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. Global equity markets were relatively flat last week. All eyes are on the U.S. CPI (inflation) report, due later this week.
2. Another M&A in the junior gold space
3. Negative news for copper prices
4. A crypto company under coverage beat our 2022 revenue estimate by 19%.
5. Shares of a gold junior under coverage, backed by Ross Beaty, were up 24% last week.

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 Lumina Gold Corp. (TSXV: LUM), was up 23.5%. LUM is advancing one of the largest undeveloped gold projects in the Americas. The Global X Gold Explorers ETF  (ARCA: GOEX) was up 2% last week. Our prior reports can be viewed here.

Companies on our Top Picks list are up 11% on average since we initiated coverage vs -29% for the benchmark (TSXV).

1. Since the earliest initiating date of companies in the list of Top Picks (as of April 10, 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 0.1% on average (up 2.7% in the prior week). The Bank of Canada is expected to maintain its benchmark rate in its meeting this week. That said, all eyes are on the U.S. CPI (inflation) report, which is due later this week.

Source: FRC/Various

Although inventory levels declined on the LME and SHFE (Shanghai), base metal prices retreated due to a stronger US$.

Valuations of gold producers were up 2% last week (up 0.5% in the prior week); base metal producers were down 1% last week (up 5% in the prior week).

We are maintaining our metal price forecasts.  

Source: FRC

Key sector developments are listed below (mostly positive):

-Sayona Mining Limited (ASX: SYA) and Piedmont Lithium (ASX:PLL) have commenced spodumene concentrate (lithium) production at their North American Lithium project in Quebec. Concentrates will be sold to Tesla (NASDAQ: TSLA) and LG Chem (KOSE: A051910).

-Hecla Mining (NYSE: HL/MCAP: US$3.89B) has entered into a definitive agreement to acquire ATAC Resources(TSXV: ATC) for $39M. The offer price reflects a 109% premium to ATC’s last closing price.  ATC holds high-grade gold projects in the Yukon.

-Peru’s Minister of Energy and Mines has stated that copper production in Peru will likely  grow by 15% this year. Peru is the second largest copper producer in the world. As mentioned in our previous reports, we are expecting downward pressure on copper prices, amid rising supply, and slower GDP growth. The copper market is expected to move from a deficit last year, to a surplus this year.

Updates from Resource Companies Under Coverage

FRC Opinion

Positive – Promising results; samples returned high silver-lead-zinc grades, potentially expanding the project’s inferred resources totaling 7.5 Moz silver equivalent. This property remains severely untested.

FRC Opinion

Positive – AUMN has stated that they could possibly advance the Velardeña project to production without building a BIOX plant. This scenario should drive CAPEX lower by US$14.5M, to just US$6M. Management has stated that they could commence production as soon as mid-2023. However,  a formal decision will be made only after evaluating the project’s economics.

FRC Opinion

Positive – An ongoing drill program returned high copper grades, extending mineralization at depth. These results should positively impact an updated resource update, expected in H2-2023.

FRC Opinion

Positive – Proceeds will be used to fund phase two expansion, to potentially increase production to 100+ Koz per year. STGO had sold 34 Koz gold last year.

FRC Opinion

Positive – NAM has expanded its lithium land holdings by 79%. The recently acquired property hosts spodumene-bearing pegmatites over a strike length of 30 km. This property is in early stages, and has never been drill tested.

FRC Opinion

Positive – Well funded for aggressively exploring its polymetallic projects in Spain. In addition, DSLV is aiming to commence production at its Zancudo project in Colombia through local contract miners.

FRC Opinion

Positive – Although too early to comment on the project’s potential, we were pleased to see that 25 grab samples returned values >1.0 g/t Au, including six with values >5 g/t. Management is planning additional exploration to identify drill targets.

Financial / Technoloy / Energy / Special Situations 

FRC Opinion

Positive – 2022 revenue from trading and brokerage fee was up 77% YoY, beating our estimate by 19%. EBITDA improved YoY from -$41M to -$25M, but was weaker than our estimate of -$22m, due to higher than expected G&A expenses. We will publish an update report shortly.

FRC Opinion

Positive – This is the largest order from a single customer in the education sector. SYTA’s devices will be used by safety staff, teachers, and school bus drivers. We believe this is a major milestone for SYTA, considering that school safety is a leading public safety concern.

Weekly Crypto Commentary

Prices of mainstream/popular cryptos were up 2% on average last week (up 6% in the previous week).

Source: FRC/Yahoo Finance

The global MCAP of cryptos is US$1.19T, up 27% MoM, but down 39% YoY.

Source: Coinmarketcap

Companies operating in the crypto space are trading at an average EV/R of 5.1x (previously 5.4x).

EV/R of Crypto Companies

Source: S&P Capital IQ/FRC

Source: S&P Capital IQ/FRC

Key sector developments are listed below (mixed):

-South Korean crypto exchange GDAC has halted deposits and withdrawals, as its platform was recently hacked for US$14M worth of cryptos.

 –CryptoGPT, which owns an AI-focused blockchain technology, raised US$10M through a Series A financing, at an implied valuation of US$250M.

Weekly Cannabis Commentary

Cannabis Industry Performance

Source: FRC/Yahoo Finance

Last week, Canadian cannabis stocks outperformed their U.S. peers (0% vs -4%). Canadian stocks had outperformed in the week prior to last as well.

 Key sector developments are listed below (positive):

 -In 2022, Germany imported 25,000 kg of cannabis for medical or scientific purposes, up 19% YoY (Source: The Federal Institute for Drugs and Medical Devices).

 -The Texas House of Representatives is voting on a bill next week, allowing doctors to recommend medical marijuana to patients for treating chronic pain.

 Valuation

Canadian cannabis stocks are trading at a 6% premium (previously 6% premium) relative to their U.S. peers.

Source: S&P Capital IQ, FRC

                                                                                       Average EV/R

Source: S&P Capital IQ, FRC

Canadian Retail Cannabis Stores

Currently, there are 3,507 retail cannabis stores in Canada, a decrease of four stores WoW, including three closures in B.C, and one in Alberta.

                                                                                     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 7% in the previous week).

A key sector development is listed below (positive):

-In Minnesota, a bill for creating a psychedelic medicine task force has been introduced, for exploring the pros and cons of legalizing psychedelic medicine.

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.