Some of our favorite resource companies are now good buys after the recent sector pullback, suggests Adrian Day, a leading mining sector expert and editor of Global Analyst.
Altius Minerals (Toronto: ALS) released financials for the quarter after already announcing royalty revenue. Earnings were slightly lower than expected, with no major surprises.
Thermal coal and potash were the strongest units. Because of the lag effect in receipt of royalties, Altius expects higher potash revenues this quarter and next. The major news was that the company’s litigation for compensation over its coal assets was dismissed; the company is appealing the Alberta Court decision.
Generally, the company — always counter-cyclical — sees this as a period for organic growth rather than for acquisitions. It continues to invest actively in early stage prospects within its project generation division, recently increasing its ownership in Orogen as well as making a new investment in another of our favorite juniors.
The balance sheet is reasonably strong with $35 million in cash at the corporate level — and another $87 million held by Altius Renewable Royalties (ATRWF) — with shares in juniors valued at $67 million.
Altius is our favorite company for broad exposure to resources other than gold, with top, forward-thinking management, a strong balance sheet, and both long-life producing royalty assets and a deep pipeline of early projects. The pullback in the stock price from almost $26 a month ago, gives us an opportunity to buy.
Fortuna Silver (FSM) released its first-quarter earnings, in line with expectations and with no negative surprises. Full-year guidance was also reiterated, notwithstanding inflationary pressures on costs.
In the first quarter, inflation was estimated to add less than 5% to total costs, with its largest single item, Argentina's Lindero, more than half of which is hedged. Significantly, the new mine Séguéla in Cote d'Ivoire is now 48% complete as of the end of March, on track for mid-2023 first gold pour.
The balance sheet is strong, with $110 million cash after drawing down another $40 million on its credit revolver; it drew down an additional $20 million since quarter end. This should be sufficient for the completion on the Séguéla mine build. Fortuna also initiated a share repurchase program at the beginning of the month which is says it “intends to use” this year.
The drama-free quarter saw a modest bounce in the stock, but Fortuna, with a strong balance sheet, conservative management, and a diversified asset base, remains very inexpensive, essentially at its lowest price before the last couple of weeks. It is a buy.
Pan American (PAAS) reported another quarter with lower earnings than estimated, this on the back of both gold and silver production lower than expected, largely due to covid-related workforce issues.
The company said that the workforce deployment was now back to normal, and it reiterated guidance for the full year, expected to be weighted towards the second half. The company continues aggressive drilling at La Colorada skarn in Argentina.
The balance sheet is strong with $326 million in cash, net cash of $225 million, plus a $500 million line of credit, which will be used for the capex on La Colorada.
With a strong management team and a balance sheet, diversified assets and three major assets that could provide significant upside — Escobal in Guatemala along with and La Colorada and Navidad in Argentina — Pan American is a solid buy here.