Exploration Companies Investors Should Take a Look at

Source: Adrian Day for Streetwise Reports   10/26/2021

Adrian Day of Global Analyst discusses recent developments at several exploration companies and explains why he believes share prices may be lower before the end of the year.

As gold approaches $1,800 again, the market increasingly doubts the Fed’s “transitory inflation” narrative. At the same time, as we approach the end of the year, investors are right to worry about potential tax-loss selling, given that gold stocks are about the only place investors have losses this year. So we want exposure, and new investors should certainly do some buying at these levels. But equally, it would be a good idea to preserve some purchasing power for year-end buys.

Lots of Activity at Well-Funded Midland

Midland Exploration Inc. (MD:TSX.V) (0.58) announced a new gold mineralization zone at its Casault property in the Detour Belt, under option to Wallbridge, located west of that company’s flagship Fenelon project. The companies have just completed a 5,000+ meter drill program, though assays have been released from only one hole so far. This was in a largely untested northern part of the property. Assays are awaited on the other 12 holes from this program. Drilling planned for 2022 is sure to follow up on this new zone.

Drilling is also underway in another property in Detour Belt, under option to Probe, and additional drilling is planned before the end of the year from different partners elsewhere in the Abitibi.

Drill programs on multiple properties with diverse partners

About $11 million of exploration has been undertaken during 2021 on Midland ground, both from Midland and partners, and already the exploration budget for next year is over $8 million. Partners include BHP, Agnico, Osisko and Soquem, as well as several smaller companies.

It has two strategic alliances, with BHP and Soquem, looking for nickel and copper. In addition there are two option agreements and six active joint ventures. Midland has several properties on which is is seeking new partners, including land it just acquired adjacent to a nickel-copper property Rio Tinto is working. Although it has property throughout Quebec, it is focusing on the Abitibi, James Bay and Labrador Trough areas.

Midland, with C$9 million in cash, multiple active projects and diverse partners, is my top pick for exploration. The stock has been soft all year, falling from 90 cents to as low as 52 cents last week. This is a great time to buy, though there may be additional weakness before year-end on tax-loss selling. If you do not own, though, you should buy now.

Almadex sells a royalty to fund exploration

Almadex Minerals Ltd. (DEX:TSX.V) (0.30) sold one of its long-time royalties, on the Elk Property, for C$10 million in cash plus shares and warrants valued at approximately $800,000, in the purchaser Starr Royalties. This takes Almadex’s cash balance to C$16.5 million; it also owns a share portfolio in juniors plus gold (incumbered under a loan to Almaden).

This will allow Almadex to advance some of the exploration properties in its portfolio, in western Canada, U.S., and Mexico. The team’s expertise is in generating exploration properties and undertaking exploration, which makes them more valuable when it brings in a partner. It has now commenced drilling at the Willow property in Nevada, currently under option to Abacus. And it has announced plans to drill at a second project, San Pedro in Mexico.

Company retains strong royalty portfolio

In addition to the early-stage property portfolio, it holds several royalties including on Almaden’s Ixtaca, Azucar’s El Cobre, and the adjoining Caballo Blanco project; Agnico Eagle recently increased its ownership in that property through a placement, owning just under 20% of the owner, Candelaria Mining.

Almadex, with a market cap of C$18 million is inexpensive, and the new cash will allow it to advance some properties that have been more-or-less dormant for a while. However, given the recent jump in the stock price, from 21 cents, to more-or-less a one-year high, we would look for a pullback to add to positions.

Progress slow at Azucar’s large property

Azucar Minerals Ltd. (AMZ:TSX.V; AXDDF:OTXQX) (CA$0.10) is exploring the large El Cobre project, in Veracruz, Mexico, which covers multiple copper-gold porphyry targets. It recently completed two holes and is currently planning its next drill program. Newcrest, the major Australian company, owns just under 20%.

Exploring the property has been a painfully long and slow process, and there has not been a lot of news recently; indeed, over the past year, there have been more news releases on new option grants to insiders than on actual exploration results. At a market cap of C$7.5 million, the company is undoubtedly inexpensive and could see much higher prices on any advance in the project. I see little downside from this level, and definite upside over time. However, I have better places with clearer near-term catalysts for new money. For this reason, Azucar is a hold.

Both Azucar and Almadex were spun off from Almaden, which we originally purchased but subsequently sold, continuing to hold the two spinoffs.

BEST BUYS NOW: In addition to above, Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) (US$12.44); Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE) (US$41.36); Altius Minerals Corp. (ALS:TSX.V) (16.26); Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) (US$99.15); Orogen Royalties Inc. (OGN:TSX.V) (0.345); Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) (US$26.03); and Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) (US$19.48). These stocks have been on our “best buys now” lists for the past several months, usually at lower prices, so most of them (other than the last three on the list) are better buys for investors underinvested in the sector rather than strong buys for existing holders.

Originally published on Oct 24, 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.”

Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Midland Exploration, Altius Minerals, Royal gold 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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