Franco Buys Royalties on Large Ontario Gold Camp

Source: Adrian Day 02/07/2025

Global Analyst Adrian Day discusses updates on more companies and answers a question on mining in Mexico.

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) made a major investment in a significant Canadian mining district, helping Discovery Silver purchase the Porcupine operation in Ontario from Newmont. Franco acquires a 4.25% royalty on all minerals. One of the two royalties, for 2%, is capped once 72,000 ounces are received (or the royalty is repurchased at a significant profit).

The royalties have an estimated IRR of between 5% and 7%. The total investment will be $850 million, which includes $49 million in equity and $100 million in a loan. Some of the payments from Franco are deferred. The Porcupine District is host to some successful historical gold producers, and under the new team, headed by Tony Makuch, former CEO of Kirkland, offers compelling upside potential in addition to some immediate revenue. This is a very attractive investment, with one royalty in perpetuity on a district with long-term potential.

The high IRR reflects that Franco made additional investments to finance the acquisition. Franco is a core holding for us, with meaningful upside when the shuttered Cobre Panama (on which it holds a stream) resumes operations at an unknown date.

If you do not own it, Franco can be bought, but otherwise, we are holding.

Barrick and Mali To Talk Again Over Suspended Mine

Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) is set to resume talks with the Mali government over its Loulo-Gounkoto mine, following mediation by the National Workers Union in the country. Operations are currently suspended. The suspension of operations will hit Barrick’s production recovery.

The fourth quarter, yet to be announced, could be strong, with improvements at Carlin, a recovery at Pueblo Viejo, and a ramp-up on the restarted Porgera. But this will be partly offset by lower sales from Mali, which will hit its current quarter production significantly. Barrick, as we have said many times before, is undervalued on an asset basis.

With a recovery in productions underway, a strong balance sheet, and a dynamic CEO, Barrick is a Buy here for patient investors prepared for volatility.

Altius Reports Rise in Quarterly Revenue

Altius Minerals Corp. (ALS:TSX.V) said it expected to report attributable royalty revenue for the fourth quarter of $13.6 million, up from the previous quarter, though down from the year-ago record levels. Similarly, annual royalty revenue was $65.7 million, down from $70.9 million in 2023. Base and battery metals; iron ore; and renewable energy were all up for the full year, though, other than iron ore, down from the last quarter.

There were no real surprises in the report, which, once again, demonstrates the importance of a diversified portfolio as some units rose while others declined. Altius is a core holding for us, for exposure to the broad commodity space, with top management prepared to think “outside the box” and with the discipline to act counter cyclically. As discussed in our last Bulletin, it holds three assets with significant upside potential not fully recognized in the stock price. If you do not own, it can be bought.

Otherwise, we are holding.

Midland Plans Another Active Year

Midland Exploration Inc. (MD:TSX.V) provided an overview of its exploration activities planned for 2025, with a total budget over $14.5 million, of which $12 million will come from partners. The work, following up on several new showing made last year, will include exploration on gold in the Abitibi, lithium and other minerals in James Bay, copper-nickel in Nunavik, and copper-gold in Labrador.

Work is planned for at least 12 separate projects, including four drill programs, on both 100% owned land, and on land in various partnerships (joint-ventures, option earn ins, and alliances) with companies including BHP, Rio Tinto, Barrick, Agnico Eagle and SOQUEM. Midland continues to be very active on multiple projects. With strong management and a solid balance sheet, it is our favorite exploration company. There is some fatigue in the market, but I know of no exploration company better positioned for success, and the fatigue gives us our opportunity to buy.

With a market cap of only CA$30 million, around CA$20 million net of cash, the stock is a Buy for patient investors.

TOP BUYS this week, in addition to above, include Lara Exploration Ltd. (LRA:TSX.V).

ERRATUM In the last Bulletin, I mentioned that Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) received “almost 47 million GEOs” in the fourth quarter. Wouldn’t that be nice! That should have been 47 thousand GEOs. Apologies, and thanks to the eagle-eyed H.T. of Toronto.

Answers to your Questions

Q. I read that things are finally turning around for mining in Mexico. What would be your top pick for a Mexican gold company? — J.B., Miami

A. I am not an expert on Mexico, but something is changing. In the past two weeks, at least five new mining permits have been issued, mostly for underground and amended permits. We await some new permits, but this is definitely positive, as the total freeze has thawed. I shall discuss the import with my Mexican expert once I see him.

As for my top pick: Heliostar Metals Ltd. (HSTR:TSX.V; HSTXF:OTC; RGG1:FRA), an aggressive multi-project company, whose dynamic CEO Charles Funk says aims to be a 500,000 ounce producer by the end of the decade. It took advantage of a distressed situation to acquire the Ana Paula project for just $10 million, and subsequently bought other Argonaut assets in Mexico, including a closed mine, at a very low price ($5 million).

Already, it has production — small-scale but steady — from two mines, and is working rapidly, and with minimal dilution, to develop the Ana Paula; a pre-feasibility study on that mine is expected later this year, and looking to build it next year. Permits are pending at San Agustin, and amended permits at Ana Paula.

As reports of the Mexican permit thaw trickled into the market last week, the stock moved up sharply, from 59 cents to close at 78, but it is still good value. As you know, I value people highly, and the team at Heliostar is very strong. In particular, I have known Charles Funk for at least six years, and despite his supporting the wrong cricket team, I know him to be solid, competent, hard-working, and ethical, as well as someone able to think outside the box. Heliostar has achieved much over the past two years, and I expect much in the next two years and beyond as the team builds a profitable mid-tier producer.

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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., Heliostar Metals Ltd., Barrick Gold Corp., Altius Minerals Corp., Midland Exploration Inc., and Lara Exploration Ltd.
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’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: ALS:TSX.V, ABX:TSX; GOLD:NYSE, FNV:TSX; FNV:NYSE, MD:TSX.V, )

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