Adrian Day - Thu, Jun 21, 2018

Exploration and Royalties Make Good Resource Companies

Adrian DaySector expert Adrian Day looked at two 'favorite' junior explorers he considers 'good buys at current levels.'

Metal Pie Chart

Lara Exploration Ltd. (LRA:TSX.V) (0.59) released some very strong results from channel sampling at a new polymetallic property in Peru. The Puituco Project returned 4.6% zinc, 4.9% lead and 27 grams per ton over 42.6 meters. These results make it more likely that Lara can execute a good earn-in agreement, more likely with a major company. Acquired at auction in late 2017, Puituco is surrounded by BHP Billiton Ltd. (BHP:NYSE; BHPLF:OTCPK) property, while South32 Ltd. (S32:ASX; a major base metals company itself spun off from BHP) is nearby. One of the two would be an obvious candidate for any agreement; South32 has been very active in acquisitions and joint ventures.

Lara is particularly active in Brazil and Peru, though most of the recent news is from the former. In Peru, however, it now has 15 properties, including epithermal gold and polymetallic projects.

Two projects advance, one to production

Earlier, Lara announced additional drill results from its Planalto copper project in northern Brazil, which included another long intercept (211 meters) of copper mineralization, and the company said it was "very encouraged" by presence of massive chalcopryrite. It holds this property 100%, and decided to test drill before seeking a partner.

Lara also announced receipt of a mining license for its Maravaia copper project near Curionopolis in northern Brazil. The property has been optioned to a private Vancouver-based company, Tessarema, with Lara retaining a 5% carried interest and a 2% royalty. If Tessarema has not achieved commercial production by November, it must pay Lara an additional US$1 million.

Lots of activity with prospective big win in wings

Lara continues to await the decision on the legal case between Codelco (its partner) and Vale S.A. (VALE:NYSE) over the highly prospective Libertade property. A successful outcome here could be a company maker. Meanwhile, Lara has been very active in recent months, with several positive developments. The company has about $2 million cash and marketable securities, with several possible sources of revenue over the next or so, some more certain than others. But the company is not planning on raising additional funds at the current price level. With several highly prospective items on the boil, cash coming in, and only a CA$20 million market cap, Lara is a very strong buy here for an investor who can afford to be patient.

Well Positioned for the Commodity Bull Market

Altius Minerals Corp. (ALS:TSX.V) (12.95) reported modest increases in revenue, reflecting "slow and steady cyclical price rebounds as well as incremental volume increases," according to CEO Brian Dalton.

Copper currently has the highest allocation of revenue, at 36%, with strong results from Yama's Chapada Mine, where a new expansion has just been announced, foretelling a strong outlook. Thermal coal had a strong quarter, but the overall allocation to that commodity continues to decline, since Altius' royalty is based on volume, while other royalties are based on price, and commodity prices generally improving, while potash—another big segment for Altius—has hit cyclical lows (according to Dalton).

Dalton commented that the mix of commodities "is not bad" relative to the size of the commodity markets overall, with a few major commodities, such as aluminum, difficult to purchase royalties on. But he emphasized that the company was more focused now on good quality assets than on tweaking the mix to ensure it precisely matches global markets.

Altius has also just launched a renewable energy business in joint venture with Great Bay Renewables, which lends the technical expertise in that sector.

Cash and assets to deal

Altius has $57 million in cash, with almost the same amount drawn on term debt and another $75 million drawn on the revolver (for a total of $128 million debt). It recently drew on its revolver for its recent potash acquisition, so total debt is higher than normal. Indeed, the company is in the process of renegotiating its debt. In addition, the company holds a portfolio of equities in mostly junior companies.

Down from $14.50 in April, with strong cash flows and a broad land portfolio, some joint ventured and more available for joint venture, Altius is also a good buy here.

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 and Altius Minerals. 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 and Altius Minerals. 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. 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. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.
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 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 (including members of their household) own securities of Lara Exploration and Altius Minerals, companies mentioned in this article.

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