Goldcorp has been acquired by Newmont Mining
Corp. (NEM:NYSE, 33.04). Shareholders voted in favor of the acquisition,
though it was disappointing that, notwithstanding all the noise about
excessive payouts, when given the opportunity, few shareholders seem to care
enough to use their vote.
Goldcorp shareholders receive 0.328 of a share of Newmont (as well as a
final 2 cent dividend). As a final insult for Goldcorp shareholders, Newmont
paid its shareholders an extra 88 cent bonus before the merger.
Better times ahead?
Though, as Goldcorp shareholders, we did not like the transaction, and do
not see any synergies in the combination, now, as shareholders of the merged
Newmont we are holding for now. There will be some overhead savings, and more
importantly, Newmont may be able to improve performance at GG's
underperforming mines. Moreover, two of GG's larger mines, Peñasquito and
Éléonore, are turning and should see improved operations going forward in any
event. Newmont will divest non-core mines, improving the balance sheet,
though this process will take years. Lastly, if the gold price improves and
generalist investors return to the gold space, Newmont will be a stock they
look to. We are holding for now, though watching progress carefully.
Major miner invests in Midland
Midland
Exploration Inc. (MD:TSX.V; 1.29) announced that the world's largest
mining company, BHP, has acquired 5% of Midland through a placement at C$1.70
per share, with warrants at $2.05 good for 18 months.
This is a great transaction, getting a well-respected shareholder, at a
great price, but keeping dilution to a minimum. The investment comes after
Midland's polymetallic discovery at the Mythrill property in James Bay, where
drilling is currently underway. BHP did not have access to non-public
information in making the investment, so it says nothing about how the
drilling is going. The investment will enable Midland to continue exploration
at Mythril without bring in a partner and diluting its interest in the
project, though this is the likely eventual conclusion. We do not think this
investment in shares is the end of the story, and BHP may be interested in a
joint venture or other alliance of one or more of Midland's other projects.
The market response was muted, partly because BHP took only 5% of the
shares; it is reported the company wanted a larger stake. More importantly,
over 3 million shares from a flow-through financing came free-trading at
precisely the same time, and participants in that were no doubt a significant
part of the 2.1 million shares that traded since the news was announced
(unfortunate timing, no doubt, but illustrative of my antipathy to flow-flow
shares, where "investors" are often more interested in the tax
write-off than the actual company whose shares they bought).
Be that as it may, it means investors still have the opportunity to buy
Midland, at only a few pennies more than last week, but with the validation
of a major mining company. Initial drilling results from Mythrill are
expected in about four weeks. Midland remains a buy ahead of these results.
Much ado about nothing
Almaden
Minerals Ltd. (AMM:TSX; AAU:NYSE, US$0.55) announced that a lower court
in Mexico ruled that the country's minerals title system was
unconstitutional; the case involved claims originally held by Almaden. It is
but one of multiple lawsuits in a concerted effort by unions, lefties and
environmentalists to throw a spanner in the works of the mining industry in
Mexico.
The "argument" of the suits is that Mexican law does not require
consultation between the government and local groups before an initial title
is granted. This is different from any mining permit, where extensive
consultation is required. In this case, the claims subject to the lawsuit
were granted many years ago to Almaden in full accordance with the law as is;
there is no dispute about that. It is also important to note that the lawsuit
claims that the government should consult with local people, and is
not a commentary on Almaden's extensive local consultation process. Moreover,
the mineral claims in the lawsuit were voluntarily cancelled by Almaden in
the normal course some years ago, while the current claims covering the
Ixtaca deposit were not subject to the lawsuit. So other than a nuisance and
potential poor publicity, it is a moot issue for Almaden. The fact that the
stock price moved up after the company put out its release suggests
the market agrees. Almaden, currently in the final permitting phase for its
Ixtaca deposit, remains a buy on weakness for patient investors.
More significant that first appearances
Almaden spin-off Azucar Minerals Ltd. (AMZ:TSX.V; AXDDF:OTXQX, 0.35) hit a
hypogene porphyry zone at the Raya Tembrillo target on its El Cobre property.
This large zone of alterations with good copper grades is significant for
several reasons. Eagerly anticipated drilling at this target last year was
disappointing, but this latest result shows it has potential. Also, it is a
distinct target from the heavily drilled Norte zone; there has been some
criticism that the company has focused too much on this zone, suggesting to
some that the size of the overall El Cobre is too small; this puts paid to
that. And lastly, it brings the company closer to finding the porphyry
center. Geologist and letter writer Eric Coffin put it this way: "this
is the first indication that Azucar may have discovered the source
mineralization for the supergene zone." The significance of this hole
goes beyond the actual grades.
Separately Newcrest, which a year ago invested $19 million for a 19.9%
interest in Azucar, exercised its "top-up" rights to maintain it
19.9% interest. Though this was a tiny amount of money (less than C$20,000),
the fact that it chose to purchase more shares is a signal that it continues
to be interested in the property. Newcrest's initial investment was intended
to pay for a two-year drill program, though, given Azucar's low drilling
cost, sufficient funds remain for an additional two years plus. Azucar is a
buy at this level, again for investors with a long-term view.
Financing, revenue, sale, production and more
Other developments: Lara Exploration Ltd. (LRA:TSX.V, 0.57) closed its $2
million financing; this puts it in a strong position to continue its
exploration program at the newly discovered Itaituba Vanadium project in
Brazil. It is a buy at the current level.
Altius
Minerals Corp. (ALS:TSX.V, 13.14) said it expects record royalty revenue
of $21.5 million (50 cents per share) for the quarter ending March 31st, an
increase of 36% over the same quarter last year. Increased ownership of the Labrador
Iron Ore Royalty Corp., as well as better potash, base metals and iron ore
prices all contributed, allowing the company to increase its full-year
guidance to $77–$81 million, an increase of around 14% on the previous
forecast. Altius remains a core holding; we would wait for a pullback to add
more, maybe to the mid-$12 range (though the value remains good at the
current price).
Vista Gold
Corp. (VGZ:NYSE.MKT; VGZ:TSX, US$0.61) reported additional positive
metallurgical tests from the ore at its Mt. Todd property. Though Vista is
significantly undervalued based on its ownership of Mt. Todd, we don't see a
rush to buy, and would add on significant weakness.
Yamana
Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE, US$2.23) sold its mostly copper
Chapada Mine in Brazil to Lundin Mining. Though Lundin got the better of the
deal, the $1 billion cash will enable Yamana to pay down its debt. Given the
stock's decline from $2.70 a week ago, it is likely oversold now, and good
for a trade (though there could be further weakness to $2.10 or so).
Fortuna
Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE, US$3.05) released
first-quarter production results from its two existing mines, showing
significant declines in gold and silver production, but increases in lead and
zinc, with costs are both mines within annual guidance. Fortuna is a strong
buy at this level.
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]
Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares
of the following companies mentioned in this article: Midland Exploration,
Lara Exploration and Altius Minerals. 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: Midland Exploration, Almaden Minerals, Azucar Minerals, Lara
Exploration, Altius Minerals, Vista Gold, Yamana Gold, Fortuna Silver and
Newmont Goldcorp. I determined which companies would be included in this
article based on my research and understanding of the sector.
2) The following companies mentioned in this article are billboard sponsors
of Streetwise Reports: None. Click here
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This article is not a solicitation for investment. Streetwise Reports does
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5) From time to time, Streetwise Reports and its directors, officers,
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releases. As of the date of this article, officers and/or employees of
Streetwise Reports (including members of their household) own securities of
Midland Exploration, Almaden Minerals, Azucar Minerals, Lara Exploration,
Altius Minerals, Vista Gold, Fortuna Silver and Newmont Goldcorp, companies
mentioned in this article.
