Analysts’ Ideas Of The Week

Table of Contents:

1. Summary

2. FRC Top Picks

3. Weekly Mining Commentary

4. Updates from Resource Companies under Coverage

5. Updates from Financial, Technology, Energy, and Special Situations Companies under Coverage

6. Weekly Crypto Commentary

7. Weekly Cannabis Commentary

8. Psychedelic Industry Performance

Summary

1. Why did equity markets trend higher last week?
2. Two more M&A deals in the mining sector
3. A gold junior under coverage announced a robust Preliminary Economic Assessment (PEA); shares are trading at just 10% of AT-NPV5%.
4. Last week, Bitcoin prices surpassed $30k for the first time since June 2022.

FRC Top Picks

The following table shows last week’s top five performers among our Top Picks, including five junior resource companies. The top performer, South Star Battery Metals (TSXV: STS), was up 38.5%. STS is advancing graphite projects in Brazil and the U.S. Our prior reports can be viewed here.

Last week, companies on our Top Picks list were up 3.3% on average vs 0.8% for the benchmark (TSXV).

1. Since the earliest initiating date of companies in the list of Top Picks (as of April 17, 2023)
2. Green (blue) indicates FRC’s picks outperformed (underperformed) the benchmark.
3. Past performance is not indicative of future performance.

Our complete list of top picks (updated weekly) can be viewed here.

Weekly Mining Commentary

Last week, global equity markets were up 1.6% on average (up 0.1% in the prior week). The S&P 500 was up 0.9% on signs of cooling inflation. In March 2023, inflation declined to 5% YoY (the lowest since May 2021), down from 6% YoY in February 2023. The TSX was up 1.8% as the Bank of Canada decided to maintain its benchmark rate. We remain positive on gold and silver, and believe that lower yields should drive equity valuations higher in H2-2023.

Source: FRC/Various

Base metals prices rallied due to a weaker US$, and lower inventory levels on the LME.

Valuations of gold producers were up 2% last week (up 2% in the prior week as well); base metal producers were down 5% last week (up 5% in the prior week).

We are maintaining our metal price forecasts.  

Source: FRC

Key sector developments are listed below (positive):

– Teck Resources (TSX: TECK) has stated that Vale (NYSE: VALE), Anglo American (LSE: AAL), and Freeport-McMoRan (NYSE: FCX) have approached them for M&A. Earlier this month, Teck had rejected a US$23B bid from Glencore (LSE: GLEN). At that time, we had stated that Teck might have entertained the offer if Glencore’s bid was at least 10%-20% higher.

 – Hudbay Minerals (TSX: HBM/MCAP: $1.8B) has entered into a definitive agreement to acquire Copper Mountain Mining Corporation (TSX:CMMC /MCAP: $557M)  for $588M. The offer price reflects a 23% premium to CMMC’s last closing price. CMMC produces 100 Mlbs CuEq per year from its copper mine in B.C.

 – West Red Lake Gold Mines Ltd. (TSXV: WRLG/MCAP: $24M) has entered into a definitive agreement to acquire Pure Gold Mining Inc. (NEX:PGM.H) for $19M in cash and shares. PGM is under creditor protection, as it ran into liquidity issues, when it suspended operations at its gold mine in Ontario last year.

 Check out our top picks page to view juniors that we believe are good M&A candidates.

Updates from Resource Companies Under Coverage

FRC Opinion

Positive – A PEA on the company’s flagship project returned an AT-NPV5% of $388M, and an AT-IRR of 21%, using US$1,750/oz gold. ECR is trading at just 10% of AT-NPV5%. This project is projected to produce 117 Koz per year, making it a relatively large gold producer held by a junior. We will publish an update shortly.

FRC Opinion

Positive – Indicated resources increased by 195%, accounting for 80% of total resources, implying increased confidence. Resources are spread across two deposits, both of which remain open at depth. We will publish an update report, with a revised fair value estimate, shortly.

FRC Opinion

Positive – Drilling at the recently optioned CH3 project returned high nickel grades, consistent with, or better than, the project’s historic resources.

FRC Opinion

Positive – 13 out of 15 holes intersected copper/zinc mineralization, delineating a 500 m mineralized zone. Management plans to conduct follow-up geophysics and drilling.

FRC Opinion

Positive – Drilling has expanded the project’s mineralized footprint.

FRC Opinion

Positive – Chatham is aiming to advance its first phosphate project to production by Q4-2023

Financial / Technoloy / Energy / Special Situations 

FRC Opinion

Negative – Q2 revenue was up 2%, and in line with our estimate. However, EBITDA was down 33% YoY (16% below our forecast), due to lower gross margins and higher G&A expenses. We will publish an update report shortly.

Additional Updates on Coverage:

We are suspending coverage on Wealth Minerals and EUDA Health as management of these companies have not responded to our questions for an update report.

Weekly Crypto Commentary

Prices of mainstream/popular cryptos were up 7% on average last week (up 2% in the previous week).

Source: FRC/Yahoo Finance

The global MCAP of cryptos is US$1.3T, up 19% MoM, but down 32% YoY.

Source: Coinmarketcap

Companies operating in the crypto space are trading at an average EV/R of 6.5x (previously 5.1x).

EV/R of Crypto Companies

Source: S&P Capital IQ/FRC

Source: S&P Capital IQ/FRC

A key sector development is listed below (negative):

– The U.S. SEC has filed a lawsuit against crypto exchange Bittrex for potentially violating federal laws.

Weekly Cannabis Commentary

Cannabis Industry Performance

Source: FRC/Yahoo Finance

Last week, Canadian cannabis stocks underperformed their U.S. peers (-12% vs 4%).  Canadian stocks had outperformed in the week prior to last.

Key sector developments are listed below (mixed):

– According to the marijuana industry recruitment firm Vangst, cannabis firms in Colorado slashed 10,500 jobs (28% of the workforce) in the 12 months ended February 2023, amid declining cannabis prices.

– Missouri commenced recreational cannabis sales in early February 2023. Sales were up 23% MoM in March 2023. At the current rate, sales could surpass US$1B this year.

Valuation

Canadian cannabis stocks are trading in line with their U.S. peers (previously trading at a 6% premium).

Source: S&P Capital IQ, FRC

                                                                                       Average EV/R

Source: S&P Capital IQ, FRC

Canadian Retail Cannabis Stores

Currently, there are 3,512 retail cannabis stores in Canada, an increase of five stores WoW, including six new stores in B.C and one in Alberta, and two closures in ON.

                                                                                     Nationwide Store Count

Source: Provincial Websites, FRC

Source: Provincial Websites, FRC

Psychedelic Industry Performance

Psychedelic Industry Performance

Psychedelic stocks were up 4% on average last week (up 4% in the previous week as well).

Source: TMX Money, FRC

Disclaimers and Disclosure

The opinions expressed in this report are the true opinions of the analyst(s) about any companies and industries mentioned. Any “forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our forecasts will materialize. Actual results will likely vary. Certain companies mentioned are covered by FRC under an issuer paid model. FRC or companies with related management, and Analysts, may hold shares/securities in some companies mentioned in this report. Distribution procedure: our reports are distributed first to our web-based subscribers on the date shown on this report then made available to delayed access users through various other channels for a limited time. To subscribe for real-time access to research, visit https://www.researchfrc.com/website/subscribe for subscription options. This report contains “forward looking” statements. Forward-looking statements regarding the Company, industry, and/or stock’s performance inherently involve risks and uncertainties that could cause actual results to differ from such forward-looking statements. Factors that would cause or contribute to such differences include, but are not limited to, continued acceptance of the Company’s products/services in the marketplace; acceptance in the marketplace of the Company’s new product lines/services; competitive factors; new product/service introductions by others; technological changes; dependence on suppliers; systematic market risks and other risks discussed in the Company’s periodic report filings, including interim reports, annual reports, and annual information forms filed with the various securities regulators. By making these forward-looking statements, Fundamental Research Corp. and the analyst/author of this report undertakes no obligation to update these statements for revisions or changes after the date of this report. Fundamental Research Corp DOES NOT MAKE ANY WARRANTIES, EXPRESSED OR IMPLIED, AS TO RESULTS TO BE OBTAINED FROM USING THIS INFORMATION AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OR FITNESS FOR A PARTICULAR USE. ANYONE USING THIS REPORT ASSUMES FULL RESPONSIBILITY FOR WHATEVER RESULTS THEY OBTAIN FROM WHATEVER USE THE INFORMATION WAS PUT TO. ALWAYS TALK TO YOUR FINANCIAL ADVISOR BEFORE YOU INVEST. WHETHER A STOCK SHOULD BE INCLUDED IN A PORTFOLIO DEPENDS ON ONE’S RISK TOLERANCE, OBJECTIVES, SITUATION, RETURN ON OTHER ASSETS, ETC. ONLY YOUR INVESTMENT ADVISOR WHO KNOWS YOUR UNIQUE CIRCUMSTANCES CAN MAKE A PROPER RECOMMENDATION AS TO THE MERIT OF ANY PARTICULAR SECURITY FOR INCLUSION IN YOUR PORTFOLIO. This REPORT is solely for informative purposes and is not a solicitation or an offer to buy or sell any security. It is not intended as being a complete description of the company, industry, securities or developments referred to in the material. Any forecasts contained in this report were independently prepared unless otherwise stated, and HAVE NOT BEEN endorsed by the Management of the company which is the subject of this report. Additional information is available upon request. THIS REPORT IS COPYRIGHT. YOU MAY NOT REDISTRIBUTE THIS REPORT WITHOUT OUR PERMISSION. Please give proper credit, including citing Fundamental Research Corp and/or the analyst, when quoting information from this report. The information contained in this report is intended to be viewed only in jurisdictions where it may be legally viewed and is not intended for use by any person or entity in any jurisdiction where such use would be contrary to local regulations or which would require any registration requirement within such jurisdiction.