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. 1. The US$ and equities tumbled last week amid increased financial instability.
   2. Gold/silver/crypto prices continued to rally.
   3. Our prediction for the Fed’s next move.
   4. A gold company under coverage has obtained financing from ING (NYSE: ING) and Macquarie (ASX: MQG).
   5. An oilfield services company under coverage beat our 2022 EPS estimate by 67%.

FRC Top Picks

The following table shows last week’s top five performers among our Top Picks, including four junior resource companies, and one oilfield services company. The top performer Golden Minerals (TSX: AUMN), was up 22%. AUMN announced a maiden resource estimate for one of its projects last week. Our prior reports can be viewed here.

Companies on our Top Picks list are up 12% on average since we initiated coverage vs -32% for the benchmark (TSXV).

1. Since the earliest initiating date of companies in the list of Top Picks (as of March 20, 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 down 1.0% on average (down 3.4% in the prior week), amid increased financial instability. The US$ retreated as well, but gold/silver/crypto prices continued to rally, driven by increased expectations of the Fed slowing or pausing rate hikes. The market is expecting a 0.25% hike in the upcoming meeting this week. Although the European Central Bank (ECB)  raised its rate by 0.5% last week, due to increased uncertainties and turmoil in the financial industry, we believe the Fed is likely to turn more cautious, and maintain its benchmark rate. Therefore, we are expecting equities/gold prices to rally in the second half of this week.

Source: FRC/Various

Last Friday, gold prices surpassed US$2,000/oz, and is currently trading near all-time highs. In Q4-2022, we had predicated gold prices could surpass US$2,000/oz this year.

Valuations of gold producers were up 9% last week (down 1% in the prior week); base metal producers were down 5% (down 7% in the prior week).

We are maintaining our metal price forecasts.  

Source: FRC

Key sector developments are listed below (positive):

 – Volkswagen (DAX: VOW3) is planning to build a two million sqft Electric Vehicle (EV) battery facility in Ontario. We consider this a highly positive development for EV-metals companies in North America.

 – The European Union has added copper, nickel, and manganese to its list of critical materials.

Updates from Resource Companies Under Coverage

FRC Opinion

Positive – ING and Macquarie are offering a US$70M loan to fund CTGO’s portion of CAPEX to advance the Manh Choh gold project in Alaska to production. CTGO’s JV partner Kinross (TSX: K) owns 70%, and is the project’s operator. Initial gold production is expected in H2-2024.

FRC Opinion

Positive – Resources increased 12% to 31 Moz AuEq (gold+silver+copper); grades increased 45% to 1.09 gpt. Treaty Creek is one of the largest undeveloped gold projects in the world. Management is planning to continue resource-expansion exploration programs, prior to initiating a PEA.  

FRC Opinion

Positive – Promising results; two drill holes intersected spodumene-bearing pegmatites over wide intervals (22 m & 27 m), confirming that lithium mineralization identified on surface extends to depth. Note that Azure recently completed a  maiden nickel/copper/cobalt resource on the project.

FRC Opinion

Negative – Revenue was up 14% YoY, but 4% below our forecast, due to lower than expected production, amid lower grades. Gross margins and EPS were also below expectations. We will publish an update shortly.   

FRC Opinion

Positive – Proceeds will be used to fund exploration and working capital.

FRC Opinion

Positive – A promising high-grade inferred resource estimate totalling 17 Moz AgEq, grading 570 gpt. We will publish an update shortly, incorporating a fair value estimate on Yoquivo. We had not assigned any value for this project previously.

FRC Opinion

Positive – Multiple high-grade intercepts over long intervals, suggesting potential for resource expansion. Management is focused on completing a PFS this year.

Financial / Technoloy / Energy / Special Situations 

FRC Opinion

Positive – Revenue was up 44% YoY, beating our estimate by 2%. Gross profit was up 64% YoY, beating our estimate by 9%. EPS turned positive (from -$0.05 to $0.05), beating our estimate by 67%.  Revenue growth came from organic growth as well as its recently launched natural gas-powered mobile power systems, replacing diesel generators.

FRC Opinion

Positive – Major milestone; Telstra, Australia’s largest carrier, will start offering SYTA’s flagship device (SD7) to its customers. SD7 is also marketed by other large carriers such as AT&T (NYSE: T), Verizon (NYSE: VZ), T-Mobile (NASDAQ: TMUS), FirstNet, US Cellular (NYSE: USM), and Bell (TSE: BCE).

FRC Opinion

Neutral – Revenue was up 27% YoY, to US$450k vs our estimate of US$454k, due to higher transaction volume. Gross profit was up 13% YoY, to $230k vs our estimate of US$228k. However, due to higher R&D expenses, net losses increased 57% YoY, to US$16M (EPS: -US$0.96) vs our estimate of US$13M (EPS: -US$0.77). We are expecting revenue to grow 76% this year, driven by its brand new platform (Commerse™) offering digital payment processing solutions, and banking capabilities to merchants / businesses / retailers.

Weekly Crypto Commentary

Prices of mainstream/popular cryptos were up 5% on average last week (up 5% in the previous week as well).

Source: FRC/Yahoo Finance

The global MCAP of cryptos is US$1.15T, up 3% MoM, but down 37% YoY.

Source: Coinmarketcap

Companies operating in the crypto space are trading at an average EV/R of 5.3x (previously 3.5x).

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, former Belgian finance minister and a member of the European Parliament called for a ban on cryptos, stating that cryptos have “no economic or social value.”

 – Global crypto exchange OKX is winding down its operations in Canada, due to increased regulations.  Last month,  the Canadian Securities Administrators (CSA) had announced new regulations for crypto trading platforms.

 – According to the FBI, online scams relating to cryptos increased 183% YoY, from US$0.9B in 2021, to US$2.6B in 2022.

Weekly Cannabis Commentary

Cannabis Industry Performance

Source: FRC/Yahoo Finance

Last week, Canadian cannabis stocks underperformed their U.S. peers (-8% vs

-4%). Canadian stocks had underperformed in the week prior to last as well.

Key sector developments are listed below (positive):

– The Kentucky senate has approved a bill to legalize medical marijuana. Currently, medical marijuana is legal in 38 states in the U.S.

– In Arkansas, medical marijuana sales were up 10% YoY in the first two months of this year, to US$46M (Source: MJBiz).

– Canadian producer  Heritage Cannabis Holdings Corp. (CSE: CANN/MCAP: $25M) has been approved to import medical CBD products into Brazil.

Valuation

Canadian cannabis stocks are trading in line (previously trading at a 3% discount) with 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 3,500 retail cannabis stores in Canada, an increase of sixteen stores WoW, including fourteen new stores in ON, and two in B.C.

                                                                                     Nationwide Store Count

Source: Provincial Websites, FRC

Source: Provincial Websites, FRC

Psychedelic Industry Performance

Psychedelic Industry Performance

Psychedelic stocks were down 7% on average last week (down 19% in the previous week).

Key sector developments are listed below (positive):

 – Lawmakers in Nevada have introduced a bill to legalize psilocybin.

 – Lawmakers in Minnesota have introduced a bill to establish a task force to evaluate legalization of psychedelics. 

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.