Money Manager Says Buy This Co. At a Limit of $0.37

Source: Adrian Day 06/24/2024

Global Analyst and Money Manager Adrian Day shares his latest recommendation, Fox River Resources Corp. (FOX:CNSX).

Fox River Resources Corp. (FOX:CNSX) owns one of Canada’s largest phosphate projects, with a strong possibility of being acquired in the next couple of years as their high-grade phosphate becomes attractive as an essential mineral in short supply for both farmers and EV batteries.

Already, Canada imports its entire supply while the U.S. supply is declining — down from over 8 million tonnes in the years 2010 to 2014 down to around 5 million tonnes.

Some 45% of global production is in China and Russia, which is one reason that Canada just last week added phosphate to its “critical minerals” list. While there is no guarantee of a takeover and nothing imminent, the property is valuable, the valuation is very low, and the downside is limited as maintenance costs are low and there is a fallback with other minerals on the property.

The Property Is Well-Located, With Other Rare Earths

Their Martison project in northern Ontario is close to infrastructure, including power and railroads. Phosphate’s main use, of course, is as a fertilizer, but increasingly, demand is coming for use in lithium iron phosphate batteries as both electric vehicle and storage battery use increases.

Because the Martison is a high-grade igneous deposit, its ore is better suited to both the fertilizer and battery uses than more common cadmium-rich deposits. A pilot test earlier in the year shows that the concentrate could be transformed into high-quality phosphoric acid. Martison also includes niobium, a rare earth element, which itself is fairly valuable. There is also the potential to produce gypsum. The value of these by-products was not included in an early 2022 Preliminary Economic Assessment (“PEA”).

A Previous Study Showed Strong Economics

The 2022 PEA has shown attractive economics, with an after-tax net present value (at an 8% discount rate) of US$1.47 billion and an IRR of over 17%. (See the Technical Report on the company’s website, which includes general information on the fertilizer and lithium battery markets as well as on the company.)

Fox, which owns Martison 100%, has a market cap of just CA$22 million, with no debt. Given that the PEA shows an initial capex of US$2.4 billion, the project is beyond the capability of Fox to develop to production alone. Though with technically strong management, Fox failed to capitalize on its PEA as the price of phosphoric acid dropped 50% in the year. The stock fell from a high of 72 cents. With a lack of cash, little further progress occurred.

The Market and the Company Have Changed

Recently, of course, the growing shortage of high-quality projects for batteries has become more acute, particularly after the Russian invasion of Ukraine and the growing tensions of both Canada and the U.S. with China. The price of phosphoric acid has been climbing back over the past year by almost 30%, still well below the 2022 highs but back above long-term prices.

What changed for the company was when a savvy investor, David Lotan, seeing the value and the opportunity, bought over 9% of the stock at the end of last year and subsequently became chairman. A $2.3 million financing was completed, sufficient to provide expenses for this year and next. Fox runs a very tight ship with low overhead. Now Canada, earlier in the week, added phosphate to its Critical Minerals List. This opens up Fox to investments and grants, as well as a streamlined permitting process. With a high capital requirement, there are still very few potential buyers, so nothing is certain. Fox may have to advance the project itself until the market improves. But it does control one of the largest and highest quality phosphate deposits in Canada, and at some point, we believe, there will be a buyer.

Fox Has a Strong Shareholder Base

Fox has a strong shareholder base, with CEO Stephen Case owning almost 14% of the stock, and together with Lotan and other management and directors, insiders hold about 30% of the stock. Clients of my asset management firm own over 10%, so about 40% of the shares are in strong hands, holding for the end game.

The stock can be difficult to buy. It is a thin trader with a wide bid-ask (0.335 x 0.37 on Friday’s close) and with peculiar trading characteristics. Some U.S. online brokerages, such as IB, in their infinite wisdom, will not allow trades in the stock. If you have a broker who will buy the stock, I suggest buying in Canada, not on the U.S. pink sheets, using a limit, and being patient.

Right now, buy up to CA$0.37. I am sure that as the project develops, we will be prepared to pay more, but I think you can buy now at this price. We are putting in the speculative part of our investment pyramid.

Another Incremental Win for Vista

Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX) announced that the Northern Territories had changed its royalty regime for new mines, a change expected to have a positive effect on its Mt Todd project.

The changes, which had been predicted, replace the current royalty tax with a straight 3.5% royalty on production, making the royalty more in line with that in other top jurisdictions.

Hold.

TOP BUYS, in addition to the above, include Franco-Nevada Corp. (FNV:TSX; FNV:NYSE), Barrick Gold Corp. (ABX:TSX; GOLD:NYSE), Midland Exploration Inc. (MD:TSX.V), Hutchison Port Holdings Trust (HPHT:Singapore), and Orogen Royalties Inc. (OGN:TSX.V).

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Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Franco-Nevada Corp., Barrick Gold Corp., Midland Exploration Inc, and Orogen Royalties Inc.
2. Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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Adrian Day Disclosures

Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. www.AdrianDayGlobalAnalyst.com. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2023. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.

( Companies Mentioned: FOX:CNSX, VGZ:NYSE.MKT; VGZ:TSX, )