Evrim Resources (Toronto: EVM) was our top speculation last year and the thesis behind my recommendation remains much the same, says Adrian Day, editor of Global Analyst.
The stock has been more-or-less stable in the last 12 months — but importantly, the downside from current levels remains low, with the share price backed by hard assets.
The market cap is just shy of US$20 million. This is backed by almost US$10 million in cash and a stack of assets, most importantly a 2% royalty on a property the company discovered called Ermitano, in the mining friendly state of Sonora, Mexico.
Earlier this year, the company sold the property to First Majestic, a mid-size production company, whose adjacent Santa Elena mine is running out of higher-grade ore. Evrim retained a royalty.
Since taking over the property, First Majestic has been aggressively exploring, doubling drill activity. It expects production to commence at the beginning of 2021. There will essentially be no capex, since the mill facilities at Santa Elena will be used to process the Ermitano ore, which is fully permitted.
In short, Ermitano is being fast tracked by a hungry miner, at no cost to Evrim. Once in production, this could generate over $20 million over its seven or eight-year mine life. (The first few years will be tax free due to tax credits held by the company.)
The royalty, should Evrim wish, could be most readily turned into cash. So the present value of this royalty plus cash-on-hand well exceeds the company’s market cap.
All the company’s other assets, its exploration properties in British Columbia, Nevada and Mexico; its joint ventures and alliances with companies including Newmont Goldcorp (NEM) and Yamana (AUY) — all this comes free. Remember, most of these joint ventures have other companies spending the money, so Evrim operates with a very tight budget.
It has among the best management for a small exploration company. Any success on any of its exploration projects should see the tightly held stock price move rapidly while the downside is protected by hard assets. That’s the kind of exploration odds I like.
(Editor's Note: Adrian Day's Top Pick in 2019 was Gladstone Investment (GAIN) which rose 60% plus a 9.7% yield. He continues to hold the stock noting that insiders are buying, and the stock is an attractive investment for an above-average and growing income stream.)
