Orogen Shows Its Flexibility, Moving Ahead on Many Fronts

Source: Adrian Day for Streetwise Reports 08/26/2021

In today’s Bulletin, we follow-up with developments at some of the junior companies that we omitted from our last letter — all positive — and we comment on two popular music legends who have passed away.

Orogen Royalties Inc. (OGN:TSX.V), whose first cash-flowing asset will be a royalty on the Ermitano silver project, with production scheduled to commence early next year, continues to farm out projects, including some of the Nevada projects they acquired in the Renaissance Gold acquisition a year ago.

They have also signed two agreements with Yamana pursuant to the data alliance from 2018, wherein Orogen had the right to go through an old database of Yamana’s and present projects for joint-ventures or options. Yamana can earn 100% of the projects with Orogen retaining royalties. In addition to the two project options, the companies agreed a three-year generative exploration alliance in Nevada, to be funded by Yamana. The area of interest covers extensions of the famous Roberts Mountain thrust, the principal controls on the famous Carlin gold deposits. Again, with Yamana footing the bills, it can earn 100% of the projects with Orogen retaining a royalty. This alliance is arguably a long-odds endeavor, but for Orogen a low-risk and high-potential one.

A New Director Named, and a Spin-Out Ahead

The company also named a new director, Justin Quigley, most recently a vice president of Rio Tinto Exploration in the Americas, with experience in strategic transactions. His addition follows that of Roland Butler, a founder of Altius. This is a very strong board following the unfortunate upheaval of last year.

Lastly, the company announced plans for a spinout of its Ball Creek copper-gold porphyry property into a new company to be distributed to shareholders. Orogen will retain a minority holding in the spinout as well as a royalty on the project. This will allow Ball Creek to raise funds for exploration independent of Orogen while realizing the project’s value in the market. The transaction requires shareholder approval.

While I am not always a fan of spin outs from junior companies — which have had mixed results in the market — in this case, with Orogen retaining interest in the project, it appears to be well-structured with Orogen shareholders retaining exposure to the upside in the property. Orogen is a buy at the current price. However, with a heavy offer and a weak gold open in Asia, you do not need to pay up.

Altius Raises the Dividend and Buys Back Shares

Altius Minerals Corp. (ALS:TSX.V) (ALS, Toronto, 16.35) reported strong results, up from the last quarter and just below the record fourth quarter of 2020. The improvement was mostly due to commodity prices; volumes actually declined as several mines had particular issues. In most of these cases, Altius expects volumes to compensate toward the end of the year.

Cash stands at $116 million, with most of that ($97 million) being in Altius Renewal which is consolidated. Debt stands at $170 million. The company has also refinanced its debt facilities, lowering the interest rate, extending the term, and increasing the available credit to $225 million. Given the strong cash flow and the end of a period of high investment, the dividend was increased, by 40%, an increase CEO Brian Dalton described as “a conservative bump” given the company’s free cash flow levels; this equates to a yield of 1.8%. The company also renewed its “normal course issuer bid” allowing it to buy back up to 1.6 million shares (almost 4% of the outstanding).

Altius is a buy, though again there is no need to chase. It is up 80 cents this week after it commenced its buy back. But if you do not own it, this is a good time to buy.

Midland Moves Ahead on Many Projects

Midland Exploration Inc. (MD:TSX.V) (MD, Toronto, 0.70) reported developments at several of its projects, including two new exploration programs with partners: a drilling campaign with Wallbridge, and a geophysical program with Probe. Both partners recently made options payments to Midland. In addition, it reported the discovery of a new high-grade gold showing on its wholly owned Lewis project in the Abitibi; this is obviously very early work.

It also reported on various exploration work, including airborne electromagnetic surveys, in its alliance with BHP looking for nickel in Nunavik, in northern Quebec. A budget of $1.9 million has been allocated for the exploration program.

Midland has several exploration programs underway at various stages, some with partners and some 100% owned. Although none of the recent developments signifies a discovery, Midland is well placed for one or more discoveries, as well as well funded. It’s a buy.

Gladstone Has Strong Results, Pays Extra Dividend

Gladstone Investment Corp. (GAIN: NASDAQ) (GAIN, Nasdaq, 14.40) made several significant investments in the last quarter, including two where it supported management buyouts. First, it acquired, together with senior management, Utah Pacific, a leading provider of steel components used in bridge replacement and construction in the western United States. And it also supported the buyout of a luxury apartment rental company. In both, it provided equity and senior debt to complete the management buyouts. These were two of several investments and exits in recent months.

The day prior to the Utah transaction, it raised $117 million in seven-year notes, yielding 4.875%, bolstering its balance sheet, perhaps for the transaction.

In its latest earnings report, earlier this month, it reported Net Investment Income of 24 cents per share, up from 20 cents for the prior quarter. Net Asset Value increased over a dollar to $12.66/share, largely from higher valuations for its equity holdings, which account for about 25% of NAV.

Although the regular monthly dividend stays at 7 cents, where it has been since the beginning of 2020, the company paid a special distribution (from net capital gains) of 6 cents in June and announced another 3 cents for next month, so the total distribution equates to a yield of 6.5% on today’s stock price. That yield, and the 1.14 times NAV, mean that Gladstone is trading towards the upper end of its historical valuations.

But in today’s environment, a fully covered yield over 6% is attractive.

We are holding.

TOP BUYS NOW in addition to above include Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE) (OR.NY, 12.06); Vista Gold Corp. (VGZ:NYSE.MKT; VGZ:TSX) (VGZ.NY, 0.778); Lara Exploration Ltd. (LRA:TSX.V) (LRA, Toronto, 0.69); Hutchison Port Holdings Trust (HPHT:Singapore) (HPHT, Singapore, US$0.215, 7.8%); Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) (FSM.NY, 4.21); Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ) (PAAS, Nasdaq, 25.43); and Barrick Gold Corp. (ABX:TSX; GOLD:NYSE) (GOLD.NY, 20.12). Given gold’s open tonight, there maybe opportunities in coming days at somewhat lower prices.

Two Rock Legends Die

Over the weekend, Don Everly of the eponymous brothers passed away. Their Cathy’s Clown was one of first three 45 records I bought as a kid (the others were “Rocking Goose” and “Poetry in Motion”). At the beginning of the linked video, we see the Top 10 for a particular week in 1960; it’s amazing how many of those songs are still played today (including the classic “Only the Lonely” and Brenda Lee’s plaintive “I’m Sorry”). If you were around back then, I bet you know most of them. Don and Phil, with their wonderful harmonies, gave much pleasure.

And today Charlie Watts, drummer of the Rolling Stones, died, aged 80. He famously became a Stone by accident and did not partake of their riotous living, remaining happily married for 60 years. He was unassuming, but a fan favorite. I can’t count the number of times I have seen him play, starting with the free concert after Brian Jones died, back in Charlie doing what he loved 1969. My favorite anecdote: “Don’t ever call me your drummer again,” Watts told Mick Jagger on one occasion: “You’re my (expletive) singer.” RIP.

Originally published Aug. 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.”

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