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Gold and base metal companies are on this expert's shopping list
Commodity Online | November 13 2017
UPDATED 17:32:49 IST

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By Adrian Day 
Altius Minerals Corp. (ALS:TSX.V, CA$12.40)
, one of my top non-gold resource companies, just celebrated its 20th anniversary. Base metals—primarily zinc and copper—now account for over 45% of the company's revenues, a pleasing change from the earlier coal-heavy allocation. A copper spinoff is in the works, following a successful zinc spinoff. In these spinoffs, Altius retains a share interest, which it tends to subsequently sell down to raise capital, while retaining a royalty interest.

Altius continues to pay down debt, nearly $5.5 million this year, as well as buying back shares, 154,000 in the last quarter. CEO Brian Dalton said he was frustrated that he could not buy back more shares, but they are limited by the rules based on the number of shares traded.

Well positioned for iron ore
Interestingly, Dalton also indicated he was "certainly optimistic" now on an iron ore recovery and noted that Newfoundland and Labrador ore sells at a premium to Australian ore. The company is very well positioned in iron ore, with several joint ventures, exploration land and royalties.

Altius' stock has moved strongly through the summer and autumn from lows around $10. With strong management, a solid balance sheet and financial backing, numerous royalties as well as development and exploration land, Altius is one of our handful of top companies in any sector. At the current price, it is not fundamentally expensive, but given the recent move and that the stock can be volatile, we would look to buy on a pullback.

Strong Report on Timok
Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT US$2.35) released its preliminary economic assessment (PEA) on the Timok upper zone, acquired from Reservoir Minerals a year ago. With a 15-year mine life, it is scheduled to produce 1.1 billion pounds of copper in its first four years, and 2.1 billion for the life of mine. (Grades decline significantly toward the end of the mine life.)

The economic projections are strong: The project has a net asset value of $1.5 billion, after tax, at an 8% discount rate. Nevsun bought Reservoir for the equivalent of $365 million. The project, with an initial capex of $360 million and a payback of less than 1.5 years, it has a very robust IRR of 50%. The numbers are based on $3/lb copper and $1,300/oz gold; copper is currently just above, and gold just below these prices. The capex number excludes two payments that have to be made to Freeport, $45 million on a build decision and $50 million on achievement of commercial production.

Significantly, Nevsun believes there is potential for expansion of the resource, including more high-grade mineralization ("geologically, there should be," said CEO Peter Kukielski).

Looking ahead to next steps
The next step is to further define the costs and execution plan in order to lower the execution risk. Already, the company says it is using conservative numbers; "we don’t feel that there's a lot of risk that the numbers might change in a negative fashion," said Kukielski. A preliminary feasibility study (PFS) is scheduled for the first quarter of 2018, with production to start sometime in 2021.

This was a very strong, though not unexpected, PEA. Otherwise, Nevsun reported an increase in volume and decline in costs for zinc, but weak copper production at its Bisha mine in Eritrea. The company has $150 million in cash.

We are holding Nevsun. If we did not own, we would be looking for opportunities to buy.

Vista is changing, but market doesn't recognize it yet
Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX, US$0.70) reported progress at its Mt Todd deposit in Australia, advancing toward an updated PFS, expected in the first quarter. The updated study should be strong, with CEO Fred Earnest telling investors "to expect improved recovery, sorting, power savings, and an improved currency exchange rate," which will combine to produce "a compelling rate of return at today's gold price."

This is significant because Mt Todd has a reputation as a deposit that requires a higher gold price to be economic. Earnest said Vista is "no longer just a call option on the price of gold, but owners of a large-scale, economically viable gold project." Indeed, Mt Todd is the largest undeveloped gold project in Australia and the third-largest reserve package in that country. It could be among the top five producing mines in Australia, with costs in the lowest quartile.

Property sale for cash, royalty, and option
Separately, Vista optioned its Guadalupe de los Reyes deposit to Minera Alamos for four payments totaling CA$6 million, with Vista retaining a royalty and the right to a 49% interest in any future underground mine. It is a very attractive deal for Vista in my mind, and, being Vista's last significant asset outside of Mt Todd, further focuses the company on that asset.

Vista has CA$21 million cash, which can be supplemented by the completion of the Guadalupe sale; and the sale of its mill and Midas shares. In all, it is a very strong balance sheet.

Despite the progress and very optimistic comments about the upcoming revised PFS, the stock hardly moved. For various reasons, it seems to be a "show-me" story. The updated PFS, however, if it confirms the optimistic assessment, should finally make the stock move, giving us an opportunity now to buy the stock (and Mt Todd) at a bargain level. Once the PFS is out, we suspect the company (or the deposit) will be a most attractive target. Vista is a strong buy.

Source: Streetwise Reports

 

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