Agnicos Production Hit and Costs Up, but Outlook Good

Source: Adrian Day 11/01/2023

Global Analyst Adrian Day discusses some set-backs at several major mining companies, as well as stellar results from a top business development company.

Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE)reported 3Q production up 4% on the prior year, though still slightly below expectations.

Higher production at Malartic was offset by a temporary transformer issue at Detour Lake that resulted in 25 days of significantly reduced mill output. The Detour issue had not been previously communicated to the market but is now resolved.

Costs were up, with All-In Sustaining Costs of $1,210, up 15% year-on-year, attributable to general inflation.

Finland Permit Ratified for Increased 4Q Production

After the company’s quarterly results call, it announced that the Supreme Court of Finland had ruled that its permit at the Kittila mine should be restored to 2 million tonnes per annum, up from the current 1.6 million, dismissing an appeal against the higher limit, which had been upheld initially by a lower court.

Although Kittila represents only about 5% of Agnico’s NAV, putting this to bed is a positive in that it eliminates one overhang and potentially frees Agnico to be more active in Finland. With the Detour Mine now producing as scheduled and Kittila’s output increased, the current quarter could see a pick-up in production.

Agnico is now guiding to the upper end of its guidance range for this year. The balance sheet is strong, with cash of $356 million, down $77 million in the quarter, with debt of $1,843.

Also, it was announced that Sean Boyd was moving from Executive Chairman to Chairman, indicating that the CEO move to Ammar Al-Joundi had gone well. Boyd had been the CEO from 2015 until last year.

Agnico is a best-in-class major miner and a Buy.

Franco’s Panama Stream Should Be Safe, Despite Mining Ban

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) received more bad news on its largest asset, its stream on First Quantum’s Cobre Panama mine. No sooner had the new contract between the miner and the government been enacted into law earlier in the week than violent demonstrations erupted, and the Supreme Court said it was considering new lawsuits to void the contract.

Then, Friday night, the government announced that all new mining contracts had been banned, including pending concessions, effective immediately. Although this ban explicitly excludes Cobre Panama, it does not say much about the environment for mining in the country. Recent results from the mine have been positive; the stream represents almost 20% of Franco’s earnings.

Nonetheless, if the stock falls on this news when the market opens Monday, it’s a Buy.

An Osisko Mine Suspends Operations

Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) Renard diamond mine has temporarily suspended operations due to low diamond prices, according to majority-owner Stornoway, which has commenced a restructuring of the mining company. Osisko, a 35% owner after an earlier restructuring, has a 9.6% stream, which had been forecast to contribute about 10% to Osisko’s revenues from next year on.

However, Osisko had earlier indicated that it was not expecting any production during the fourth quarter, so this move is not a complete surprise. A short mine life, as well as low profitability, suggests some hard thinking on the value of adding more funds to keep the mine alive.

We are holding Osisko.

Ares Shows How To Prosper in the Current Environment

Ares Capital Corp. (ARCC:NASDAQ) reported strong quarterly results, with earnings up, increased NAV, and strong credit metrics. Net Investment Income continues to outpace the dividend, putting the company in a strong financial position.

Core earnings at 59 cents per share are up from 50 cents a year ago. Its portfolio companies continue to perform well despite the higher interest rates. Of new loans, half went to existing borrowers, a little lower than recent quarters as new activity picks up, but consistent with the historical level.

Credit Improves and Companies Prosper Despite Higher Rates

The improvement in credit was noteworthy, with non-accruals improving from the last quarter to just 1.2% at cost. Ares is conservative with lower leverage, which fell slightly from the last quarter. It is well diversified, with a portfolio of mostly defensive companies and no single company representing more than 2% of its total portfolio. Ares has a spillover income of $1.80 per share and is well financed, putting it in a strong position to capitalize on any volatility in the market.

The backlog of loans and longer-term pipelines is strong as companies turn to alt financing to replace bank financing as banks turn away from lending to middle-market companies. Thus, not only does the number of opportunities increase, but the quality improves as well.

A diverse funding profile, scale, and experienced management team with a long-term track record make Ares not only the largest but one of the best of the Business Development Companies.

Its regular quarter dividend remains at 0.48 cents, though an increase is anticipated next year, putting the current yield at 10.3%. It is trading a little below NAV, with earnings fully covering the dividend.

Ares is a Buy here for long-term income-oriented investors.

New Stream for Wheaton, With Upside

Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) has acquired a silver stream on the developmental Minerals Park project in Arizona. The $115 million purchase price will be paid in stages on various hurdles.

The mine, due to commence production in 2025, has a current 12-year mine life but with the potential to expand to over 20 years, at which point the stream would have an IRR of 6-8% at current silver prices.

Well-funded Wheaton will make the purchase payments from cash flow.

Hold Wheaton after the recent rally.

TOP BUYS this week, in addition to above, include Nestle SA (NESN:VX; NSRGY:OTC), Hutchison Port Holdings Trust (HPHT:Singapore), Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX), Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), Altius Minerals Corp. (ALS:TSX.V), Midland Exploration Inc. (MD:TSX.V), and Lara Exploration Ltd. (LRA:TSX.V).

Given the strong move last week, and particularly Friday in gold and major gold stocks, we are, for the most part, holding off on adding to these, though a couple of our favorite juniors are at attractive buy levels.

WEBINAR CHANGE Unfortunately, Jim Rogers had to cancel his appearance on our upcoming On the Move webinar. The good news is not only will we reschedule Mr. Rogers in the New Year, but our guest on November 9 will now be Brien Lundin, ringmaster of the New Orleans Investment Conference and editor of The Gold Newsletter.

Brien will tell us some of the things he learned at the conference next week, discuss the Federal Reserve and the government debt, and discuss why the junior gold stocks are so inexpensive. Brien is eloquent about many topics, and this is bound to be an educational and profitable webinar. It is live, starting at 7 pm Eastern time. It is free to attend, but you need to register. Register here.

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Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Agnico Eagle Mines Ltd., Franco-Nevada Corp., Osisko Gold Royalties Ltd., Fortuna Silver Mines Inc., Altius Minerals Corp., Midland Exploration Inc., and Lara Exploration Ltd.
2. Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: All. I determined which companies would be included in this article based on my research and understanding of the sector.
3. Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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Adrian Day Disclosures

Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. www.AdrianDayGlobalAnalyst.com. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. 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. © 2023. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.

( Companies Mentioned: AEM:TSX; AEM:NYSE,
ARCC:NASDAQ,
FNV:TSX; FNV:NYSE,
OR:TSX; OR:NYSE,
WPM:TSX; WPM:NYSE,
)

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