Global analyst Adrian Day examines the quarterly results from three sizable royalty corporations, a sizable miner, and a development company. Day observes that there were few shocks when the full quarterlies were disclosed because most companies (except Franco) had already released their production and cost information. Day’s purchasing continues to be cautious.Even though all of the companies repeated their full-year projection and most of their output was back-ended, most reported having a relatively dismal first quarter in revenue and production.Most people expected the quarterly results to be weaker.Despite lower production, Barrick’s cash flow increased.
Production at Barrick Gold Corp. (ABX: TSX; GOLD: NYSE) decreased in the first quarter compared to the prior and prior year’s quarters, as predicted. This was primarily due to several scheduled processing adjustments and maintenance in Nevada, including maintenance on the Goldstrike roaster.Despite this, free cash flow grew. Despite Nevada Gold Mines’ reduced output this past quarter, CEO Mark Bristow stated that Nevada remained “our value foundation.”The company reaffirmed that it was on track to meet its full-year 2023 guidance for gold and copper production and costs. It anticipates a steady increase throughout the rest of the year with the addition of new processing facilities at Gold Quarry and Turquoise Ridge and the ramp-up of Pueblo Viejo to total capacity by July.With full-year cash costs for gold projected to be between US$820 and $880 per ounce, prices are still low.
Is Bristow Becoming More Receptive to an Acquisition?
Although Bristow has been somewhat outspoken about various acquisitions of other businesses, recently stating that it would not be bidding for either Newcrest or Teck and has always emphasized the company’s prospects for organic growth, he did say that “we are casting our net wider and stepping up the hunt for fresh opportunities.”
In particular, he referred to the new option deal with Midland on the Patris site in Quebec (see Bulletin 859), noting that the company had “opened up new frontiers and secured multiple interesting prospects” in Canada as other nations.
Today, Bristow was quoted by The Financial Times as indicating he was looking for takeover bidders. He was specific on the analyst call that Barrick has no plans to make any acquisitions to expand.
We continue to prefer Barrick over the other two top gold producers because of its superior management, bank sheet, and mines and its promising organic growth prospects.
We’re keeping.
Sales are below production for Wheaton, but the rest of the year looks promising.
Results from Wheaton Precious Metals Corp. (WPM: TSX; WPM: NYSE) were somewhat below expectations, with production slightly declining and sales behind the show. The most notable inventory increase was at Salobo, its greatest asset, even though it was somewhat expected.
This will change in the second quarter, as the business reiterated its five- and ten-year guidance while still on course to reach it for the entire year.
The Salobo III expansion will pick up steam in the year’s second half, and Constancia’s grades will improve. The balance sheet is strong, with around US$800 million in cash and US$2 billion of credit facility still undrawn.
Canada has committed to the new planned 15% Global Minimum Tax, which is expected to go into force in 2019. According to Wheaton, this will result in a 10% reduction in NAV. Wheaton is a good investment because of its competent management, financial sheet, and assets.
We are currently holding, just like with the other gold stocks.
recent purchases For Royal Gold, Pay Off
A successful first quarter was reported by Royal Gold Inc. (RGLD: NASDAQ; RGL: TSX), which was mainly attributed to increased copper sales from Mount Milligan, its most significant asset, as well as Khoemacau in Botswana, where Royal has a silver stream that has now reached nameplate capacity and the new royalties on Cortez began collecting.
Sequencing was a significant factor in Mount Milligan’s gold production falling short of estimates. Additionally, G&A was active. Notwithstanding these factors, the company is on track to meet its full-year guidance.
Royal anticipates repaying its whole credit arrangement by the middle of 2024 (barring any other significant acquisitions) and currently has about US$134 million in working capital and roughly $500 million in available credit.
Although shrewd traders may sell now and seek a buyback toward US$130, we are holding.
Franco’s Production Should Increase Following a Tough Quarter.
The first quarter, which was already anticipated to be bad owing to interruptions at Cobre Panama (caused by government actions) and Antapacaya in Peru (hit by demonstrations), was announced as a small miss by Franco-Nevada Corp. (FNV: TSX; FNV: NYSE).The cost of gas and oil decreased during the quarter as well. Gold equivalent ounces (GEOs) should be back on track this quarter with some catch-up, especially from Cobre Panama, where ore has been backed-up ready to be exported. At the same time, Antapaccay will also be more robust now that both mines are up and operating.
The second quarter is considered good, and the second half is anticipated to be stronger than the first but less as strong as the second. With more than 400 assets, of which more than 119 are cash-flowing, Franco is still a blue-chip company. Revenue from precious metals increased from 71% in the previous quarter to 77% this quarter. The margin was 83% for the quarter, while G&A was less than 4% of EBITDA. Three new mines are opening this year, including Fortuna’s Séguéla this quarter.It will open nine gold mines and one copper mine over the next five years, on which it will receive royalties (new streams excluded). It believes there are good prospects for funding additional mines. With US$2.3 billion accessible, of which more than $1 billion in cash, Franco has a solid financial position.The new global minimum tax is anticipated to decrease its NAV by 3-4%. While the transfer pricing dispute is still pending, and discovery is expected at the end of this year or early in the following, the Canadian tax authorities have resolved their disagreement with Franco on domestic matters.
Franco is a core holding for us due to its outstanding management, broad asset base, robust balance sheet, and impressive development trajectory. The stock should reclaim some of its previous historical premium valuation multiples due to higher precious metal sales and a positive growth outlook.
We’re keeping.
Vista will keep looking for a deal that benefits the shareholders.
Spending is being cut as Vista Gold Corp. (VGZ: NYSE.MKT; VGZ: TSX) pursues a transaction for its Mt. Todd project that would maximize value for shareholders. It claimed that the smaller-scale development plan it revealed in March had attracted fresh and renewed interest. Large-scale development initiatives continue to be approached cautiously.Though operational expenses would be higher under the plan, it would retain the flexibility to expand the project in the future (see Bulletin 855). The company said that several businesses have “resonated” with this strategy. Occasional firms have drilled and conducted their metallurgical investigations, and there have been occasional site visits.CEO Frederick Earnest stated that the company’s top aim was to maximize shareholder value and “to realize the full value of Mt Todd” (emphasis added by the speaker).
He declared, “We’re maintaining the line on it. He declared that the business has faith in its ability to carry out a deal “at the right time” that appropriately benefits shareholders. The project will not be developed independently. In addition to the project’s high capital costs, there is also resistance from residents who recall the last mine, whose operator eventually went bankrupt due to challenging metallurgy.
Earnest claimed that businesses had applauded the project’s substantial technical work and praised the local community support it had attracted.Project Economics Will Improve, but a Capital Raising is Still RequiredThe Northern Territories has released mining industry proposals that, among other recommendations, would significantly lower the royalty regime from the current 7-9% to the levels of other global tier-one jurisdictions, typically from 2.5% to 5%, and that would improve Mt. Todd’s economics. Holding and exploration expenses at Mt Todd have decreased to roughly $800,000 a quarter, while recurring expenditures are on course for a 7% fall, down to US$1.2 million in the most recent quarter. It costs little to conduct enough exploration without drilling to maintain the various exploration permits.
At the end of the quarter, the company had US$6.6 million in cash and no debt. For the quarter, there was a $2 million net loss. The company will need to acquire new financing later this year-end if no purchase is made since the old mill is their only remaining asset for sale. The stock still trades at a considerable discount to the project’s worth. The biggest challenge is coming up with a formula enabling a business to purchase the project while providing Vista stockholders with “full value.” Another equity raise without any real progress on a transaction would also be detrimental to the stock.
More Problems for Fortuna in Mexico
A blockade of unionized workers forced Fortuna Silver Mines Inc. (FSM: NYSE; FVI: TSX; FVI: BVL; F4S: FSE) to once again suspend operations at its struggling San Jose mine in Mexico. The union represents 15% of the workers.To put an end to the unlawful blockade, Fortuna claimed it is in discussions with the union leadership. The mine is the area’s most significant employment.The stock didn’t react to the news; instead, it did so in response to rising gold and silver prices.
We’re keeping.
This week’s TOP BUYS include Hutchison Port Holdings Trust (HPHT: Singapore), Lara Exploration Ltd. (LRA: TSX.V), Nova Royalty Corp. (NOVR: TSX.V), and Altius Minerals Corp. (ALS: TSX.V).
A Wrong Time for the Chairman: In his news conference’s opening statement on Wednesday, Fed Chairman Jerome Powell declared that “the U.S. banking system is sound.” Following was a Q&A session.What stage of the banking upheaval among regional banks are we in now—the early stages of the last steps?The three central banks at the center of the stress we noticed in early March were there from the start. Now, all of those have been resolved. That period is effectively over with First Republic’s resolution and sale. A bad time! A few hours after making that remark, PacWest Bancorp declared that it was in discussions with several prospective investors to strengthen its capital and was prepared to sell. The stock continued to fall due to worries about its stability and financial soundness. After Powell’s speech, it dropped 58% (at one point, it was down 90% since March).