Newmont Goldcorp Corp. (NEM:NYSE, $39.30) has underperformed this year, largely due to concerns surrounding the acquisition of Goldcorp, which closed in April. Many Newmont shareholders believe the company overpaid for bad assets. Not all Goldcorp's assets are "bad," of course, and Newmont's strong operational history should see some of these underperforming assets turn around. In addition, the recent pact with Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) on the two companys' Nevada assets should see synergies and lower costs over time.
Lastly, Newmont can now be flexible in disposing of some non-core assets, as it promised during the takeover of Goldcorp. The asset review process is still underway. Proceeds will reduce debt taken on to buy Goldcorp, as well as sharpen the company's focus and improve synergies. We are holding.
Is this time for real?
Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE, US$3.62) continues to struggle with a weak balance sheet. Earlier this year, it sold one of best assets, Chapada, to help pay down debt. The company has negative working capital, negative returns and profitability. Despite its high debt load, it increased its dividend and announced a stock buyback, actions intended as a sign that the company's financial issues were behind it, but most investors would have rather seen further reductions in debt. Operationally it is moving in the right direction, and the new Aqua Rica could add to NAV (net asset value) and to cash flow.
But Yamana has disappointed so many times in the past. Right now, its cash flow goes completely on G&A (general and administrative expenses) and debt service. We think the second half could see improved revenues and a high stock price if gold remains strong. Given the stock is at its highest since January 2018 and has not been much higher for three years, we are holding.
Positioned for changed market
Altius Minerals Corp. (ALS:TSX.V, CA$11.17) has had to contend with weak copper and other base metals prices. Even potash, which had offset the general weakness in the resource sector, now looks set for weaker prices as Chinese demand is affected by U.S. tariffs. The stock is close to the low for the year, and the company has renewed its stock buyback program given the strong balance sheet, with nearly $24 million cash, net debt of $94 million, plus a portfolio of junior equities valued at almost $54 million as of the end of June, and undoubtedly more today.
Some $7.7 million was raised during the quarter from portfolio sales, which went to cutting debt. Now, a stock buyback seems justified. There is $85 million available on a line of credit. There may be no immediate catalyst, but Altius, with strong, contrarian management, is a buy at these levels.
The good and the bad, no ugly
Evrim Resources Corp. (EVM:TSX.V, CA$0.35) continues to move projects and get work commitments. Earlier this week, drilling commenced at its Ball Creek gold-copper porphyry targets in British Columbia, funded by a new junior partner. Although previous partner Antofagasta Plc (ANTO:LSE) spent over $2 million over the past two years in exploration on Ball Creek and another property, this will be the first drilling on the property since 2012. Evrim has also extended an agreement with another junior on the Cerro Cascaron property, despite somewhat uninspiring results from the first round of drilling.
Offsetting these positive developments, Coeur Mining Inc. (CDE:NYSE) decided to relinquish its option on the Sarape project, after a fairly modest maiden drill program testing for blind mineralization. It would have been somewhat against the odds to find anything attractive in such initial drilling, and the property needs much more drill testing before killing it. But Coeur has its own financial issues at present. Sarape, near Ermitaño, a property discovered by Evrim and later sold to First Majestic Silver Corp. (FR:TSX; AG:NYSE; FMV:FSE), is on track for first production at the end of next year to produce feed for First Majestic's Santa Elena mine, which is running out of ore. Another company will likely want a shot at Salape.
In other developments, the company's vice president of exploration, Charles Funk, stepped down, and was replaced by seasoned geologist Dave Groves. Charles was energetic and well respected in the time he had been with the company, but has other fish to fry. Groves brings 35 years of experience, including at Newmont and Centerra Gold Inc. (CG:TSX; CADGF:OTCPK), and has most recently been a consultant for Evrim, so can hit the ground running.
Solid company, very cheap
With a market cap slightly under CA$30 million, Evrim is trading for less than the value of its cash on hand and the royalty it retains on Ermitaño. The rest of the company is free, including several option agreements, regional alliances and 100%-owned projects. The excitement and subsequent disappointment over its Cuale property last year is the main reason the stock is languishing. It is a great buy here, all the more so since it has top management and a rock-solid balance sheet. It is one of the great buys in the sector right now that doesn't depend on higher gold prices.
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."[NLINSERT]
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Altius and Evrim. 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: Newmont Goldcorp, Yamana, Altius and Evrim. I determined which companies would be included in this article based on my research and understanding of the sector.
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Adrian Day Disclosure: 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. ©2019.