Adrian Day has long been considered one of the leading authorities on the gold sector; here, the money manager and editor of the Global Analyst reviews a pair of gold royalty and mining plays that warrant his ongoing buy recommendation.
Altius Minerals (Toronto: ALS) reported royalty revenue down for the year over 2019, from C$1.83 per share to $1.62, partly because of lower prices for some commodities and also because of covid-related production cutbacks.
The company has announced revenue for the first quarter, expecting to receive royalty revenue of nearly $18 million of 43 cents per share, up form 39 cents a share in the first quarter 2020.
Most assets were back up to full operations (though Chapada, on which Altius holds a copper royalty, experienced a production interruption). For the most part, prices were higher, including copper and potash, Altius’ two largest royalty earners.
The company also reported the value of its junior equities portfolio moved up, by $2 million, nearly 4%, as of the end of the first quarter, but in addition there were sales proceeds in excess of new investments of another $2.5 million.
Altius is a core holding for us, providing exposure to a broad range of commodities, with a perceptive management with the insight and discipline to act in a counter-cyclical manner, and strong balance sheet.
The stock has been strong of late, up from essentially $14 a month ago, and we are holding. If you do not own, look for any pullback to buy.
Franco-Nevada (FNV) has expanded into iron ore, buying some of Vale’s outstanding Participating Debentures from the Brazilian government. The debentures provide holders with life-of-mine net sales royalties on Vales’s low-cost iron ore systems in Brazil and some gold and copper operations.
The weighted life of the iron ore mines is 30 years with potential for extension for many decades. Based on current economics, the debentures return a 10% yield.
At the same time, Franco announced it had acquired a 9.9% investment in Labrador Iron Ore Royalty Corp., purchased over “a number of years” for an average cost of $14.72; the units are trading today at $38 a share.
These investments diversify the commodity exposure and provide “a base of low-risk, long-life cash flow”, according to CEO Paul Brink.
At its recent “analyst day”, Franco emphasized that its focus remains precious metals, but when gold assets become expensive or they see great opportunities in other commodities, they will look, based more on the individual ore body than the commodity per se.
The pull back in the gold price this year, Brink believes, will provide “a great window” to add more precious metals assets, inferring that the next major transaction may be in gold.
Franco is a cornerstone holding for us: top management, diversified asset base and extensive pipeline, solid balance sheet all make it our go-to gold investment. Given the jump from $105 in the last two months, we are not chasing it. But it you do not own it, look for any opportunity to buy.