Midland Exploration Inc. (MD:TSX.V, 0.84—0.89) has started a drill program on the Vortex Zone of the Casault project, a joint venture with Soquem, east of Detour Lake. Two rigs have been moved to the property, a reflection of the high hopes.
The company continues to be active along the development continuum. Assays from its recent program at Le Peltrie, into which Niobay is earning by spending the exploration dollars, have been released. Midland has started initial exploration at two new 100%-owned projects in the Lower Detour and Casa Berardi fault zones. And it continues to add new projects, most recently a nickel-copper-cobalt property it acquired by staking.
So, Midland continues to add new properties, add new partners, and explore and drill both its 100%-owned and joint-ventured properties. In all, over 20,000 meters of drilling is planned for this year, and that guarantees a good news flow. Most of its properties are optioned (to partners including Agnico, Osisko, Teck and IAMGOLD), but its strong balance sheet enables Midland to spend some money to add value to properties should it choose. Recent weakness in the stock—it traded as low as 82 cents on Thursday—for no obvious reason, is a great buying opportunity just as it starts to drill the prospective Vortex zone, with a series of drill programs behind it. Buy Midland.
Strong results offset by ongoing dispute
Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE, US$21.24) reported strong earnings, above consensus estimates, with growth at Penasquito offsetting modest declines elsewhere. Two relatively small royalties are expiring, but Penasquito should continue to grow with the new pyrite leach project due for completion by year-end.
The company increased its long-term guidance for gold, though reduced its silver guidance (partly because of the restructuring of the San Dimas stream towards gold). Wheaton wrote down its holding in Pascua Lama, following operator Barrick's write down, but this had not been included in production guidance.
In all, Wheaton has strong revenues and guidance, with strong mining partners, and optionality on several projects, most notably Pascua. The biggest weight on the company continues to be its dispute with the Canadian tax authorities over its offshore structure; the dispute is heading to court later this year. Wheaton continues to assert completely confidence in its position, and has not recorded any potential liability.
Despite the rally from early February, from $19, the stock is trading at significant discounts to other royalties and streaming companies, mostly due to the tax dispute. Once that settles, the stock could rebound strongly, at least to the upper 20s. For the last year, the stock has traded between $19 and $22, with at least nine moves up and down, so we would look for a retreat towards the lower end of that range to buy.
Mixed results do not affect high yield
Hutchison Port Holdings Trust (HPHT:SI, US$0.33) continues to experience strong throughput but weak profit numbers. In the latest quarter, throughput increased about 5% in aggregate, mostly at Yantian, which was up 9%. But overall profit was down, both because of the decline in profits at the Hong Kong port, and increased interest costs.
The outlook remains relatively stable. The company had planned to increase the tariffs it charges ships amid higher demand, but since the authorities cut tariff rates, "it would be difficult (for us) to raise rates," the company said. The balance sheet is good, with a strong cash position of HK$6.6 billion, against debt of $33 billion.
Trade war impact?
The stock has been weak partly on concerns about a growing trade war between the U.S. and China, but the company minimized the impact on its operations. At present, most affected are aluminum and steel imports and high-tech exports, few of which go through the southern ports of Yantian and Hong Kong. The company estimated that as little as 2% of volumes would be affected. This assumes the trade war does not expand.
The yield of 8.6% is reasonably secure; earlier company guidance called for a stable distribution. Given the stock has jumped about 12% in the last week—ahead of the financial release—we would look for a modest pullback to buy.
Increased earnings ahead
Kingsmen Creatives Ltd. (5MZ:SI, 0.585) announced it had been awarded two contracts, for Singapore National Day 2018 and the National History Event (2019), valued at S$22 million. These contracts will add to earnings per share in both 2018 and 2019. Trading at 11 times earnings, and yielding well over 4%, with a solid balance, sheet. Kingsmen is a 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."
