Positive Developments at Gold Juniors

Source: Adrian Day for Streetwise Reports 06/23/2020

Fund manager Adrian Day assesses recent developments at two junior gold companies, as well as provides a brief update on the gold market.

Midland Exploration Inc. (MD:TSX.V, 0.86) has optioned its Casault property to neighboring company Wallbridge Mining Co. Ltd. (WM:TSX), which made a discovery on its property last year. We view this as potentially quite positive, both because Wallbridge is well financed and aggressive, but also because it has a high profile, with leading gold investor Eric Sprott as a recent shareholder. Midland should come to the attention of gold investors who follow Mr. Sprott. Wallbridge has been consolidating the area, and earlier this year acquired Balmoral Resources.

Casult, on the prolific Detour Trend in northwest Quebec, consists of 322 claims, and includes the Vortex Zone discovered by Midland and then-partner Soquem Inc.; Vortex returned some high grades in 2017, but it was never properly followed up. Earlier this year, Soquem returned the property in exchange for base metals properties in Gatineau. (Soquem, a government mining unit, focuses on base metals more than gold.)

Money in the ground

Wallbridge can earn a 50% interest over a four-year period by spending $5 million and making modest payments to Midland. Expenditures and payments increase to take Wallbridge to 65%. It will be the operator, and will commence immediately on exploration at Vortex. Walbridge said the agreement “sets the stage for additional discoveries.” Midland retains other land in the Detour Belt, which it plans to explore this coming season.

With a strong balance sheet (CA$13 million), technically strong and market-savvy management, a deep property portfolio with a growing list of partners, and a recommitment to the prospect generator model, Midland is one of our favorite exploration companies. This new agreement provides a catalyst and makes Midland a buy at this price.

Vista Monetizes Assets to Fund Growing Mount Todd Property

Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX, US$0.91) said recent geologic work suggests continuity of mineralization among three deposits at its Mount Todd property in Australia, which, together with a stronger gold price, makes it “possible to envision a 20-year mine life,” according to CEO Frederick Earnest.

Raising money without diluting shareholders

Separately, the company amended its option agreement on its Guadalupe de los Reyes, accelerating its final option agreement and granting Prime Mining Corp. (PRYM:TSX.V) the right to purchase an option and other rights on the property. This continues Vista’s program of monetizing various assets in order to focus on Mount Todd, without a dilutive equity raise. Together with a recent agreement on an Indonesian property, Vista now stands to realize over $6 million over the next 16 months.

Because of the recent run in Vista’s stock price and our concern about a possible pullback in the gold price, we are holding, but would be buyers on a correction.

Top Buys

Despite a strong rally on Friday, gold appears to be losing short-term momentum, with increasingly smaller inflows into gold exchange-traded funds (ETFs)—and almost $100 million of withdrawals on the last reported day. Gold mutual funds are also seeing smaller inflows and coin sales have dried up. Gold stocks have also seen lower highs and lower lows over the past month. This all suggests the rally is losing momentum, and we could see a pullback in the next few weeks.

Much the same holds true for many other resources. Because of these concerns, we are buying little in the gold, or resource, space right now, but stand ready to buy on meaningful pullbacks.

Other than Midland Exploration (above), buys on our list this week include Evrim Resources Corp. (EVM:TSX.V, 0.33–0.36), merging with another junior, Renaissance Gold Inc. (REN:TSX, 0.35), which offers a cheaper way to buy Evrim right now. Others—Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE), Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX)—would have been buys before Friday’s strong rallies. Patience!

Originally posted on June 21, 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: Evrim Resources, Midland Exploration, Royal Gold. 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: All. 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.

( Companies Mentioned: EVM:TSX.V,
MD:TSX.V,
OR:TSX; OR:NYSE,
REN:TSX,
RGLD:NASDAQ; RGL:TSX,
VGZ:NYSE.MKT; VGZ:TSX,
)

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