Visitors Now:
Total Visits:
Total Stories:
Profile image
By Streetwise Reports-The Gold Report (Reporter)
Contributor profile | More stories
Story Views

Now:
Last Hour:
Last 24 Hours:
Total:

Three Resource Equities That Are Worth a Closer Look

Friday, October 21, 2016 9:56
% of readers think this story is Fact. Add your two cents.

(Before It's News)

Money manager Adrian Day looks at three resource companies with recent developments and examines how those developments affect the companies and whether the stocks are good buys.

Nevsun Resources Ltd. (NSU.NY, 2.90) has good and not-so-good news. Bisha, its mine in Eritrea, has achieved commercial zinc production, with completion of the zinc expansion, like the original mine and the copper circuit, completed within time and under budget. This is a strong record for any mining company. The bad news, however, are metallurgical problems that have reduced the value of the ore. Nevsun hopes to solve the problem by the end of the year, and in the meantime is also mining some gold from its stockpile to partially make up for the revenue shortfall. But the uncertainty has weighed on the stock price.

The company also announced continued very strong drill results from the Cukaru Peki deposit in Serbia, recently acquired with the purchase of Resource Minerals. Nevsun has strong cash flow, solid balance sheet and pays a market-beating dividend. The Reservoir addition provides diversification away from Eritrea and excellent potential. The metallurgical problems, while important, will likely be resolved with trial and error. If we did not own Nevsun, we’d be looking at buying, at least on further pullbacks.

New CEO outlines company strategy
Goldcorp Inc. (GG.NY, 15.38) said that the Eleonore deposit, acquired from Virginia, is now outperforming expectations, following its start-up issues. After several acquisitions, of which Eleonore was just one, Goldcorp is now “in harvest mode,” according to new CEO David Garofalo in a recent meeting I had with him.

His goal is to maximize the value of operations and increase profitability, and is less concerned with production growth. The company no longer has a grassroots exploration team, with a focus on its operations and “brownfields” (around existing operations). He believes the company has an adequate pipeline for now and aims to improve the balance sheet, “though we would also be looking to populate the pipeline.”

In the past, Goldcorp—because of its strong assets and politically secure profile, traded at a premium to its peers. The stock has underperformed over the past year—partly, I believe, on uncertainty about the new CEO’s direction—but could well regain some of its previous luster in the next leg-up in the gold market.

Will spin-off pay well?
Yamana Gold Inc. (AUY.NY, 3.86) has announced a new plan for its non-core Brazilian assets in the Brio unit. Almost exactly a year ago, Yamana said it would spin off the assets in an IPO, but abandoned that plan for lack of interest. Now it intends selling the unit to its shareholders, through the issuance of “purchase rights” whereby shareholders can purchase shares in the new company, which will then trade independently.

Yamana will raise cash from the sale, which it plans to use to pay down debt, and will retain an interest in Brio. Shareholders, however, will have to pay for something they already own. Final details have not been released, but based on the press release, it appears that Yamana does not intend for the shareholder purchase price to be at a discount. It is not clear if the rights can be sold, nor whether U.S. shareholders will be able to participate. Details, along with the purchase price, will be available within a couple of weeks. In any event, we suspect many shareholders will forego the opportunity. This is one more example, unfortunately, of Yamana getting it wrong.

Growth ahead
Otherwise, things are looking up for the company. With an improved balance sheet, the growth profile is quite strong, with a 22% increase in production through 2019 from four projects already underway. More projects are in the pipeline. Yamana was one of the very top performers in the first half of the year, though it fell back in recent months. It has strong leverage to the price of gold, and at the current price 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.”

Want to read more Gold Report articles like this? Sign up for our free e-newsletter, and you’ll learn when new articles have been published. To see recent articles and interviews with industry analysts and commentators, visit our Streetwise Interviews page.

Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. 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: Nevsun Resources, Goldcorp Inc. and Yamana Gold. 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 sponsors of Streetwise Reports: None. The companies mentioned in this article were not involved in any aspect of the article preparation. Streetwise Reports does not accept stock in exchange for its services. 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 families are prohibited from making purchases and/or sales of those securities in the open market or otherwise during the up-to-four-week interval from the time of the interview/article until after it publishes.

( Companies Mentioned: G:TSX; GG:NYSE, NSU:TSX; NSU:NYSE.MKT, YRI:TSX; AUY:NYSE; YAU:LSE, )

Report abuse

Comments

Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Top Stories
Recent Stories

Register

Newsletter

Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.