BDCs Oversold on Exaggerated Concerns: Buy for High Yields
Contributed Opinion

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Barrick Mng Corp., Triple Flag Precious Metals, Or Royalties Inc., Fortuna Mining Corp., Altius Minerals Corp., Orogen Royalties Inc., Lara Exploration Ltd. and Fox River Resources Corp. 
2. Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: None. My company has purchased stocks mentioned in this article for my management clients: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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Ares Capital Corp. (ARCC:NASDAQ) and Gladstone Investment Corp. (GAIN: NASDAQ) have both fallen sharply in the last six weeks, along with the entire BDC sector.

The Vaneck ETF is down 16%, to a 52-week low.

There are three main concerns.

First, when the Federal Reserve cut its key rate in mid-September, this meant that BDC returns would be reduced, given that the overwhelming majority of BDC loans are set on floating rates.

Second, there is concern about how the small businesses to which BDCs lend will hold up in a weakening economy.

And third, and arguably most worrying, are concerns about private credit, following a couple of spectacular credit failures in a market that has experienced tremendous growth in recent years.

Lower interest rates will, on balance, reduce income, other things being equal, but we should remember that many BDCs have floating rate debt as well, so what they lose on one side of the ledger they gain on the other. In addition, lower rates are likely on balance to help companies in their portfolios.

Private Credit Is a Concern, but BDCs Are Not the Problem

Although we are concerned about the private credit market, and also believe some BDCs may be forced to reduce their distributions in a coming slowdown, the better BDCs are in a solid position.

As we have written before, companies like the two on our list each use independent sources to value their loans, removing the major risk of private equity that marks are too favorable. This does not mean that there cannot be problems at the companies to which they have made loans, but it helps ensure that the valuations are realistic.

They are more solid than the private equity funds now being pitched to smaller investors. We have written about both recently, Ares and Gladstone. Ares, the largest BDC, trading at a small discount to NAV, is yielding just over 10%, while the smaller Gladstone, trading just north of NAV, yields over 7% from its regular monthly distributions, but over 11% when the last extra distribution (from capital gains) is included.

Both Ares and Gladstone are Buys now.

Barrick Sells Another Mine

Barrick Mining Corp. (ABX:TSX; B:NYSE) sold its majority stake in the Tongon gold mine in Côte d'Ivoire to a private group for up to $305 million, a third of it in contingent payments tied to the gold price and resource conversion milestones, and $23 million a loan repayment.

The sale was in the works before the change in management, and follows the sale of Hemlo in Toronto, part of an asset streamlining process.

The price received is certainly meaningfully less than was anticipated, but adding cash to the balance sheet while divesting of non-core assets is a positive.

Hold.

Or and Triple Flag Report Initial Results, Both on Track for Year

OR Royalties (OR:TSX; OR:NYSE) reported operating results a little shy of consensus estimates, but record revenue due to the high gold price.

The company ended the quarter with $57 million in cash and no debt after paying back $35 million during the quarter.

The company is tracking for its full-year guidance, though towards lower end of range. It had however stated that the second-half of the year would be stronger than the first, so may well catch up towards its mid-point of guidance.

Hold.

Triple Flag Precious Metals Corp. (TFPM:TSX; TFPM:NYSE) reported preliminary third-quarter results above estimates, driven by record performance at the cornerstone Northparkes stream.

Two new stream also produced their first GEOs for the company, which is tracking well for its full-year production guidance.

Hold.

Fortuna Advances Next Mine, as Production Mixed

Fortuna Mining Corp. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) has filed an Environmental and Social Impact Assessment for its Diamba Sud project in Senegal, a key step towards eventual. Development of the mine. A PEA is planned for before year end, with a production decision in the first half of next year. The company also announced production numbers, with Séguéla, its largest mine, once again exceeding estimates, while Lindero underperformed.

Although production was down modestly on the year-ago quarter (72K GEO vs 73K in 2024), Fortuna has sold two small and declining mines, and the production is in line with restated guidance allowing for the mine sales.

Although Fortuna's stock price is well up this year — over 100%, matching the appreciation in the GDX — it remains relatively good value, trading at a cash flow multiple under 6.

If you are new to the sector and building a portfolio, it can be bought here.

Altius' PG Portfolio Gains

Altius Minerals Corp. (ALS:TSX) said its junior equities portfolio, part of its project generation business, was valued at $44 million at quarter end, after receiving $68 million during the quarter from the Orogen transaction.

The portfolio was $87 million at the end of the second quarter, so including receipts, is well up. Altius is a core holding for broad exposure to the commodities complex, top, insightful management, a good balance sheet, and strong pipeline of potential new revenue sources.

If you do not own, it can be purchased here.

Orogen's Exploration Properties Show Promise

Orogen Royalties Inc. (OGN:TSXV; OGNNF:OTC) conducted another exploration property webinar. Though somewhat technical and aimed primarily at potential partners, there was interesting background for the investor, particularly CEO Paddy Nichol's introduction.

Vice president of Exploration Laurence Pryer discussed Table Mountain which he called "the best opportunity . . . one I didn't think still existed in Nevada."

How is that for a teaser?

Orogen has four alliances, with Altius, triple Flag, South 32, and BHP, as well as seven projects under options, and several which it has sold for a royalty. Orogen is one of my favorite junior companies; we already have on our list from our position acquired before the transaction and spin-out with Triple Flag.

I would like to see a pullback to buy more.

TOP BUYS this week, in addition to above include Lara Exploration Ltd. (LRA:TSX.V) and Fox River Resources Corp. (FOX:CSE).