Fortuna Is a Buy After Market Misreads Strong Results
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., Fortuna Mining Corp., Pan American Silver Corp., Franco-Nevada Corp., Or Royalties Inc. / Osisko, Altius Minerals Corp., Orogen Royalties Inc., Metalla Royalty & Streaming, and Midland Exploration Inc. 
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Fortuna Mining Corp. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) had a very strong quarter, with all mines operating at guidance (Séguéla outperforming), leading to record revenue and free cash flow.

Cash costs fell to just $929 an ounce, with AISC also down to $1,640 per ounce. (Costs had been higher in the previous quarter because of high cost ounces at the depleting San Jose, since sold.)

The balance sheet was strengthened, and the company repurchased nearly one million shares during the quarter.

The Company That Can't Get No Respect

Yet a penny miss on earnings sent the stock down sharply, in a classic case of market overreaction. Probably, it was algorithms and so-called Artificial Intelligence (sic) responding to headings proclaiming "earnings down" and didn't bother reading the rest.

Whoever said markets were rational?

After selling two end-of-life mines last quarter, Fortuna CEO Jorge Ganoza discussed the company's strong opportunities for organic growth, including expansion at the Séguéla mine, to boost output from 140,000 ounces to a range of 140,000 to 180,000, which opportunities for more; exploration success around the mine (including the Sunbird and Kingfisher deposits); and the promising Diamba Sud project in Senegal, where permitting and mine studies are advancing.

Exploration and Possible M&A Fuel Future Growth

In answer to my question, Ganoza also discussed multiple exploration programs, including in northern Cȏte d'Ivoire, near Barrick's Tongon mine; in Mexico with three joint-ventures; in Peru, Argentina, and Cȏte d'Ivoire, around Séguéla. In all, the company has an impressive $51 million exploration budget for the year.

It also continues to look for possible M&A opportunities. It is focused on the two regions where it established (West Africa and Latin America). Although it favors countries in which it is already established, it will go to different countries within the regions. It will look at projects all along the development curve, but is looking for value. It wants to be able to see the probability of 10 years of mine life at good costs. Although the stock was up 33 cents on Friday, May 9, it remains a good opportunity to add to positions in this top-quality intermediate producers.

Buy.

Pan American Fires on All Cylinders and Looks Ahead

Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) reported another strong quarter. Although production fell from the previous quarter, in line with company guidance, improved costs meant higher cash flow and earnings. AISC for the silver was just $13.94/ounce. The company has several very large-scale projects that could replace some of its longer-term projects nearing the end of their lives.

These are specifically La Colorada Skarn, Escobal, and Navidad. The company said is it in discussions with potential partners on the Skarn with aim of keeping as much exposure to the silver as possible. The Escobal mine in Guatemala remains closed, though consultations continue; no date was given either for the conclusion of the talks or the restart of the mine.

The Navidad project in Argentina has been suspended for years following a ban on open-pit mining in the province of Chubut, but the possibility of seeking to advance the project was mooted as the political situation in Argentina improves. The company ended the quarter with $923 million in cash, and little debt, but significantly at very low interest rates (some as low as a 2% coupon).

Pan American trades at a meaningful discount to peers, with little value in the stock price for Escobal or Navidad. A restart at the former would see a significant re-rating in the stock.

Following the results, the stock price jumped, so we are holding.

Barrick Has Good Quarter, Though Costs Are Up

Barrick Mining Corp. (ABX:TSX; B:NYSE) reported solid production, though copper output was lower and costs were higher than expected. The company reiterated its annual guidance, indicating that costs would decline over the rest of the year. The company has now changed its name to Barrick Mining, and continues trading on the NYSE, now under the symbol "B."

The balance sheet is strong, with cash stable at $4 billion, though net debt edged up after it repurchased $143 million of shares. Cash proceeds from Donlin (of $900 million) and other potential sales may see Barrick go to a net cash position later this year, as well as accelerate their share buybacks. The company confirmed it was also planning to sell the Hemlo and Tongon gold mines, as reported in the media. The mine sales and potential sales reflects the company's focus on Tier 1 assets. In addition, Bristow said that the company remained a "core destination", emphasizing a new drill program the company has launched in the Abitibi.

Looking Ahead at Mine Recoveries and New Projects

CEO Mark Bristow said that operating efficiencies at the Nevada Gold Mines unit were beginning to have some impact, after several quarters of underperformance; in the first quarter, as well, there was a planned raster maintenance, reducing production.

That, as well as recoveries at Pueblo Vieja and Kibali (the latter after schedule maintenance) will enable Barrick to meet its guidance of improving quarters throughout the year. It announced a new exploration discovery at Reko Diq, the massive copper project in Pakistan. There was no meaningful update on the situation in Mali; Bristow said the company had agreed to two earlier proposals from government that had subsequently been rejected. Barrick is the most undervalued of the major, particularly on an asset basis.

Buy.

Franco Hits New Records, Even Without Cobre

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) had a solid first quarter, beating estimates, as it announced record top- and bottom-line results, even without Cobre Panama which was its large single revenue source before the mine was closed by the government. Revenue was $368 million. The past quarter saw revenue from newly purchased assets as well as ramp-up at several others.

The Hemlo Net Profits Royalty made a good contribution. NPIs, by their nature, can be unpredictable and volatile. During the quarter, it spent $550 million on a stream on an operating mine (SibanyeStillwater's Western Limb), as well as a debt, equity and stream investment in Discovery Silver's Porcupine Complex, which that company acquired from Newmont earlier in the year.

It expects increased revenue this year from these new investments as well as from the ramp-ups of Tocantinzinho and Greenstone, and the startup of the Valentine mine. Franco ended the quarter with $1.13 billion in cash and no debt. Franco is a core holding for us.

Hold, but buy if you do not own.

Wheaton Continues To Deliver With Growth Ahead

Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) had a strong quarter, with GEO sales higher than estimates leading to record revenue and earnings.

The increased sales was partly due to timing of sales versus production. Several projects in its portfolio are ramping up, which will enable the company to meet its prior full-year guidance and somewhat ambitious five-year targets.

Wheaton has $1.1 billion in cash and no debt. Wheaton will be a clear choice for institutions wanting gold exposure, but it is no longer inexpensive.

Hold.

Royal Hits Its Targets With Stronger Rest of Year Ahead

Royal Gold Inc. (RGLD:NASDAQ) had a strong start to the year with earnings above estimates, after pre-releasing streaming sales.

Several royalties performed better than expected, and the company reiterated full-year guidance. Including cash of $250 million, it has available liquidity of $1.25 billion.

The outlook for the rest of the year is positive, with Pueblo Viejo improving after a shutdown in the first quarter, and Goose Bay having initial production this quarter.

Hold following the strong stock price appreciation.

Osisko Delivers and Changes Name

Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) reported full financials in line after pre-releasing GEOs and revenue. The company reiterated full-year guidance as it increased the dividend by 20% (for a current yield just under 1%). The first quarter had been expected to be the weakest because of sequencing, including at its largest royalty on Malartic.

As previously guided, the company expects each quarter this year to be sequentially better as several mines ramp up throughout the year. Osisko ended the quarter with just over $63 million in cash, with net debt down to $10 million. It also changed its name to OR Royalties, emphasizing its independence as an organization; the stock symbol will remain the same. I must note once again the time devoted on the analyst call to ESG blather, with the "sustainability report" coming at the top of the call, even before financial performance, which is rather putting the cart before the horse.

Given recent price performance, OR is a hold.

TOP BUYS this week, in addition to above, include, Ares Capital Corp. (ARCC:NASDAQ), Kingsmen Creatives Ltd. (KMEN:SI), Hutchison Port Holdings Trust (HPHT:Singapore), Altius Minerals Corp. (ALS:TSX), Orogen Royalties Inc. (OGN:TSXV; OGNRF:OTCQX), Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American), and Midland Exploration Inc. (MD:TSX.V).