevada. 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: Midland Exploration, Franco-Nevada, Newmont Goldcorp, Osisko Gold Royalties, Almaden Minerals and Almadex Minerals. I determined which companies would be included in this article based on my research and understanding of the sector.
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( Companies Mentioned: AMM:TSX; AAU:NYSE,
DEX:TSX.V,
FNV:TSX; FNV:NYSE,
MD:TSX.V,
NEM:NYSE,
OR:TSX; OR:NYSE,
)