Source: Adrian Day 08/16/2023
Global Analyst Adrian Day shares updates from several companies this week, both quarterly results and other news. In addition, recent technical difficulties delayed the writing and made this briefer than otherwise. Day aims to send another Bulletin in the coming days with more company updates, and he is also working on an article on the factors that move gold. Day also has more stocks on his list that can be bought currently than he had thought for a while.
Orogen’s Royalty Deposit Growing Greatly
Orogen Royalties Inc. (OGN:TSX.V) received far better-than-expected news when AngloGold announced an update on its major gold discovery near Beaty in Nevada, specifically on the Merlin deposit that had been excluded when the company updated the adjacent Silicon deposit earlier in the year. What Anglo calls its “exploration target” at Merlin is between 6 million and 8 million ounces of gold; this is in addition to the 3.4 million indicated ounces (and 800,000 inferred) at Central Silicon.
Orogen holds a 1% royalty on both deposits. Merlin remains open to the north, south, and southwest, while both deposits remain open to depth. Anglo is planning to release a concept study on the combined Silicon-Merlin project by year-end, which will include an initial resource estimate for Merlin. Drilling continues at both deposits. Orogen’s CEO, Paddy Nichol, is surely correct in saying that “the new announcement clearly indicates that a world-class deposit is developing” in the area subject to Orogen’s royalty.
What’s the End Game?
Silicon-Merlin could form the long-term cash-flowing foundation for Orogen, which has current cash flow from its Ermitaño royalty, to continue generating prospects and building a large company. Silicon revenue should commence before Ermitaño (as well as adjacent areas of Ermitaño East and Cumobabi end).
However, given the attractiveness of both of these key royalties, Orogen, at some stage, could receive a bid. The strong shareholder base that effectively controls the company makes it clear that only a very strong bid be successful.
Either way, Orogen’s suite of assets, balance sheet, and management make it a buy, particularly for those who do not own it.
Fortuna Stock Plunges on Operational Issues, Making It a Great Buy
Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) had a series of negative operational issues, some of which had already been reported, affecting the company’s financial results; operating results had been released earlier. In addition, costs were higher than expected (largely attributable to costs associated with the acquisition of Chesser, as well as lower production, affecting costs-per-ounce), but full-year guidance remains on track. The negative operating issues include the stoppage at San Jose due to a blockade and delayed shipment at Séguéla.
The market overreacted on the downside to these results, providing us with another opportunity to buy. Fortuna rallied up to US$3.85 in mid-July and has now given back all of that move and more, trading at its lowest level since last November.
Fortuna is a very Strong Buy at this level.
Osisko Has Strong Results, but Questions Remain
Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) reported earnings slightly higher than expected after pre-releasing GEO deliverables and revenues for the quarter, with the higher-than-expected earnings due to lower depreciation. Full-year guidance was reiterated, and other discussion was positive, though not unexpected, with most of the larger underlying operations performing well.
Both Renaud diamond mine and Kwale saw reduced production. The ramp-up at the Malartic underground, which mine carries Osisko’s largest royalty, is progressing well. This, and other growth plans, are underway that see Osisko’s GEOs grow by about 35% in the next five years. The balance sheet remains strong. After spending CA$213 million on new streams during the quarter, it ended the period with CA$70 million in cash and CA$230 million on its credit facility.
The shares fell after the report, however, perhaps because of the conspicuous absence of any mention of recent personnel events, and are undervalued on book and cash flow bases relative to the larger royalty companies. Though some discount might be expected, lingering concern about the way the recent CEO dismissal was handled and the strategy remains also adds to that discount, in my opinion.
We are holding
Wheaton Exceeds Expectations
Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) reported earnings significantly higher than expected, driven by strong results at its largest asset Salobo (42% of Wheaton’s NAV), which saw higher throughput and grades. The ramp-up at Phase III is going better than expected. This offset the halt at Peñasquito, Newmont’s mine in Mexico, currently the scene of a labor dispute.
The mine represents 9% of Wheaton’s NAV. Wheaton said it expects to meet full-year guidance if the dispute is resolved. Like all the Canadian royalty companies, Wheaton will be affected by the global minimum tax, which Canada intends to start implementing next year; this will have a 10% negative impact on Wheaton’s cash flow, worse than its peers.
Wheaton has a rock-solid balance sheet with US$829 million in cash plus US$2 billion available on its undrawn credit facility.
It is a core holding for us.
TOP BUYS THIS WEEK in addition to above include Nestle SA (NESN:VX; NSRGY:OTC), Hutchison Port Holdings Trust (HPHT:Singapore), Altius Minerals Corp. (ALS:TSX.V), Barrick Gold Corp. (ABX:TSX; GOLD:NYSE), Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE), Lara Exploration Ltd. (LRA:TSX.V), and Midland Exploration Inc. (MD:TSX.V).
- As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Orogen Royalties Inc., Fortuna Silver Mines Inc., Osisko Gold Royalties Ltd., Wheaton Precious Metals Corp., Altius Minerals Corp., Barrick Gold Corp., Agnico Eagle Mines Ltd., Lara Exploration Ltd., and Midland Exploration Inc.
- 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.
- 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: FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE,
fortuna silver mines inc
osisko gold royalties ltd
wheaton precious metals corp
lara exploration ltd
midland exploration inc
orogen royalties inc
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