Miner Whipsawed by Farcical Permitting Decision
Adrian Day of Global Analyst looks at the mostly favorable developments at some of the companies on his list, but also at the farce playing out in Mexico.
Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) (FSM.NY, 3.24) reported that the Mexican environmental agency SEMARNAT, which last month renewed the company’s mining license on its San Jose project only weeks after earlier denying the extension, now says the extension is only for two years. The agency, is a ludicrous explanation, says the earlier notice granting a 12-year extension contained a typographical error. Given that the term of 12 years is referred to repeatedly in the document belies that it was a typo and that only two was intended. Fortuna has initiated legal proceedings in the Mexican federal court.
Mexico’s mining reputation at risk
It seems to me that the anti-mining activist who heads SEMARNAT does not want to grant an extension to Fortuna but has no legal basis for denying it; it seems that they first bent to political pressure in granting the delayed renewal, and then to anti-mining NGO pressure in the denial. The issue will have to be settled in the courts. Perhaps SEMARNAT just wants to be able to say to its anti-mining activist chums, “hey, we tried.” In the meantime, this Mickey Mouse behavior makes Mexico a laughing stock for mining, and companies––local as well as foreign (Fresnillo and partner MAG Silver were notified of a permit delay in their project)––will be wary of committing funds. Investors too will think twice about investing in the country. I was thinking of calling this a Mexican standoff, but not only was that too easy, it would also have been not quite accurate, for Mexico has a lot more to lose with this stupidity than any single company.
Meanwhile, construction at Fortuna’s new Séguéla mine in Cȏte d’Ivoire is proceeding on schedule towards a first gold pour in mid-2023. Fortuna, undervalued and with growth ahead of it, is a buy.
Orogen makes progress on two fronts
Orogen Royalties Inc. (OGN:TSX.V) (OGN, To., 0.48) announced it had retained a CEO for the Ball Creek spinout, anticipated for mid-year. Brian Massy has 15 years’ experience with major mining companies, including as vice president for investor relations for BHP. Ball Creek is a gold-copper porphyry project in the famed Golden Triangle district of British Columbia; Orogen will retain an equity interest in the new company and a royalty on the project.
Separately, the company has concluded two more agreements on properties, a sale in British Columbia and an option in Nevada, continuing a string of such agreements whereby it receives some cash and shares, and, importantly, retains a royalty, while selling the project.
With over C$8 million in the bank and awaiting its first royalty check on Ermitaño, Orogen is a buy on any weakness.
Vista collects more cash, but focus on mine study and transaction
Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX) (VGZ.NY, 0.6814) received $2.5 million for cancellation of the remaining 50% of the royalty on the Awak Mas deposit in Indonesia. This completes the monetization of another of Vista’s non-core assets. Though positive, it does not fundamentally change the near-term outlook for the company that has cash from a $13.5 million equity raise last July. The market awaits the completion of the feasibility study on its Mt. Todd project and expected discussions with potential joint-venture partners. The stock is trading at an enormous discount to the value of the property. Buy.
Merger and dividend at two majors
Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) (AEM.NY, 48.20) said its merger with Kirkland Lake should be completed this coming week after expected Australian government approvals. The combined company will retain the name Agnico Eagle and its stock symbol. Buy.
Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) (FNV.NY, 133.97) raised its quarterly dividend by 2 cents to C$0.32 cents a share, for a forward yield of just under 1%, about 50 basis points lower than peers. Hold.
BEST BUYS now, in addition to those discussed above, include Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) (OR.NY, 11.07), Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) (PAAS, Nasdaq, 21.32), Midland Exploration Inc. (MD:TSX.V) (MD, To., 0.495), and Lara Exploration Ltd. (LRA:TSX.V) (LRA, To., 0.485–0.53).
Originally published on Feb. 6, 2022.
Adrian Day, London-born and a graduate of the London School of Economics, is editor of Adrian Day’s Global Analyst. His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”
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