ROYALTY COMPANIES AND EXPLORERS ARE ON SALE
The money manager Adrian Day examined the contemporary developments at gold and iron ore companies stating that “by happenstance, this review includes most of my very favorite long-term resource holdings, all ‘buy’ at current prices.”
Royalty and Streaming Sector in Contempt of COVID:
The Royalty and streaming sector had a pretty fair 2020; their business is also well established. In contempt of COVID, there’s a limitation on many deals. They have made small and most significant deals for the most extensive amounts in the previous ten years.
Moreover, the previous year saw many newcomers that included private companies going public, also the new companies and old companies making a transition to the royalty model. In company with the gold sector in general, in contempt of a weak performance by the end of the year, royalty companies generally continue to work with large miners throughout the year, with some performance improvements. Stocks that the generalists extensively owned, such as Franco Nevada Crop and Barrick Gold Crop among miners – there was a further downward trend as unskilled people exited the market rapidly. Royalty and streaming companies continue to play a game of high prices, which means they have lower capital costs, and diversification helps limit any asset risk. However, smaller companies take advantage of the rapid and growing, as well as multiple expansion capabilities.
Franco Nevada Crop:
Franco Nevada Crop is the greatest of them all. It reported record earnings and cash flow in the most recent quarter, although sales for sales were lower than in the last quarter of 2019. Since all the mines returned to the entire operation after the closure of COVID, we should have a record sale again. Franco expects to be at the top of its 2020 guidance for the whole year when it reports this coming week. Its oil and gas revenues have also increased, representing 15% representations of the company. Franco continues to add assets, albeit minor, mostly buying royalties in search of higher options, as difficulties over the last year due to onsite prevented him from making drastic transactions. With no major purchases, cash is being replenished. It recently repaid Cobre Panama’s mainstream debt and now has a business capital of 44 9,449 million (mostly in cash). The company also has a 1.1 billion facility, which gives it the firepower to complete a big deal.
At the moment, the environment is not conducive for royalty companies to complete large transactions. Most of the royalties have been sold within the major mining companies (Pan American, Yamana Gold, Inc. – a better equity market (despite the slide in prices in recent weeks), which means that companies can raise funds without royalties.
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And the miners of twenty metals are in a solid financial position, unlike five or six years ago when they made large-scale streaming deals to repair balance sheets. There is still a chance for significant development or merger and acquisition (M&A) transaction to be part of a multi-faceted financing package. I suspect that some of these works are in progress, with complete delays due to travel restrictions on the site. Franco (and other large royalty companies) has traditionally traded at a higher price than miners, and for a good reason.
The business model mitigates risk and provides insight into future earnings. Last summer, Franco was trading at its historic high, but the stock has moved away from those heights, and now it represents a good buy for long-term, conservative investors who are exhibiting in the gold market. Want to It offers extensive exposure to multiple golds and other mines with multiple counterparts, with solid management and a rock-solid balance sheet. Franco is a buy. We may have additional comments following the earnings call next week.
Osisko Gold Royalties Ltd:
Royalty saw record revenue growth, but revenue was offset by higher-than-expected sales costs, as well as several unusual items, including higher G&A (general and administrative costs), business development costs and taxes. In particular, the financial stability of OESCO Development (OD), which ended in October (see Bulletin 766), caused “noise”. Currently, it has 75% OD, less than 88%. The goal is to reduce both ownership by chance with both potential sales. No shares have been sold yet, and not participating in future equities raised by OD. Silver contributes 24% to its revenue, with a maximum percentage of companies named “Silver”! It has a good balance sheet, with more than CA $ 300 million in cash alone and $385 million available at its convenience. It has recently restored its debt by saving interest rates of 1.5 percentage points. It also has values for different parts of the CA, which at the end of the year is CA $286million.
Assets pipeline in OSISCO Development:
The company has a strong asset pipeline in OSISCO Development (also OSISCO Mining, Metals and O3), including royalty interests and equity. This pipeline is essential when the competition for royal assets is so intense and prices are high. In a recent phone call, CEO Sandeep Singh targeted the accelerator model’s importance, which had been “greatly successful” financially and developed the pipeline.
He said he liked what he described as the pure accelerator model” but said fewer assets were available after last year’s market rally. The company has guided 78,000 to 82,000 GEOs (equivalent to an ounce of gold) for the coming year, which has described itself as quite conservative and purposeful after many disappointments in recent years. In particular, the elevator is stable and now reverses, as does the diamond mine renard, although it is not in the direction. It has a lower price in big companies, maybe justified, though I think it’s much more expansive. It is the highest yield, of 1.5%. OSISCO is not getting credit for its progress, including turning to the diamond mine Reynolds, as well as the cost-free built-in pipeline.
Altius Minerals Crop:
Noticed the Revenues of nearly $22 million were recorded for the fourth quarter, up 33% from the previous quarter. A big dividend from Labrador Iron Ore Royalty Corp. (LIF.UN: TSX), which had withheld dividends for much of 2020, boosted receipts, as did a doubling of thermal coal revenue, the purchase of an additional royalty in July; and higher commodity prices overall.
Copper sales account for about 5% of overall revenues. Altius Renewable Royalties’ IPO was the most significant recent growth (ARR: Toronto; 10.55). Altius founded and established the company, and Apollo Capital recently joined as a partner to co-invest in new properties (see Bulletin 758). The unit’s public debut came much sooner than many expected, demonstrating its rapid development. Altius currently owns around 60% of ARR, worth about $60 million on the market and royalties on various properties. The renewable business will generate its own money by spinning it off, and we expect strong growth in the coming years.
Champion Iron Ltd’s Acquisition:
The completion of Champion Iron Ltd’s acquisition of the Kami iron ore project out of receivership brought more good news (CIA: ASX). It is a high-grade, high-quality project that the recent decline has hampered in iron ore prices. They have since made a full recovery. Altius, a shareholder, lender, and royalty holder of the previous owner (after spinning out the project into a new company), now owns shares in Champion (worth over CA$20 million) and receives production-based payments.
The company’s project generation business is also continuing. Last year, over $150 million was spent on these assets, none of which were purchased by Altius. Altius has successfully sold 61 assets for royalties and shares in the last four years, and it is still putting together new ventures for which it is searching for partners. It had $136 million in cash and public equities at year’s end (only $30 million in cash) and $141 million in debt. “We don’t see a lot of places to invest it,” the company says, despite continued sound cash generation. Altius is now in the harvesting process after spending the lean years assembling properties. The dividend may increase in the coming years.
Midland Exploration Inc. (MD: TSX.V, 0.75) is making progress on a variety of fronts. Last fall, it reported promising exploration results, including discovering a new gold-bearing zone on its Maritime-Cadillac project, which it co-owns with Agnico Eagle Mines Ltd. (AEM: TSX; AEM: NYSE). Drilling on various projects, including joint ventures and sole-owned properties, is currently underway or will be before the end of the winter season. Drilling by partners Probe Metals Inc. (PRB: TSX.V) and Wallbridge Mining Co. Ltd. (WM: TSX) is part of this, as is drilling on the wholly-owned Samson project, were discovered during last year’s drilling. Moreover, it introduced the results of the regional alliance’s first field program with BHP Billiton Ltd. (BHP: NYSE; BHPLF: OTCPK). Under the deal, $1.4 million is still to be spent on discovery, plus spending on “designated projects.” We should hear something soon, and drilling will take place later this year.
This new land includes a sizeable nickel-copper land area in Grenville, declared at the end of February, both through staking and acquisition. Midland has as good a chance at exploration success as anyone, with a solid balance sheet, ambitious management, several joint ventures, and a pipeline of projects with several ready for new partners. It’s a good deal at this price.
Lara Exploration Ltd. (LRA: TSX.V, 0.60) is quietly evolving, building value and producing stable revenue streams. It currently has two properties in development and expects to drill on up to six projects this year, three in Brazil and three in Peru. Development at the Celesta copper project in Brazil is ongoing, with royalty revenue earned in the last few months. When a new mill is installed and a second mining front is established, it could dramatically increase production. Lara is now seeking credit for the project’s delays.
The ground has been optioned at a second project in the region, Planalto, to increase strike potential. Capstone Mining Corp. (CS: TSX) plans a $1.8 million drill program to start next month. For an organization like Capstone, the project needs to be larger, but the findings so far show that it will quickly find another partner if Capstone drops it. Finally, Lara plans to start a small drill program on its 100%-owned Itaituba vanadium project in the hopes of raising the value of any potential option earn-in.
Lara’s Peru workers had trouble getting about due to COVID, but one project is moving along nicely. The Corina copper plant is being drilled by Hochschild Mining Plc (HOC: LSE), a partner with a flagship mine nearby running out of ore reserves. Corina has the potential to substitute the ore by providing feed to a mill that already exists. Hochschild will pay Lara $1 million in July to remain in the relationship, with another $2.5 million due next July. There are other successful ventures in Peru and Brazil and the Colombian Biofax project, which began producing at the end of last year and for which Lara holds a royalty.
Lara, known for its frugal ways, is well-funded, with $1.7 million in cash on hand and $2.3 million in revenue for the year. Lara is fully funded for the coming year, assuming Hochschild remains in Corina. Lara is a good investment.
Top buys of the week: All is on sale in the gold section, and it’s like being a child in a candy store. We can afford to be very selective now that we have it figured out. Best buys, in addition to those listed above—and all five of those as mentioned above are excellent buys include Wheaton Precious Metals Corp. (WPM: TSX; WPM: NYSE, US$36.21); Royal Gold Inc. (RGLD: NASDAQ; RGL: TSX, US$104.55); Fortuna Silver Mines Inc. (FSM: NYSE; FVI: TSX; FVI: BVL; F4S: FSE, US$6.68); and Barrick Gold Corp. (ABX: TSX; GOLD: NYSE, US$19.83) There may be better buys or pending advances that might weigh on the stock in the short term, so a business may not be on this list.
Canadian Gold Producer Monument:
Monument Mining, a Canadian gold producer, has signed a definitive agreement to sell Fortress Minerals a 100% stake in its Malaysian subsidiary. Monument Mengapur (MMSB), which owns a 100 % stake in the Mengapur Copper and Iron Project, will be sold by the group.
Monument Mining president and CEO Cathy Zhai said: “This is a part of our corporate restructuring that will spin off the base metal project and allow us to focus on the development of our gold portfolios in both Malaysia and Western Australia.” Fortress Minerals will pay Monument Mining $30 million in cash and offer a royalty of 1.25 per cent of gross sales on all goods generated at the Mengapur Project in exchange for MMSB shares. Fortress Minerals’ gross magnetite reserve will rise from 7.18 million tons (as of February 2020 from its Bukit Besi mine) to 17.93 million tons due to the proposed acquisition. According to the company, the acquisition will help Fortress Minerals achieve its goal of becoming a major regional iron ore player. It will also explore and develop various iron ore assets in Malaysia, adding to its current advanced iron ore projects. The deal is subject to Fortress shareholders’ approval, SGX-ST approval, and other conditions spelt out in the definitive agreement. The agreement is supposed to be concluded in three months from the date of signing. The net proceeds will be used to fund the construction of corporate and gold ventures. Monument Mining owns 100% of the Selinsing Gold Mine in Malaysia and works on several exploration and development ventures.
Initial reaction to Cleveland-Cliffs acquisition of Arcelor Mittal USA:
Overall, it seems that this is a wise decision for all parties concerned.
ArcelorMittal sells old assets with a high-cost structure for producing steel while keeping a mill with one of the world’s lowest-cost structures.
Cliffs, on the other hand, gains a vast auto book of business with high margins. Furthermore, it would phase obsolete, costly capacity out of the steel industry.
Tacora Resource Inc Completes Acquisition of Sydvaranger
The Tschudi Group’s Shipping and Logistics: From 1910 to 1997, from 2009 to 2015, Sydvaranger produced high-grade iron ore concentrate with a 68 per cent iron content for pelletizing operations. Since 2006, the Tschudi Group, a Norwegian shipping and logistics firm, has been working with the Sydvaranger Mine. The Sydvaranger assets were re-acquired by the Tschudi Group in 2016, and the company has since based its efforts on completing a feasibility study and planning to restart operations. Sydvaranger’s high-quality, low-impurity magnetite iron ore concentrate has significant environmental and cost benefits for steel producers and pelletizing operations, including improved blast furnace efficiency. Reduced slag volumes, lower CO2 emissions per ton of steel generated, and lower energy requirements for pelletizing are just a few of the benefits.
The President and CEO of Tacora:
Thierry Martel, the President and CEO of Tacora, will lead the expanded organization. Mr Martel said, “With this acquisition, we bring together two responsible mining companies with the capacity to produce an iron ore concentrate with characteristics very desirable to steelmakers. The Sydvaranger Mine builds upon our strategy to deliver high-grade iron ore products to steelmakers globally, allowing them to produce more steel per tonne of raw material input and therefore reduce their environmental footprint.”