Adrian Day - Mon, Jun 25, 2018

Two Resource Companies at 'Good Buying Levels'

Adrian DayMoney manager Adrian Day discusses two resource companies in his portfolio that he finds are buys at current levels.

Two mine trucks

Nevsun Resources Ltd. (NSU:TSX; NSU:NYSE.MKT, US$3.31) continues to make progress on advancing the Timok property in Serbia, as well as turning around Bisha in Eritrea. Earlier in the month, Nevsun started construction of the exploration decline, a necessary development for the development and eventual construction of a mine at the site. This project will take approximately 24 months.

An alternative development plan is being studied, to de-risk the project by reducing the initial capex and production in the early years. If the company adopts this scenario, an updated prefeasibility study will be released in the fall, with a full feasibility by the middle of next year, on schedule. Concurrently, an initial resource estimate for the Lower Zone, a joint venture with Freeport, is expected in coming months.

The company is looking at various alternatives for project capex, including strategic partners who could provide political, technical, or offtake support in addition to the capital.

In Eritrea, the company is proceeding with an expansion of mining at Bisha, with an incremental capital cost of around $40 million. This reflects confidence that the metallurgical problems that bedevilled recoveries at the end of last year and early this. The expansion is estimated to generate an additional $104 million in cash flow over the next five years, which will go towards development at Timok.

The lawsuit against Nevsun for alleged mistreatment of workers in Eritrea will now move to the Supreme Court of Canada. Nevsun argues that the case should be heard in Eritrea not in Canada, but lost its argument in lower courts.

Bidders for company

Separately, Euro Sun said it would pay half its share of the joint proposal with Lundin to buy the company in cash; earlier, the proposal included C$1 in Euro Sun shares. (The cash would come from Nevsun's war chest, if the bid were successful.) This came in response to investor reluctance to take Euro Sun stock. Significantly, this revised offer was made by Euro Sun alone. We surmise this indicates that Lundin may have heard the market message that Euro Sun is not regarded as a serious partner. We could also infer that Lundin may be talking with Nevsun.

Is another offer coming?

We would not be surprised to see an improved offer—perhaps for a joint venture—from Lundin, or from some other company, though any such offers are slow in coming. Nevsun has stated, however, that after the Lundin proposal was made public, it received interest from several other companies. Given the long-term value of the Lower Timok as well as the significant, if largely ignored, regional exploration potential, we think the current offer undervalues Timok and its long-term potential. It is possible that a formula whereby Lundin buys the Upper Timok and shares with Nevsun in the Lower Zone and exploration could be found, increasing the overall value to shareholders without meaningfully increasing what Lundin has to put up.

This is clearly a story to be continued. In the meantime, Nevsun is good value at the current price level, notwithstanding that the stock could fall back in the near term if it became clear that no offer would be forthcoming.

A quality company with lots of activity

Midland Exploration Inc. (MD:TSX.V, 0.87) continues to advance work on several projects. At the prospective Vortex zone, a new high-grade discovery at a joint venture with Soquem near the Detour Lake mine, a follow-up drill campaign of eight holes has been completed. Once the assays have been received, which should be shortly, the next drill campaign, to target the best zones identified, will be planned and perhaps commenced later this month.

In the James Bay region, there has been work with partner Osisko in the Éléonore area, work on several gold and base metals projects in the joint venture with Altius, and on its wholly owned James Bay Gold project owned property.

In all, Midland has 11 active projects at varying stages, in joint venture, under option, and some 100% owned, with a total of $6.7 million of exploration spending budgeted, of which Midland is responsible for a little over $4 million. Of course, these numbers can change depending on results, but we can expect a continued steady news flow throughout the rest of the year.

With nearly $15 million in cash—including some $1.75 million from the exercise of expiring warrants in May—Midland is well funded to continue its program. Top management, a solid balance sheet, and multiple active projects add up to a company that is well positioned for success. At the current price, Midland is a buy.

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: Midland 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: Midland Exploration and Nevsun Resources. 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 Midland Exploration and Nevsun Resources, companies mentioned in this article.

InvestorsGuru.com publishes interesting contributor articles in addition to its own content. We have not verified any of the above details.

Sign-up at InvestorsGuru.com (or blog.InvestorsGuru.com) for our Small Cap Stock Observer newsletter, and to set-up your own My Portfolio, My Watchlist & Alerts and News by Email preferences, or to post at our AnyTicker.com Bulletin Boards. Free!

Please note that nothing in this report should be taken as a recommendation in any way, and that everything from InvestorsGuru.com is subject to the terms of our Privacy Policy and Disclaimer.

comments powered by Disqus

Detailed Quote Portal

symbol lookup | (TSX add :ca)

Membership Privileges

  • Investors Guru Small Cap Stock Observer - newsletter emailed monthly!
  • Featured Stock Profiles - emailed on occasion!
  • News by Email - as it's released, according to your My Preferences!
  • My Portfolio - login to view or update your holdings, or have it emailed daily!
  • My Watchlist & Alerts - login to view or update your stock radar list, and set price triggers for email alerts!
  • Bulletin Boards - no need to request boards, just Quote it! Social Sign-on & Share your ideas, observations & trends!
  • Find it all! Find it Fast! Comprehensive stock research webpages. No more endless clicking!

Email: (see Privacy Policy)
Password: (4-15 characters)
Username: (4-15, BB posts etc)

unsubscribe anytime


Bookmark and Share

 Subscribe in a reader

Our Mobile Site