Evrim
Resources Corp. (EVM:TSX.V, 1.31) announced that Newmont Mining had made
a strategic investment in the company, buying 4.8 million shares at C$1.50
per share, with 80% of the $7.3 million proceeds earmarked for work on its
new discovery, Cuale in Jalisco, Mexico, allowing Evrim to advance the
project without a partner or earn-in option.
Big win for Evrim
It's a great deal for Evrim. It brings its total cash to a little more
than C$12 million—some old warrants were exercised earlier in the year—and
allows it to advance Cuale without diluting its interest in that property.
That is a very healthy balance sheet for a prospect generator exploration
company, and provides Evrim with lots of flexibility in advancing the
property. The dilution at the company level, around 6%, is modest. Newmont
has no rights to the property or the company (other than a Right of First
Offer—a ROFO—meaningfully different and less significant than the
better-known Right of First Refusal—ROFR). A joint technical team will be
established and this could be significant, since Newmont has wide experience
in high sulphidation systems; Evrim retains the final say.
Newmont gets a seat at the table and a microscope on the property,
potentially influencing the direction of exploration, with no future
obligations, as well as the ROFO which could set the timing of a takeover
battle (we are getting a little ahead of ourselves here) to its advantage.
There are the usual restrictions on resale of the shares, rights to
participate in future equity offerings, and limitations on additional
purchases in the market. Newmont and Evrim already work together on a
regional generation alliance.
Short delay in exploration
As mentioned earlier (see here for an review of Cuale and here for more on Evrim), the drill permit for Cuale
required a small environmental study and more time, leading to the entire exploration
program, including trenching, soil sampling and geophysics, being delayed.
That work, however, is now well underway, with results expected in stages
this month, and drilling (following anticipated receipt of the permit) now
expected later in October.
Royalty dispute to be settled?
Other company projects are also advancing. Results of a drill program at
the Axe copper-gold porphyry project in British Columbia, funded by its
partner Antofagasta, are expected shortly. And Harvest Gold has approved a
drill program at Cerro Cascaron, in which it has earn-in rights. Lastly, and
perhaps significantly, First Majestic announced it is working to settle the
dispute with Evrim over the Ermitano property, adjacent to First Majestic's
Santa Elena Mine and on which Evrim has a royalty interest. This has the
potential for relatively near-term cash flow for Evrim.
All the market's focus at present is on Cuale, but positive developments
at other projects—particularly a resolution of the Ermitano dispute—all add
value to the company. At a market cap of around C$110 million, there is
clearly downside if Cuale proves disappointing, but there is still plenty of
upside on positive drill results, and other assets to support the price,
while the odds of a bust are relatively low. If you do not own it, Evrim
remains a buy.
Nevsun battle begins to pick up
Nevsun
Resources Ltd. (NSU:TSX; NSU:NYSE.MKT, US$3.78) continues to advance
development of the Timok property in Serbia, though Lundin Mining's hostile
bid and moves by Nevsun to find a white knight dominate investor focus as the
shares begin to slowly move up above the Lundin bid price.
Friday it was announced that China's Zijin Mining had won the tender to
buy 63% of the Bor mining complex, including the country's only copper
smelter, for $1.26 billion. This potentially has ramifications for Nevsun,
though they are purely speculative.
Nevsun is thought to be behind schedule for the 2020 deadline of a full
feasibility and associated work necessary to convert its exploration license
to an exploitation license. (Nevsun disputes this.) Though it might seem
difficult to conceive that Nevsun would lose its license, nonetheless it has
already had a one-year extension and the government may take a less lenient
approach on further delays, especially with Zijin in the country and hungry
for more ore to feed the Bor smelter.
At the minimum, this could be one added factor to get Nevsun motivated to
sell. Zijin is believed to be one of the companies that is talking with
Nevsun about an agreed takeover of the entire company. Five companies are
understood to have made firm proposals for an interest in the company—most
likely at 19.9%—with four of those at prices above that represented by the
current Lundin bid. Several are understood to be potentially interested in
the entire company, with two in more advanced talks.
Significant change in shareholder base
Lundin's current bid of C$4.76 has been rejected by Nevsun and is widely
considered inadequate by Nevsun shareholders, though, as we have discussed,
some of the larger institutional holders would be happy with the price for
their own peculiar interests. There has also been considerable shuffling of
major holders, with London's M&G and Vanguard reducing their holdings,
while Fidelity as well as some hedge funds including Cobas and Passport have
added considerably, with many others adding incrementally. Regulatory filings
for the end of August, to be released within the next 10 days, should shed
more light on this and tell us if these assessments are correct. If
M&G—the erstwhile second-largest holder—and Vanguard—the erstwhile sixth
largest—have sold, then we might infer that the cap on the stock price has
been removed.
Given the floor presented by the Lundin bid—which under Canadian law can
only be withdrawn on certain narrow conditions—and the potential upside of a
competing bid or raised Lundin bid, the risk-reward in buying Nevsun is very
positive. We would continue to buy, always subject to continuing
developments.
Newmont to earn into high potential project
Miranda
Gold Corp. (MAD:TSX.V, 3—3.5 cents) announced a long-anticipated option
agreement on its Lyra project in Colombia with Newmont, which, by spending
$600,000 over 18 months, will earn 51%. It will have the right to take its
interest to 70% by spending another $7 million over the subsequent four
years.
The Lyra project consists of 14 concessions that could offer an extension
to Continental's Buritica deposit, in which Newmont last year acquired a 19%
interest. Although very early stage, the project certainly is prospective and
Newmont's interest in the district keen.
And another financing
No sooner had the announcement of the option hit the wires than Miranda
announced another $1.5 million private placement. This follows a highly
controversial placement at the beginning of the year by which the company
paid bonuses to directors and officers to purchase shares in the placement,
somewhat negating the point of an "equity raise." The equity was
issued all right, but the "raise" part of the equation was less
than initially announced. So with cash down to $600,000 at last quarter end
(May 31), another financing was no surprise.
The market did not take well to it, however. After moving up for a couple
of hours after the Newmont news, it fell back closing barely above where it
has traded before the news. The shares to be issued represent almost 30% dilution—before
taking into account the new warrants (and that follows 25% dilution in
March). The units have been priced at 4 cents, which may be difficult in the
current market.
Alaska project on hold
Separately, Gold Torrent has failed to complete a financing to bring the
Lucky Shot project into production, and went into default on an agreement
with its largest shareholder. Miranda owned a 30% equity interest and rights
to purchase a 3.3% royalty (with monthly installment payments). Now, Miranda
has agreed to sign over its equity interest to the new owners, Cartesian
Capital, though it retains rights to the royalty. The future is unclear;
Cartesian is an investment company not a miner, while Miranda is not in a
position to put more money into the project. At minimum—and perhaps in
entirety—it holds only part of the royalty (currently 0.4%) on a project that
has been postponed indefinitely. We expect further developments on the
project, however, as Cartesian looks to recover what it can of its investment
and finds someone to take over the project.
At minimum we can say that the early 2017 announcement that financing for
Lucky Shot "had been secured" with an expected end-2018 production
start was overly optimistic and premature. The nirvana of a self-financing
exploration company is also clearly gone.
The Newmont-funded Lyra project is very prospective, so we are holding
Miranda for now awaiting exploration work and results. We want to see the
financing complete before looking at further decisions.
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: Evrim Resources and
Nevsun Resources. 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: Evrim Resources,
Nevsun Resources and Miranda Gold. I determined which companies would be
included in this article based on my research and understanding of the
sector.
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