Altius Minerals Corp

Altius Minerals Corp (TSX: ALS) is engaged in the business of obtaining diversified mining royalty. It holds interests in mining operations that produce metals and minerals such as copper, zinc, nickel, cobalt, gold, silver, and potash. The corporation also holds other pre-development stage royalty interests and various earlier stage royalties. 

Key Updates:

• The market value of the junior equities’ portfolio stood at CAD 48.4 million in Q2FY20, as compared to CAD 34 million Q1FY20. The increase stood consistent with the broader junior mining sector recovery following initial setbacks in the first quarter related to the COVID-19 pandemic. During the quarter the group generated CAD 340,000 in cash proceeds from equity sales while invested CAD 324,700.

Q1FY20 Operational Highlights: ALS declared its quarterly results, wherein the Company posted revenue and other income of CAD 13.05 million as compared to CAD 17.07 million. The decline was primarily attributable to a significantly lower income from interest and investment segment and a slide in copper stream revenue, partially offset by higher royalty income. The quarter was marked by lower general and administrative expense, lower cost of sales while higher amortization and depletion expense remained a drag. The Company reported loss before income taxes of CAD 1.02 million as compared to a profit of CAD 8.1 million. The decrease was due to lower revenue, rise in selective cost and expense coupled with an increase in the share of loss and impairment in associates, higher unrealized loss on fair value adjustment of derivatives and Foreign exchange loss. The Company reported a net loss of CAD 3.17 million, as compared to a profit of CAD 6.62 million in the previous corresponding period.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: Due to the ongoing pandemic, the price of base metals are likely to remain volatile, which may dampen the group’s performance.

Valuation Methodology: EV to EBITDA based Relative Valuation (illustrative)

Note: All the forecasted figures are taken from Thomson Reuters, NTM: Next Twelve Months

Stock Recommendation: The Company expects the base-metal production level to remain at par with FY19 production range, which is a key positive. The second quarter of FY20 reported improved performance of the equity segment, which is a key positive and augurs well for improved top-line. The Company’s iron ore segment is operating at normal levels and is supported by higher demand and pricing. Further, demand for base metals is expected to rise in the near term as the industrial and manufacturing activities are resuming, which would help in stabilizing metal prices. Though demand and production outlook seem stable for the group, we expect a near term pressure on royalty revenue as some of the mines had witnessed a temporary disruption in productions owing to COVID-19 restrictions. Investors should note that the stock of ALS is quoting above the 200-days simple moving average of CAD 10.08 per share, indicating a bullish trend. We have valued the stock using EV/EBITDA based relative valuation method and considered Champion Iron Ltd, Sandstorm Gold Ltd and Osisko Gold Royalties Ltd etc. as a peer group and arrived at potential upside in double-digit (in percentage terms). Hence, considering the aforementioned facts and risk, we recommend a ‘Speculative Buy’ rating on the stock at the closing market price of CAD 10.38 on July 14, 2020.

ALS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Northern Dynasty

Northern Dynasty Minerals Ltd (TSX: NDM) is a mineral exploration and development company based in Vancouver, Canada. The group’s principal asset is the Pebble Project located in Alaska, USA. The Pebble project is seeking to develop a significant deposit of copper, gold, molybdenum, and silver into a modern mining operation.

Key Highlights:

• On July 10, 2020, the Company announces that it has increased the size of its previously announced bought deal offering to 21,000,000 common shares of the Company at the price of USD 1.46 per share for aggregate gross proceeds of approximately USD 30.7 million.
• The Company has signed an MOU with Alaska Peninsula Corporation ("APC") via its subsidiary Pebble Limited Partnership to develop a consortium of Alaska Native village corporations as a major transportation contractor for the proposed copper-gold-molybdenum mine.

Q1FY20 Financial Highlights for the period ended March 31, 2020: NDM declared its quarterly results, wherein the Company reported a net loss of CAD 10.715 million, significantly lower than CAD 16.211 million in the previous corresponding quarter. The group recorded lower exploration and evaluation expenses and a fall in the share-based compensation expense, while legal, accounting and audit expense and general and administrative expenses increased during the quarter. The Company made a foreign exchange gain of CAD 0.333 million as compared to a loss of CAD 0.260 million in the previous corresponding quarter. The Group is yet to derive income from its business as the Company is focusing on the completion of Pebble Project, which is likely to derive revenue for the Company. At the end of first quarter FY20, the Company reported Mineral property, plant and equipment of CAD 150.181 million, while total assets were reported at CAD 159.014 million.

Q1FY20 Income Statement Highlights (Source: Company Reports)

Risks: The Company is a developing its Pebble Project and the future earning capacity can be measured after the successful completion of the project. Furthermore, the recent acquisition of property interest does not guarantee future revenue.

Stock Recommendation: The stock of NDM soared ~158% and ~260% in the last three months and six-months, respectively. Notably, the stock is quoting above its 200-days simple moving average of CAD 0.91, indicating a bullish trend. The company stated that it has not yet been determined whether the Pebble Project contains mineral reserves that are economically recoverable. The Group’s operations and the underlying value, and the amount shown under the mineral property interests, are entirely dependent upon the existence of economically recoverable mineral reserves. We believe the stock has moved unprecedently and it is too early to take a call on the prospect of the project which is yet to be completed. Thus, we remain skeptical and prefer to remain on the sidelines. Hence, considering the aforesaid facts, we give a ‘Watch’ stance on the stock at the closing price of CAD 1.91 on July 14, 2020.

NDM Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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