Fund manager Adrian Day discusses several mining and energy companies in his portfolio that he believes should appreciate now that the recently released Canadian budget does not include a tax rate increase.
Many Canadian juniors had seen significant deterioration in prices in the last few weeks, even as gold and large mining companies rallied. This decline in juniors particularly affected stocks that had seen large capital appreciation in the recent past. This was the result of Canadian investors selling shares to lock in capital gains tax rates ahead of a widely anticipated increase in the tax rate. But in the budget just released, the government said there would be no rate increase. We expect, therefore, that there will be some buying back of shares sold in coming days and an overall firming in the Canadian junior market. Below are three stocks (LRA, AXY, MD), among others, that could benefit from such buying.
Strong assets, waiting for partners, court
Lara Exploration Ltd. (V:LRA) continues to deal properties, acquiring new properties that is options out to others, but has hurdles on its two main assets. The Maravaia copper-gold deposit (part of the Curionopolis project in northern Brazil) is behind schedule. However, Tessarema is working towards commercial production at the mine, which is the hurdle is must meet to earn 100% of the project. At that point, Tessarema must pay Lara another US$750,000, which also retains a 2% royalty.
Meanwhile, Codelco (Lara's joint venture partner) and Vale continue their court case over the Liberdade Copper project, also in Brazil. We remain optimistic on a resolution—if not the timing thereof—that would revolve to the benefit of Lara. Codelco has the right to earn into 75% of the project, but the value of Lara's remaining 25% would exceed the current market cap. The company, with about CA$3.5 million in the bank, has sufficient cash for its programs.
Lara is a strong buy here for patient investors with a certain tolerance for risk.
Company continues to grow towards long-term goal
Alterra Power Corp (TO:AXY) continues to make progress towards its goal of being a dividend-paying, diversified green-energy company. Last year was, in the words of founder and chairman Ross Beaty, a transition year. Power production is up 20%, with a new hydro project in British Columbia starting production, a new solar farm acquired, and the first full year from the Shannon wind farm. The company now has eight operating plants, in three countries, and has growth projects that could conservatively double production "in the next few years." A modest dividend was introduced last year (yield of just over 1%), but the goal is to increase the dividend significantly once the company reaches a critical mass. Alterra is a buy for long-term investors.
There's been no news from Reservoir Capital Corp (V:REO)—the last substantive press release announcing an interim CEO, was in August—but we expect some development in coming months. Because of the extreme low price we would not sell, but are not buying until the future course becomes clearer.
Another partner resumes activity
Midland Exploration Inc (V:MD), no sooner than my last article with a recommendation on the stock was published, announced that partner Agnico Eagle Mines Limited (NYSE:AEM) would resume drilling on the Maritime-Cadillac property, contiguous to Agnico's Lapa gold mine property. Though not unexpected, this is yet another drill program with a quality partner. Midland expects over 25,000 meters of drilling this year (not feet, as stated in last article). Buy Midland at this level.
Disclosure:
1) Adrian Day: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: Midland Exploration, Lara Exploration and Alterra Power. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: Midland Exploration, Lara Exploration, Reservoir Capital and Alterra Power. I determined which companies would be included in this article based on my research and understanding of the sector.
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