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Large Royalty Company Shifts Talk on Diversification as It Grows

Source: Adrian Day for Streetwise Reports   11/23/2021

Adrian Day, in the Global Analyst newsletter, discusses Franco-Nevada’s diversification…



This article was originally published by The Gold Report

Source: Adrian Day for Streetwise Reports   11/23/2021

Adrian Day, in the Global Analyst newsletter, discusses Franco-Nevada’s diversification of royalty assets, as well as providing updates on other precious metals companies he follows, including one strong buy.

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) (US$144.03) had a strong quarter, “setting the stage for a record year in 2021.” The increase in the price of oil and gas meant that revenue from energy grew about two-and-a-half times from a year ago, to account for over 17% of the company’s revenue. It expects further increases from oil & gas in the period ahead, driven largely from higher prices rather than increased production, and sees the year ending with revenues at the higher end of its guidance.

Nonetheless, the gold assets performed well, particularly the largest contributor (at 17% of total revenue), Cobre Panama, as it continues its ramp-up. Ounces received overall increased as the impact of Covid-related restrictions declined further, though the net profits interest on the Hemlo Mine fell and are expected to be minimal for the rest of the year. Net profits tend to be more volatile that “net smelter” royalties, where the revenue comes off the top.

Oil, iron ore, and more in the future

The most significant item from the analyst conference call, however, were the comments indicating a further shift in the company’s stance on commodity diversification. While all mining assets accounted for 83% of revenue, 10% of that came from the new iron ore assets. Gold’s contribution fell to 53.5%, a low for the company.

France clearly has the broadest commodity diversification of any of the large precious metals royalty and streaming companies. Over the years, as the company has grown and fewer large gold and silver opportunities are available, Franco has been less defensive about its non-precious metals revenue, now highlighting the diversification as a strength. As I have discussed previously, the non-precious metals revenue and diversification is far less an issue with generalist investors than it is with gold specialists, though gold royalty companies trade at significant valuation premiums over non-gold companies. The company’s comments took the diversification issue another step than in the past.

There is a new diversification target for the company

As the company has stated before, its current priority is to acquire new precious metals assets, which it expects to come from financing the development and construction of new mining. But it remains open to adding other commodities if there are good assets. CEO

Paul Brink even said that as the company grows, diversified commodities could make up a larger part of the portfolio, although precious metals remain the number-one focus. However, he admitted that the former goal of precious metals accounting for over 80% of the portfolio had changed, and now “longer-term, I expect the mix would be at least 80% mining assets.” He also noted that since commodity prices tend to be volatile, the mix can change in the short term (viz, energy prices in the last few quarters). He also emphasized that if a good asset came to market, they would want to acquire it regardless of the commodity mix, and then try to manage the mix over time. Interestingly, none of the questions from analysts on its latest call focused on the gold assets (though there were some on the commodity mix).

Cash, inflation, copper, and taxes

The company remains debt free, with around $350 million in cash and total available capital of $1.6 billion. Other topics were touched on during the conference call, and most were positive or less negative for Franco. Inflation is leading to higher costs for mining companies, but royalty and streaming companies tend to be far less affected than the miners. Indeed, if higher inflation leads to higher gold and silver prices, then inflation is a net positive for royalty companies. Brink noted that, although copper is subject to conflicting pressures at present (the negative being a slowdown in China’s demand), the mines on which Franco derives many of its gold streams are among the lowest-cost producers so he not concerned about any pullback in price of copper.

The newly agreed global minimum corporate tax would affect Franco, as it would other royalty and streaming companies which have offshore subsidiaries. In Franco’s case, the impact would be minimal, perhaps as little as 3% of NAV, even less if certain deductions for streams are permitted.

With a rock-solid balance sheet, top management, diversified assets, and a low-risk business model, Franco remains a core holding for us, with growing exposure to multiple resources. We would wait for a pullback to add to positions. Hold.

Production down and costs up at Newmont

Newmont Corp. (NEM:NYSE) (US$56.55) reported slightly lower-than-expected results, with Australian operations outperforming expectations while North America lagged. The drop in production is largely the result of lingering restrictions relating to Covid at various mines. In a large diversified mining company, some mines will always underperform and others outperform for periods, and none of this was material in Newmont’s latest quarter. The company updated its full-year guidance for production of 6 million ounces (down from previous guidance) at a cost of $790 per ounce (up from prior). The increase in costs is being felt across the industry.

Newmont is a mining leader in the move towards carbon reductions, with goals of reducing emissions by 30% by 2030 and becoming net-zero by 2050. As part of this drive, the company has formed an alliance with Caterpillar to produce an all-electric, autonomous haulage fleet. (Of course, the increased emissions from the additional mining for specialty minerals required for EV batters does not get mentioned.)

Newmont is somewhat overvalued relative to other large mining companies, though still well below its historical norms. As the largest gold mining company in the world, with no huge warts, a good balance sheet, and a respectable dividend (3.9% yield at today’s price), Newmont will be an obvious beneficiary of renewed interest in gold stocks by generalist investors and funds. We are holding.

Fortuna updates on Mexico mine

Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) (US$3.83) said it had obtained an extension of the requirement in its line of credit to have a permit or permanent injunction to operate its San Jose mine in Mexico, following the environmental agency’s denial of its application to renew its mining license. The new deadline is February 18, 2022. Meanwhile, the company said it expects to file a court appeal to the denial order by the end of the month. The company is currently operating the mine under a temporary injunction that it hopes to make permanent. The entire appeals process could take up to a year, the company said, so we could be revisiting the line-of-credit issue in a few months.

The stock, after a brief rally, slid again to end the week at a new recent low. We continue to think that the decline in the stock price exaggerates the potential loss, even of the closing of the San Jose mine, and that Fortuna is good value at these levels. Equally, the next several weeks are unlikely to see a meaningful rebound as the story unfolds. Fortuna can be accumulated by long-term gains investors.

Cartier active on many fronts, though timeline has slipped

Cartier Resources Inc. (ECR:TSX.V) (0.175) continues to advance its various projects in the Abitibi area of Quebec. It is moving ahead with a preliminary economic assessment (PEA) on its flagship Chimo property, following a third resource estimate in May; this shows 684,000 ounces indicated and 1.4 million inferred, a significant increase from previous estimates. The company has been drilling two other properties, including Benoist, currently underway, while it has executed option agreement on two more. Earlier this year, it also acquired all rights in the prospective Fenton property.

The Chimo resource is the most significant development, and the increase in ounces is impressive (up 73% from last year’s update). However, the cut-off grade was reduced, and (partly due to this) the grade fell 30% to under 3 grams per tonne, on the low side. The PEA should be completed by year end or early next, with a possible sales process thereafter.

Though the activity is impressive, the stock has been a disappointment, falling in half from earlier in the year. Partly, the weak stock has been due to overpromising. A little over a year ago, we were expecting a sales process for its Chimo within months, following publication of a resource estimate, but that was delayed. Given the updated resource estimate and renewed expectations to monetize Chimo, we are holding.

Promising drilling underway for Lara

Lara Exploration Ltd. (LRA:TSX.V) (0.60) announced that drilling has resumed at its Planalto Project, following its receipt of long-expected permits. Unusually, the company said that “a preliminary inspection of the …drill core from (the first) hole” indicated it was “very similar” to the main Homestead discovery which excited the market in 2018. A second drill rig has been mobilized. The market has barely moved to this potentially very promising news. Lara is a strong buy for this project, but also more generally for strong management, which operates on a low spend across multiple properties.

Orogen’s first royalty property to start within months

Orogen Royalties Inc. (OGN:TSX.V) (0.415) received positive news on its two main royalties. Project owner First Majestic announced that production at the Ermitaño deposit in Sonora, Mexico, will begin “in the coming months” with up to 60,000 tonnes of ore expected to be stockpiled by year end. First Majestic continues to explore the deposit, which is adjacent to its depleting flagship Santa Elena mine. Orogen has a 2% NSR royalty on the deposit and surrounding ground.

Separately, AngloGold has reported on the Silicon and Merlin projects in Nevada. Following its proposed acquisition of Corvus Gold, which has land surrounding Silicon, Anglo said exploration results “indicate for potential of significant oxide orebodies at Silicon and Merlin, as well as additional sulphide potential at Silicon at depth.” Production at Corvus’s land could begin in the next three to four years and would later move onto to Silicon, over which Orogen holds a 1% royalty.

Given the recent strong move in Orogen’s stock price, and our plentiful opportunities to buy lower, we are holding for now. But certainly if you do not own, you can accumulate.

TOP BUYS THIS WEEK include, in addition to any above, Altius Minerals Corp. (ALS:TSX.V) (15.92); Midland Exploration Inc. (MD:TSX.V) (0.58); Kingsmen Creatives Ltd. (KMEN:SI) (0.25); Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) (20.25); Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) (US$26.78); and Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE) (US$54.35).

Originally published on Nov. 21, 2021.

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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1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Franco-Nevada, Fortuna Silver, Lara Exploration, Midland Exploration, Altius Minerals, and Orogen Royalties. 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: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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Bullish Island Reversal

You can blame Omicron or elevated valuations or call it a
Fed taper tantrum. Bottom line, the market was overbought entering the
seasonally weak beginning…

You can blame Omicron or elevated valuations or call it a
Fed taper tantrum. Bottom line, the market was overbought entering the
seasonally weak beginning of December. In a year with big gains early December
tax-loss selling, some profit taking and yearend portfolio restructuring is not

All of the above and some geopolitical worries likely
conspired collectively to cause the recent selloff. But today’s action in DJIA
(the oldest reliable benchmark we know) as shown in the chart above created a
bullish island reversal. DJIA also bounced off the uptrend line from the June
and September lows right near the 200-day moving average and above support at 33700.
Today’s rally also closed the island gap near 35600, which is also around support/resistance
at the August high. And to top it off there was a new MACD Buy crossover and
histogram confirmation.

So, technically speaking the market likely found some solid
support here and is poised to rally to continuing new highs into yearend on the
still super accommodative monetary policy and rather robust economic and
corporate readings.

Our outlook remains bullish for the remainder of 2021 and as
long as the proverbial stuff doesn’t hit the fan, new highs are likely before
yearend and we would not be surprised to see the S&P 500 encroach upon the
big round number of 5000. 2022 will likely be a different case and we will
address that thoroughly in our 2022 Annual Forecast to subscribers next week.

Author: Author

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When Idiocy Becomes Hardwired

When Idiocy Becomes Hardwired

Authored by Jeff Thomas via,

At this point, virtually all of us over the age of forty…

When Idiocy Becomes Hardwired

Authored by Jeff Thomas via,

At this point, virtually all of us over the age of forty have encountered enough “snowflakes” (those Millennials who have a meltdown if anything they say or believe is challenged) to understand that, increasingly, young people are being systemically coddled to the point that they cannot cope with their “reality” being questioned.

The post-war baby boomers were the first “spoiled” generation, with tens of millions of children raised under the concept that, “I don’t want my children to have to experience the hardships that I faced growing up.”

Those jurisdictions that prospered most (the EU, US, Canada, etc.) were, not coincidentally, the ones where this form of childrearing became most prevalent.

The net result was the ’60s generation – young adults who could be praised for their idealism in pursuing the peace movement, the civil rights movement, and equal rights for women. But those same young adults were spoiled to the degree that many felt that it made perfect sense that they should attend expensive colleges but spend much of their study time pursuing sex, drugs, and rock and roll.

Flunking out or dropping out was not seen as a major issue and very few of them felt any particular guilt about having squandered their parents’ life savings in the process.

The boomer generation then became the yuppies as they hit middle age, and not surprisingly, many coddled their own children even more than they themselves had been coddled.

As a result of ever-greater indulgence with each new generation of children, tens of millions of Millennials now display the result of parents doing all they can to remove every possible hardship from their children’s experience, no matter how small.

Many in their generation never had to do chores, have a paper route, or get good grades in order to be given an exceptional reward, such as a cell phone. They grew to adulthood without any understanding of cause and effect, effort and reward.

Theoretically, the outcome was to be a generation that was free from troubles, free from stress, who would have only happy thoughts. The trouble with this ideal was that, by the time they reached adulthood, many of the critical life’s lessons had been missing from their upbringing.

In the years during which their brains were biologically expanding and developing, they had been hardwired to expect continued indulgence throughout their lives. Any thought that they had was treated as valid, even if it was insupportable in logic.

And, today, we’re witnessing the fruits of this upbringing. Tens of millions of Millennials have never learned the concept of humility. They’re often unable to cope with their thoughts and perceptions being questioned and, in fact, often cannot think outside of themselves to understand the thoughts and perceptions of others.

They tend to be offended extremely easily and, worse, don’t know what to do when this occurs. They have such a high perception of their own self-importance that they can’t cope with being confronted, regardless of the validity of the other person’s reasoning. How they feel is far more important than logic or fact.

Hypersensitive vulnerability is a major consequence, but a greater casualty is Truth. Truth has gone from being fundamental to being something “optional” – subjective or relative and of lesser importance than someone being offended or hurt.

Of course, it would be easy to simply fob these young adults off as emotional mutants – spiteful narcissists – who cannot survive school without the school’s provision of safe spaces, cookies, puppies, and hug sessions.

Previous generations of students (my own included) were often intimidated when presented with course books that had titles like Elements of Calculus and Analytic Geometry. But such books had their purpose. They were part of what had to be dealt with in order to be prepared for the adult world of ever-expanding technology.

In addition, it was expected that any student be prepared to learn (at university, if he had not already done so at home), to consider all points of view, including those less palatable. In debating classes, he’d be expected to take any side of any argument and argue it as best he could.

In large measure, these requirements have disappeared from institutions of higher learning, and in their place, colleges provide colouring books, Play-Doh, and cry closets.

At the same time as a generation of “snowflakes” is being created, the same jurisdictions that are most prominently creating them (the above-mentioned EU, US, Canada, etc.) are facing, not just a generation of young adults who have a meltdown when challenged in some small way. They’re facing an international economic and political meltdown of epic proportions.

Several generations of business and political leaders have created the greatest “kick the can” bubble that the world has ever witnessed.

We can’t pinpoint the day on which this bubble will pop, but it would appear that we may now be quite close, as those who have been kicking the can have been running out of the means to continue.

The approach of a crisis is doubly concerning, as, historically, whenever generations of older people destroy their economy from within, it invariably falls to the younger generation to dig the country out of the resultant rubble.

Never in history has a crisis of such great proportions loomed and yet, never in history has the unfortunate generation that will inherit the damage been so unequivocally incapable of coping with that damage.

As unpleasant as it may be to accept, there’s no solution for idiocy. Any society that has hardwired a generation of its children to be unable to cope will find that that generation will be a lost one.

It will, in fact, be the following generation – the one that has grown up during the aftermath of the collapse – that will, of necessity, develop the skills needed to cope with an actual recovery.

So, does that mean that the world will be in chaos for more than a generation before the next batch of people can be raised to cope?

Well, no. Actually, that’s already happening. In Europe, where the Millennial trend exists, western Europeans have been growing up coddled and incapable, whilst eastern Europeans, who have experienced war and hardship, are growing up to be quite capable of handling whatever hardships come their way. Likewise, in Asia, the percentage of young people who are being raised to understand that they must soon shoulder the responsibility of the future is quite high.

And elsewhere in the world – outside the sphere of the EU, US, Canada, etc. – the same is largely true.

As has been forever true throughout history, civilisation does not come to a halt. It’s a “movable feast” that merely changes geographic locations from one era to another.

Always, as one star burns out, another takes its place. What’s of paramount importance is to read the tea leaves – to see the future coming and adjust for it.

*  *  *

Polls suggest that a majority of Millennials now favor socialism. And a growing number favor outright communism. Sometime this year, Millennials are expected to surpass Baby Boomers as the nation’s largest living adult generation. This is one of the reasons Bernie Sanders and other socialists are soaring in popularity. And when the next crisis hits, the situation will likely reach a tipping point. That’s exactly why Doug Casey and his team just released this urgent video outlining exactly what’s going to happen… and how you can protect yourself and even profit from the situation. Click here to watch it now.

Tyler Durden
Tue, 12/07/2021 – 17:25

Author: Tyler Durden

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Omicron Study Scare Stuns ‘Face-Ripping’ FOMO Short-Squeeze

Omicron Study Scare Stuns ‘Face-Ripping’ FOMO Short-Squeeze

Everything was awesome today…


Headlines from a South African…

Omicron Study Scare Stuns ‘Face-Ripping’ FOMO Short-Squeeze

Everything was awesome today…


Headlines from a South African study hit, suggesting a 40-fold reduction in neutralization capacity of the Pfizer vaccine vs Omicron... which suggest hospitals will get overwhelmed (due to its hyper-transmissibility) but it is notably less severe (especially for healthy people)…

Omicron’s ability to evade vaccine and infection-induced immunity is “robust but not complete,” said the research head of a laboratory at the Africa Health Research Institute in South Africa.

…and that sent stocks lower late in the day (although still a good day overall)…

And slammed ‘recovery’ stocks relative to ‘stay at home’ stocks…

But then again… it wouldn’t be the US equity market if a last minute total buying-panic didn’t send the Nasdaq up 100 points in 4 minutes…

*  *  *

As we detailed earlier…A China RRR cut? Omicron anxiety easing? Whatever it was, bubble markets exploded higher today…

Source: Bloomberg

But before we all get excited about “what the market is saying”, let’s bear in mind that today also saw the USA, USA, USA suffer its biggest decline in worker productivity since Q2 1960 (yeah 61 years ago!!!)…

Source: Bloomberg

Which is perfect because today saw unprofitable tech company’s best 2-day swing since April 2020 (+13.5%)…

Source: Bloomberg

Today’s melt-up from the moment the US cash markets opened (until around the European close) was impressive to say the least but also note that stonks were bid as China opened… and as Europe opened…

This is The Dow’s best 2 days since Nov 2020! Nasdaq surged 3% today – its biggest daily gain since March. Bear in mind that roughly 66% of the Nasdaq is in a bear market with losses of over 20%, while 35% of the Nasdaq is down over 50%!

The surge in the majors pushed The Dow (and only The Dow) up to unchanged, very briefly, from the Omicron emergence cliff after Thanksgiving. However, everything seemed to run out of momentum at that point…

Nasdaq and The Dow exploded above their 50DMAs, the S&P extended its gains well above its 50DMA. The Dow ripped up to its 100-/200-DMA but couldn’t extend the gains…

The 2-day ‘face-ripping’ short-squeeze off yesterday’s opening lows is the largest swing since March…

Source: Bloomberg

‘Recovery’ stocks notably outperformed today relative to ‘Stay at Home’ stocks as Omicron anxiety fades. They are now well above Omicron emergence levels and starting to erase the European lockdown anxiety losses…

Source: Bloomberg

‘Retail Favorites’ had their biggest day since Jan 2021…

Source: Bloomberg

Treasury yields were higher on the day with the short-end underperforming (2Y +6bps, 30Y +3bps), but as the chart below shows, the selling was all in the US session again…

Source: Bloomberg

The 10Y Yield was higher again but did not breach 1.50%, retracing the move post-Powell hawkish hearing…

Source: Bloomberg

The yield curve flattened notably today (2s30s) as the short-end priced in rate-hikes and long-end priced in policy mistakes…

Source: Bloomberg

The dollar ended lower on the day but again traded in a narrow range…

Source: Bloomberg

WTI topped $73 today, extending the gains from the last couple of days. However, oil prices remain well down from pre-Omicron levels…

And as oil prices ripped higher, so did US Breakeven inflation rates, but remain well down from pre-Omicron anxiety levels…

Source: Bloomberg

Crypto was mixed today with Bitcoin higher (tagging $52k) and Ethereum lower (after topping $4400)…

Source: Bloomberg

Gold ended modestly higher today but still below $1800 and well below pre-Omicron levels….

Finally, despite the equity market soaring unrelentlessly the last couple of days, STIRs have shifted considerably more hawkishly now pricing in 2 rate-hikes by September and a 75% chance of a rate-hike by May 2022 – there is no way the stock market is ready for that…

Source: Bloomberg

And Powell is not about to jawbone that back down.

Tyler Durden
Tue, 12/07/2021 – 16:01

Author: Tyler Durden

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