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. Our take on Newmont’s (NYSE: NEM) acquisition of Newcrest (ASX: NCM).
2. Why did lithium stocks trend higher last week?
3. China’s central bank has increased its gold reserves every month since November 2022.
4. The Bank of Canada is launching public consultation for a potential Central Bank Digital Currency (CBDC).
5. Binance is ceasing operations in Canada.

FRC Top Picks

The following table shows last week’s top five performers among our Top Picks, including three junior resource companies, an oilfield services company, and a mortgage lender. The top performer, Noram Lithium Corp. (TSXV: NRM), was up 14%. Shares of lithium companies trended higher last week, post the announcement of a US$10.6B merger between Allkem (ASX: AKE) and Livent (NYSE: LTHM). Our prior reports on NRM can be viewed here.

Companies on our Top Picks list are up 12% on average since we initiated coverage vs -31% for the benchmark (TSXV).

1. Since the earliest initiating date of companies in the list of Top Picks (as of May 15, 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 0.2% on average (down 0.2% in the prior week). As mentioned last week, we are expecting weakness in the US$ (as the Fed is relatively less hawkish than global central banks), which should drive metal prices higher in the coming weeks.

Source: FRC/Various

Metal prices retreated amid a stronger US$.

Valuations of gold producers were down 4% last week (up 5% in the prior week); base metal producers were down 4% last week as well (up 2% in the prior week).

We are maintaining our metal price forecasts.

Source: FRC

Key sector developments are listed below (positive):

– Yesterday, Newmont Corporation (MCAP: US$37B) announced a definitive agreement to acquire Newcrest Mining (MCAP: US$17B) for US$18B. NEM and NCM are up 2.5% and 1.5%, respectively, since the announcement. We believe Newmont is overpaying, as the offer price reflects a 31% premium over the sector average EV/R and EV/EBITDA multiples.

– Allkem (MCAP: US$6.4B) and Livent (MCAP: US$4.6B) are combining through an all-stock merger valued at US$10.6B, creating the third largest lithium producer in the world. The Global X Lithium & Battery Tech ETF (NYSE: LIT) is up 4% since this announcement, amid hopes of additional M&A in the sector.

– Tesla (NYSE: TSLA) has commenced construction of a lithium refinery in Texas, that can potentially supply lithium for 1M electric vehicles per year.

– In April 2023, China’s central bank increased its gold reserves by 0.4% MoM, to 2,076 tons. China has increased its reserves every month since November 2022, suggesting rising investment demand and potential weakness in the US$. 

Updates from Resource Companies Under Coverage

FRC Opinion

Positive – PNPN has discovered a new high-grade Cu-PGE zone 5 km northeast of the main NISK deposit. Drilling returned high-grades, such as 7.75 m of 20.76 g/t Pt, 5.71 g/t Pd, 1.47% Cu, and 0.28 g/t Au. We were surprised to see high Pt/Pd values, as the project was previously known for its potential for nickel and copper only. Management is planning  follow-up drilling.

FRC Opinion

Positive – Eric Sprott invested $1M; STGO’s CEO invested $2M, reflecting management’s positive outlook.

FRC Opinion

Positive – Proceeds will be used to fund exploration at its Aura gold-silver project in Nevada. The project has a near-surface/high-grade oxide gold resource, and an underground/high-grade sulfide gold resource. Agnico Eagle (NYSE: AEM) is a major shareholder.

FRC Opinion

Positive – LSTR has completed a maiden NI 43-101 compliant inferred/open-pittable resource totaling 6.2 Moz @ 169 gpt silver. Although tonnage is small, we note that this is a high-grade resource. Management is planning resource expansion drilling.

FRC Opinion

Positive – Proceeds will be used to fund exploration and working capital. This year, XTM is focused on exploring the Maude Lake nickel-copper-cobalt-PGM property in Ontario, and the Pike Warden gold-silver-copper project in Yukon.

FRC Opinion

Negative – Q1-2023 production was up 265% YoY, but down 7% QoQ due to lower grades. We were expecting production to be flat QoQ. We will publish an update shortly, introducing our 2023 production/revenue/EPS forecasts.

FRC Opinion

Positive – ION can acquire the project for $500k in shares, and by offering a 1% NSR to the seller. Multiple pegmatites (lithium) of up to 300 m in strike length have been identified on the property. We believe this acquisition offers diversification benefits, as the company’s other projects are in Mongolia.

FRC Opinion

Positive – Assays from the last seven holes of a 12-hole program returned highly promising values, including 25 ft of 1,042 ppm Li. We are expecting a maiden resource estimate in the coming weeks.

FRC Opinion

Positive – Teck Resources (TSX: TECK) invested $0.3M, and increased its ownership in HAN from 9.0% to 9.9%.

FRC Opinion

Neutral – In the 12 months ended April 2023, SAM produced 9.97 Koz AuEq, down 11% YoY, but just 0.7% lower than our estimate.

Financial / Technology / Energy / Special Situations 

FRC Opinion

Negative – Q1 revenue was 3% lower than our estimate. The company has not disclosed EBITDA/EPS. EXL has raised $1.25M of a $2.25M equity financing to fund the acquisition of TSN (announced last year).

FRC Opinion

Positive – LEXX has completed a $2M equity financing. The company is awaiting results of a human clinical oral nicotine study, completed earlier this month.

Weekly Crypto Commentary

Prices of mainstream/popular cryptos were flat on average last week (down 4% in the previous week).

Source: FRC/Yahoo Finance

The global MCAP of cryptos is US$1.1T, down 12% MoM, and 13% YoY.

Source: Coinmarketcap

Companies operating in the crypto space are trading at an average EV/R of 6.1x (unchanged).

EV/R of Crypto Companies

Source: S&P Capital IQ/FRC

Source: S&P Capital IQ/FRC

Key sector developments are listed below (negative):

  – Last week, the Bank of Canada announced it is launching public consultation for a potential Central Bank Digital Currency (CBDC). As noted in the past, we believe CBDCs are a threat to private cryptos, such as Bitcoin, Ethereum, and others.

 – Binance is ceasing operations in Canada due to tighter regulatory requirements. Binance is one of several global exchanges that have suspended operations in Canada this year.

Weekly Cannabis Commentary

Cannabis Industry Performance

Source: FRC/Yahoo Finance

Last week, U.S cannabis stocks underperformed their Canadian peers (-11.5% vs -2.5%). U.S stocks had outperformed in the week prior to last.

Valuation

Canadian cannabis stocks are trading at a 7% discount (previously 2% premium) relative to their U.S. peers.

Source: S&P Capital IQ, FRC

                                                                                       Average EV/R

Source: S&P Capital IQ, FRC

Source: Provincial Websites, FRC

Psychedelic Industry Performance

Psychedelic Industry Performance

Psychedelic stocks were up 3% on average last week (up 2% in the previous week).

Source: TMX Money, FRC

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