Adrian Day - Fri, Dec 22, 2017

A Set of Firms, Including Two Prospectors, Reviewed by Asset Manager

Adrian DayA pair of resource companies, along with another couplet of firms, prompted commentary from investment analyst Adrian Day of Adrian Day Asset Management.

Gold exploration

Active Prospect Generator with Potential Big Wins

Lara Exploration Ltd. (LRA:TSX.V, 0.79) is a prospect-generator exploration company focused in Latin America. The company has been successful at building a portfolio of projects and residual interests at low cost. It recently announced it would initiate a drill program on the recently acquired Planalto copper project in northern Brazil, which CEO Miles Thompson calls "one of the most compelling targets we've seen in a decade or more that Lara has been active in (the province)." The decision to fund a drill program before obtaining a joint-venture partner follows interpretation of old data, and supports this comment.

Earlier, Lara amended an option agreement on another project, Maravaia, whereby the property was immediately transferred in exchange for additional payment of $750,000 and a 5% fully carried interest (in addition to an existing royalty).

Another major copper property, Liberdade, also in Brazil, is currently the subject of a dispute between Codelco (Lara's partner) and Vale S.A. (VALE:NYSE). A lawsuit has been going on for well over two years.

Lara should end the year with over CA$1 million, and given its low burn rate, does not have a critical need to raise funds. Drilling results and a partner at Planalto or a settlement at Liberdade would see a significantly higher share price. In recent months, there has been meaningful insider buying. Yesterday, I was prepared to write that, notwithstanding the recent stock price rally—it traded at $0.63 at the beginning of the month—it remains very undervalued and is a buy. Following another stock move today, while it remains undervalued, we would wait for a pullback to add to positions.

Soft Results, but Undervalued

Kingsmen Creatives Ltd. (5MZ:SI: 0.58) saw a decline in revenue and profits in the recent period, with gross revenue down 10% on the same quarter a year ago, though gross profit for year-to-date was down just 0.5%. There was no specific reason in what is a lumpy business. Separately, it increased its investment in Kingsmen Shanghai to fund expansion.

Kingsmen has a strong balance sheet and solid returns. It is trading in single-digit P/Es (though at over 9x, above its long-term average multiple), and yielding 4.3% (though again closer to the recent low). We are buyers on weakness.

Cleaning Up the Company but No News

Reservoir Capital Corp. (REO:TSX.V, 0.05 x 0.065) has just completed a $850,000 equity raise. No other news is forthcoming. The raise may simply be to keep the company alive pending a transaction, or it could be in preparation for such a transaction. A loan to the company made by the chairman has been converted into shares, giving him ownership of nearly 20% of the shares outstanding. Again, such a move could be to clean the company in anticipation of a transaction (such as using the company as a shell into which to put another business). This is speculation on my part.

The shares have been hit by tax-loss selling, in addition to the lack of news. So unless you need the tax loss this year, hold for now.

Drilling but Higher Share Count Depresses Price

Cartier Resources Inc. (ECR:TSX.V, 0.195) has seen continued good results at its Chimo property, most recently including 9.4 g/t over 6.5 meters. Drilling is ongoing. It has also launched drilling together with its partner SOQUEM Inc. at its Fenton deposit. Separately, the company continues to raise equity funding, most recently raising $5.3 million in November, through the issuance of 18 million new shares, putting the share count now at 177 million shares. The shares have also been hit by U.S. tax-loss selling. Hold for now.

Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is "Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks."

Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Lara Exploration. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Lara Exploration, Kingsmen Creatives and Reservoir Capital. I determined which companies would be included in this article based on my research and understanding of the sector.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Streetwise Reports does not accept stock in exchange for its services. Click below for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article.
4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article, until one week after the publication of the interview or article. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Lara Exploration and Reservoir Capital, companies mentioned in this article.

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