If it looks like a bull market (technical breakout in gold), smells like a bull market (significant negative yielding debt) and feels like a bull market (funds flowing into gold), it must be a bull market. Our analysis shows that equities in smaller sized companies outperform during a bull market. However, not all junior miners are created equal, and we believe there are three keys to picking them.
Impact: Mildly Positive
Aurion has released drill results from Aamurusko NW that start to prove up the new geologic theory the company is testing with the current drill program. Importantly, the company’s hit-rate and the mineralized widths have improved with these results even though the grades appear to have disappointed the market, we believe the company has moved another step closer to defining an economic deposit. With a strong cash position and an aggressive exploration plan, Aurion is positioned to discovery to make multiple discoveries in the Central Lapland Greenstone Belt (CLGB).
Impact: Positive
We recently had the opportunity to visit Wallbridge’s Fenelon property in Quebec. Our key takeaways are that the company is rapidly expanding mineralized zones beyond the small high-grade resource that was purchased (91.1kt at 12.97 g/t Au). With plenty of infrastructure in place and underground bulk sample already completed, the company is expanding mineralization through drilling and potentially undertake a small mining operation. We expect the stock to materially re-rate over the next 6-12 months, as the company demonstrates the mineralization potential at Fenelon which we believe is open in ALL directions and could define another Young-Davidson type target augmented by a higher-grade sweetener.
Impact: Mildly Positive
GT Gold has announced results from 11 drill holes which have expanded both the overall mineralized zone and the high-grade core. As well, near-surface results continue to suggest that a starter pit is likely. As GT continues to aggressively explore Saddle North in 2019, we believe the market is likely to remain focused on this deposit’s potential, positioning share price performance to be driven by exploration success.
Impact: Positive
Sailfish Royalty Corp. has announced the completion of the all-share acquisition of Terraco Gold (TSXV:TEN) at an implied value of C$17.8M. This adds another royalty in a top-tier jurisdiction to the portfolio. Our preliminary view of valuation implies that Sailfish is undervalued, and we expect that as San Albino approaches production, the company should re-rate.
Impact: Positive
Minera Alamos has announced the timely receipt of an Environmental Impact statement from Mexican authorities for the development of Santana, positioning the project for construction in Q4/19. Drawing on the extensive operating experience in Mexico, Minera is quickly acting on its strategy to build a mid-tier gold producer with its first mine, Santana on-track to be in production by mid-2020.
Impact: Positive
Vanadium One continues to be materially undervalued despite iron ore prices making multi-year highs (Figure 1 & 2) and the company continuing to de-risk a project that should be of interest to producers in the space. Additionally, the last time the iron ore price was at this level, there was a significant increase in M&A activity (Figure 1 & 2). The lowest acquisition multiple for exploration/development stage assets from the last 10 years (US$0.07/t– Figure 3) implies a value for Vanadium One of C$0.85/sh (+963%). In our view Vanadium One is likely to re-rate as the project is de-risked (PEA in Q3/19). With the current strength in the iron ore price environment, Vanadium One is an attractive acquisition target.
Impact: Positive
North American Palladium released solid Q2/19 results and announced a special dividend of C$0.35/sh. We think the special dividend is an important signal of confidence to the market. We believe that improved operating performance QoQ, the underground expansion being on-track and continued strength in the palladium price, could result in a special dividend becoming a regular occurrence. We are maintaining our C$25/sh fair value estimate and believe the company’s ability to generate FCF and thus, return capital to shareholders, should drive the stock higher.
The official decision on 232 was announced on Friday night. In our view this is positive for the overall uranium market, as we believe its resolution should allow utilities and producers to enter into long-term agreements, which should push the uranium price higher. While positive for the overall market, the premium that U.S. producers and developers had acquired over the last ~18 months is likely to come out of the market.