Resource Companies with Strong Developments Not Reflected in Stock Prices
Fund manager Adrian Day updates developments at one of his favorite royalty companies, as well as from several other companies in his portfolio.
Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE, US$9.30),has been involved in several transactions this week. Arizona Mining, in which OR holds a 1% royalty, is being acquired by Australian miner South 32. Dalradian, in which OR holds 9% of the shares and a royalty, is being acquired by a private mining finance company (Orion). The purchase offer is at a 62% premium to the share price, but is still only at 60% of the NAV, so Osisko has decided to hold on to its shares. Osisko has acquired a silver stream on the Horne 5 project of Falco, one of Osisko's "incubator" companies. For $180 million, in staged payments, plus a per-ounce payment, Osisko will receive 100% of the silver. The return on the investment is attractive, though Horne is not considered an easy project, and Falco still has to raise the bulk of the capex. The staging of payments helps minimize the risk to Osisko.
Though none of these developments is a game changer, all are positive, and all help the building of a cash flowing portfolio of royalties and streams. The market seems to have focused on the negatives the capex required for Horne, that Dalradian was not acquired by a mine-builder, and so on and the stock has fallen. At $9.27, it is within pennies of its annual low (last week it traded at $9.18) and very close to is end-2016 low. Buy.
Drill results continue to justify going alone
Lara Exploration Ltd. (LRA:TSX.V, CA$0.61) released further results on its Planalto project in Peru, right after my last note was published. The new results include 130 meters of 0.88% copper, with the length of mineralization as impressive as the grade. Lara is undertaking a reinterpretation of data from its previous joint venture partner on the project. That partner dropped out, but has now been acquired by OZ Minerals, an Australian company already active in the region. Lara is seeking another partner on the project, but is prepared to do some more work to advance the project. With its multiple properties and several high-potential projects, Lara stock has barely budged with the results from Planalto and earlier the Puituco property, making it a very strong buy at the current level.
Strong resource estimate and market yawns
Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT, CA$3.22)announced an initial inferred resource for the lower Zone at Timok. This lies below the 100%-owned Timok Upper Zone, currently under development, and is a joint venture with Freeport. The resource estimate was strong, with 1.7 billion tonnes of copper and with better grade copper than anticipated, again showing that this is one of the very top undeveloped copper deposits in the world.
The stock did not respond, however. In my view, this was because first, production from the Lower Zone is well into the future, and the resource is all inferred at present; and second, the market is more focused on the possibility of a revised bid from Lundin (or someone else) at present. Of course, if Lundin publicly withdrew its proposal and no other bid was out there, the stock would fall back. But this resource adds more value to Nevsun, and, notwithstanding the near-term risk, it is a buy at current prices.
Equities add to balance sheet strength
Altius Minerals Corp. (ALS:TSX.V, CA$13.02) has a portfolio of equities. This is currently valued at approximately $160 million, itself significant. Most of it is in junior exploration projects, but nearly half of that is held in the liquid Labrador Iron Ore Co., which yields about 9% and could be turned to cash quickly if needed. Altius is a buy.
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: Osisko Gold Royalties, 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: Osisko Gold Royalties, Lara Exploration, Nevsun Resources and Altius Minerals. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None.Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
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