Two leading institutional gold conferences took place in Colorado over the past two weeks, one focusing on juniors and the other on producers, with another retail show immediately prior in Vancouver. Both institutional conferences saw record attendance, with the Mining Forum Americas, focusing on producers, up 50% year-on-year, and a noticeable increase in generalist investors attending.
At both, there was a strong demand for one-on-one meetings with companies. Mood was upbeat both among investors and companies. The gold price is higher than at this time last year, though last year it was on the way up, and this year it is down $1,300 from its peak. Despite that, the attitude was positive on longer-term gold prices. But the producers and major royalty companies continue to report record cash flows, while the exploration companies are, for the most part, well cashed up.
Companies Are Mostly in Strong Positions
The producers are, for the most part, exercising sensible, shareholder-friendly capital allocation plans emphasizing discipline and organic growth, as well as execution in operations, while the juniors, again for the most part, have interesting projects and report increased interest from seniors. (Of course, "interest" does not necessarily translate into action, but it is noteworthy to find more major and intermediate companies looking into earlier-stage exploration projects.)
The royalty companies all noted strong pipelines of opportunities. In contrast to previous periods when the gold price was high, and the royalty companies were cautious in paying up, and despite very intense competition, most companies were optimistic in continuing to originate good deals.
Below are updates, based partly on public pronouncements at the conferences, one-on-one conversations, lunches and dinners, as well as separate news.
Agnico Has a Strong Pipeline and Is Still Looking
Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) noted significant investments planned for existing projects, including recent acquisitions, but emphasized the company was not interested in getting big for its own sake, while production per share remained a key metric.
At a small dinner with Agnico, CEO Ammar Al-Joundi noted that the hardest part of the business was finding a good pipeline. Of course, Agnico arguably has a stronger pipeline of projects than any of the other major producers–Al-Joundi called it "the best pipeline ever"— and that includes Hope Bay, its next mine in Nunavut.
He noted that Agnico will look at anything, "everything to add value per share", though it is selective in asset quality, jurisdiction, mining type, and resource. He said that, for the first time ever, the company was concerned about cartel activity in Mexico, adding firmly, "We are not prepared to be extorted."
Building Mines in Canada Just Got Cheaper
Al-Joundi noted that, alone of the major miners, Agnico builds its own mines, which it can do because of its regional approach, where it has operations in only a handful of locations.
The Canadian government's new rule enabling companies to deduct 100% of capital expenditures (rather than expense them) will make building mines in Canada relatively more attractive than in other jurisdictions.
He noted that Agnico had set up a separate unit, Avenir, to invest in strategic metals; it was Avenir that acquired Fox River for its phosphate property earlier in the year. It also holds nearly 9% in the Canada Nickel Company.
Although Agnico is prepared to put more money into Avenir, it is encouraging the unit to find money elsewhere, and eventually it is likely to be spun out.
With top management, strong mines, a deep pipeline, and low political risk, Agnico is the gold standard of big miners.
Down 18% since late August, this is an opportunity to buy if you do not already own it.
Barrick Will Take Time To Regain Market Trust
Barrick Mining Corp. (ABX:TSX; B:NYSE) is striving to rebuild credibility amid a corporate restructuring. However, there is much complexity and many changes, leaving investors confused with much misunderstanding about the plan.
Astonishingly, at a small, invite-only luncheon, some top management were not present, and there was no presentation, a wasted opportunity by management to get its message across, and wasted time for analysts, given the multitude of competing events.
That would never have happened under former CEO Mark Bristow.
CEO Mark Hill said that the company's planned IPO of the North American assets could now be in January, rather than by the end of this year, as previously expected.
Any such delay would not be a major cause for concern in my mind. Of more concern to me is that the structure of the new Barrick has not been made sufficiently clear, and much confusion remains.
Hill will be CEO of the North American unit once it goes public. It was also noted that development of Reko Diq remains on hold while Barrick "revisits" the project and reassesses its development plans.
We are holding.
Wheaton Plans To Reduce Debt Quickly, While Still Eyeing Opportunities
Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) said that, following the $3.4 billion silver stream on BHP Group Ltd.'s (BHP:NYSE; BHPLF:OTCPK) Antamina mine, silver accounts for over half the company's revenues. As new streams come online, this will decline to about 40%.
Wheaton has several projects that will contribute to its almost 50% growth over the next five years, including streams on Platreef in South Africa and Hemlo Mining Corp. (HMMC:TSXV; HMMCF:OTCQX) in Canada.
Although it now has net debt of CA$1.9 billion, it expects to be net cash positive by the end of next year, given the strong cash generation of the business.
It notes a very healthy pipeline of opportunities and has $500 million available on its credit line.
Franco Sees Many Acquisition Opportunities
Franco-Nevada Corp.'s (FNV:TSX; FNV:NYSE) CEO Paul Brink emphasized accretive royalty and stream acquisitions. He was excited about the opportunities for new acquisitions, saying it would have no problem spending its cash stockpile on solid, accretive deals. He expected these to be both large transactions and several smaller ones, mostly gold but also more oil deals.
In discussing the company's recent entry into Australia, where the industry had previously been generally averse to selling royalties or streams, Brink noted that the major Australian debt provider was now insisting companies hedge part of their output. In today's rising gold environment, this has made streaming relatively more attractive to many companies.
Just within the last two weeks, Franco said it would acquire an additional royalty on the Bullabulling Gold Project in Western Australia, paying AU$170 million for a 1.45% royalty; it already holds a 2.45% royalty on the project.
Even without acquisitions, the pipeline for growth is strong.
In addition to the possible restart of Cobre Panama, Brink mentioned other projects advancing towards production, as well as "hidden gems" in the company's extensive portfolio of royalties on exploration projects.
With over $1 billion in cash and no debt, Franco is well placed for additional acquisitions.
Report on Reopening Cobre Panama Discusses Closing It
The stock sold off sharply last week–as much as $35–after a Ministerial Commission in Panama presented its report on the Cobre Panama shuttered mine, discussing "an orderly closure"; mine owner First Quantum Minerals Ltd. (FM:TSX; FQM:LSE) fell over 30% at one point.
Franco owns a stream on the mine, one that was its largest revenue source before the mine was ordered closed by the government.
The report, no doubt, was misinterpreted, but it was a strange report. It led by recommending the closure of the mine, "at no cost to the nation".
This is a peculiar opening to a report on restarting the mine, all the more so since it is standard practice for mine operators to close down a mine at its own cost.
The report also made clear that the Panamanian state would own the mine.
Further, the report in its opening said the mine should operate for a "defined period" (without providing any recommendation on the length of the period), and emphasized that there should be "no possibility of extensions".
In short, this report raised more questions and concerns than it answered.
Nonetheless, the report suggested there should be formal negotiations between the government and First Quantum on reopening the mine (not really a surprise), and we expect some progress in the coming months.
The President, in accepting the commission's report, did not indicate when negotiations might restart. The mine has been closed for three years now, with Panama losing employment, tax revenue, and international credibility.
The commission made no recommendations on revenue split, schedule for restart, mine life, or indeed even if First Quantum should be the operator. A relatively short-term contact to mine, with no long-term upside, with the majority of benefits going to the government, while First Quantum funds the closing, may not be sufficient to definitively end all arbitration.
Franco-Nevada, however, is not a party to negotiations; CEO Brink said the company had not had any contact with the government.
Despite the unsatisfactory nature of the long-awaited Cobre Panama report, investors who do not own Franco can take advantage of the price drop to buy.
Royal Gold Has Projects Proving Growth
Royal Gold Inc.'s (RGLD:NASDAQ) CEO Bill Heissenbuttel said the company's Sandstorm and Kansanshi acquisitions were transformational for growth, diversification, and duration.
The company now has peer-leading diversification, with just two assets responsible for over 10% of the company's NAV, a complete turnaround from when Mt. Milligan represented over 30% of revenues and was a cause for concern among investors.
Weight-average duration is up to 18 years. Heissenbuttel emphasized continuing to make new acquisitions as the top capital allocation priority.
Heissenbuttel noted several large projects in the ramp-up phase and others progressing towards production. Platreef in South Africa (on which Royal has a gold stream), Khoemacau in Botswana (a silver stream), and Goose Bay in Nunavut (gold royalty) are in various stages of ramp-up. Beyond that, Hod Maden in Turkey could be in production by the end of 2028, followed by Great Bear at the end of 2029 or early 2030.
Its royalty on the massive Fourmile project, now part of the Barrick-Newmont Corp. (NEM:NYSE; NEM:ASX; NEM:PNGX) joint venture in Nevada, is arguably under-appreciated in Royal's stock price.
Over the life of the mine, the royalty could generate a billion dollars for the company, Mr. Heissenbuttel said.
If you do not own Royal, buy it for long-term, high-growth potential.
Pan American Has Growth Locked In, With Additional Potential
Pan American Silver Corp. (PAAS:TSX; PAAS:NYSE) CEO Michael Steinmann said that the company's La Colorada skarn is a "generational" brownfields discovery; it is located beneath Pan American's existing La Colorada silver mine.
There is upside potential in the shuttered Escobal mine in Guatemala that Pan American acquired in 2019. It described the progress to reopen the mine as going at a "glacial pace".
There was hope when the local Xinka requested a meeting with Pan American in May, the first time such a direct meeting had been requested, but there has been nothing since.
After the project receives the go-ahead, it would be six months before any production and a year until full production, with hiring a workforce the biggest issue.
The company announced its gold and silver reserves for June 30, boosted by the acquisition earlier in the year of Juanicipio. Without that acquisition, both gold and silver reserves and resources were down, despite strong additions of silver from the La Colorada skarn deposit.
The company has $1.6 billion in cash, with $783 million in debt that it acquired with Yamana, in two tranches with low coupons that it will likely keep until they mature (by 2031).
Buy.
Fortuna's Production To Jump, While It Continues Exploration
Fortuna Mining Corp. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S0:FSE) said each of its three operating mines has at least a decade ahead of it, with significant brownfields and regional exploration success at most.
There are two major new projects in West Africa, the Séguéla expansion and the new Diamba Sud, expected to be in production by mid-2028, that will lead to 60% growth over three years.
In addition, the new mine in Senegal further diversifies jurisdictions and, with an AISC of only $1,300, will reduce company-wide costs. It will finance both projects from existing resources.
The company recently upped its exploration budget to $65 million, most of it for brownfields (near mine sites).
CEO Jorge Ganoza said he liked both Latin America and West Africa equally and was not concerned about the balance between the two regions in which the company operates, but would advance whichever projects look most promising.
He noted that the company has recently acquired a new project in Guyana, while it has a new exploration joint venture in Guinea.
Fortuna is one of our favorite miners, with top management, conservative financially, with a rock-solid balance sheet, and strong pipelines.
If you are underweight gold, you can buy it here, though I would like to see a pullback before becoming aggressive buyers again.
Metalla's Projects Advancing to Production
Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSEAMERICAN) noted that many projects on which it holds royalties are being advanced. In particular, it is awaiting a new mining plan by IAMGOLD Corp. (IMG:TSX; IAG:NYSE) at its Cȏté-Gosselin mine in Ontario, which is widely expected to merge both deposits into one large pit, potentially advancing the projection from Metalla's royalty ground.
The royalty is primarily over Gosselin and could start generating revenue in 2028. HudBay Minerals Inc.'s (HBM:TSX; HBM:NYSE) Copperworld is expected to receive the green light for go-ahead by the end of this year, with production in three years.
Equinox Gold Corp.'s (EQX:TSX; EQX:NYSEAMERICAN) Castle Bay could see a projection in 2030.
Undervalued on an NAV basis, Metalla is a buy.
Orogen Continues Its Almost-Frenetic Pace of Deals
Orogen Royalties Inc. (OGN:TSXV; OGNNF:OTCQX) continues its recent streak of deals with its acquisition of the Serpent gold project in Nevada.
It describes the property as a district-scale, low-sulphidation epithermal target in central Nevada, with "highly anomalous gold in rocks" but no historical drilling. The project was generated in partnership with Altius Minerals Corp. (ALS:TSX), and is made available for a partner.
Laurence Pryer, vice president exploration, noted that it is "still possible to find solid greenfield targets, not in shadow of headframe or under deposits". More prospects are being prepared for optioning out.
The company noted that it is far easier to negotiate good terms with a junior than with a senior, adding that eventually good properties will find a home if a junior is unable to advance.
The company has three alliances with strong partners, Triple Flag Precious Metals Corp. (TFPM:TSX; TFPM:NYSE), Altius, and South32 Ltd. (S32:ASX; S32:LSE). Under an alliance, the partner typically spends the money on exploration, while both share in any sales proceeds.
Of the three, only South 32 has the right to designate projects. Orogen is in a fourth alliance, in Norway, where it is providing the exploration capital and its partners with the local expertise.
A High-Potential Project Not Yet Fully Recognized
One project, whose potential is arguably not fully recognized in the share price, is Borica in Colombia, a potentially large copper-gold porphyry that sits in the trend running from the high Andes into Panama and the Cobre Panama mine.
It is early days, but the property has the right address. Drilling is expected before the year's end.
Since it is owned by a private company, there has not been much public disclosure, but the company has plans to go public, perhaps by the middle of next year, and clearly that would require public disclosure.
In addition, looking at what information is available, we note that the global giant Rio Tinto Plc. (RIO:NYSE; RIO:LSE) has back-in rights that must be exercised this year. If they decide to exercise their rights, that would generate some news.
In all, Orogen expects CA$50 million in partner spending this full year on its projects, with three moving towards resource estimates.
It expects additional project sales (for royalties) before the year's end.
With a rock-solid balance sheet, CA$30 million in cash, plus long-term revenue, multiple partners, and an active project generation business, Orogen is a top exploration/royalty company.
Buy.
Midland Continues To Be Active, With Multiple Partners
Midland Exploration Inc. (MD:TSX.V) continues to be very active, with exploration activities underway at 10 projects, including eight drill programs planned for the next year, on both 100%-owned projects and partnerships of one form or another.
Barrick expects to drill the Lewis optioned project next year, while Soquem continues drilling on its large copper property in Labrador, among others.
Rio Tinto has paused work on its lithium joint venture while it decides on which other lithium projects to advance.
The company is confident Rio will return to their project, perhaps next year.
Midland is well cashed up and expects to have well over CA$8 million in the kitty at the end of the year.
Although Midland has multiple opportunities and the stock is undervalued, we are holding off buying, given that it could be subject to tax-loss selling over the next few months; we expect to turn buyers again before year's end.
Russia Takes Nestlé's Operations
Nestle SA (NESN:VX; NSRGY:OTC) said it had "taken note" of Russia's presidential decree placing Nestlé Russia under temporary external administration.
The company is assessing the situation and its options.
Hold.
TOP BUYS for the coming week include, in addition to the above, Ares Capital Corp. (ARCC:NASDAQ), Lara Exploration Ltd. (LRA:TSX.V), and Kingsmen Creatives Ltd. (5MZ:SGX).
We are holding off buying a few stocks that are undervalued, since we believe that they could be subject to tax-loss selling in the coming months.
This is particularly true of gold and resource stocks held at a loss since there are so few of them available for tax-loss selling.
Important Disclosures:
- As of the date of this article, officers, contractors, shareholders, and/or employees of Streetwise Reports LLC (including members of their household) own securities of Agnico Eagle Mines, Altius Minerals, Equinox Gold, First Quantum Minerals, Hemlo Mining, Fortuna Mining, Franco-Nevada, Lara Exploration, Metalla Royalty & Streaming, Midland Exploration, Orogen Royalties, Pan American Silver, Royal Gold, and Triple Flag Precious Metals.
- 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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