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Trouble in Tropics for Fortuna and Franco


January 10, 2023 ( Newswire) Adrian Day of Adrian Day Asset Management discusses updates at some companies, including two experiencing difficulties with local governments. Day believes such incidents often provide opportunities.

Two companies on our list have run into trouble in two countries in Central America, one the continuation of a dispute that came to light a month ago and the other the renewal of a long-running dispute.

Mexico’s Environment Agency Strikes Again

Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE) received notice that Mexico’s environment agency, SEMARNAT, is again challenging the 12-year extension to Fortuna’s San Jose mine that was confirmed by a federal court in November.

SEMARNAT originally rejected Fortuna’s renewal of its permit to operate the mine, then granted it, and then, in a farcical move almost one year ago, said there was a typo in its approval notice, and the permit should have been extended for only two years, not 12.

Fortuna appealed to the courts, with a federal court confirming the 12-year extension. Now SEMARNAT has revoked the extension and says it needs to conduct a review, claiming that it does not have the authority to grant a 12-year extension; and claiming that it had provided insufficient analysis to support the claim that Fortuna had met its obligations such that it should not have granted the extension.

Fortuna says it will initiate legal proceedings.

The antics of SEMARNAT through this more-than-year-long saga are quite appalling and seriously damaging the reputation of Mickey Mouse Mexico as a place to do business.

Fortuna stock fell as much as 14% on Thursday when the news was released. Given that San Jose represents only about 9% of the company’s NAV and also that the mine has continued to operate throughout this entire fiasco, this was an overreaction.

Although the stock has since recovered, a little less than half its drop, this represents an opportunity to buy for those who do not yet own the stock.

Agreement Looks Close On Franco’s Cobre Panama

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) may see an agreement in the dispute on First Quantum’s Cobre Panama Mine, a stream on which is the company’s largest asset.

The government’s 10-day deadline to close the mine has not yet started, given various appeals by First Quantum.

Meanwhile, the government and company continue negotiations, with the company saying that the demanded minimum annual contribution is not a sticking point, but rather the company is seeking long-term stability on the agreement.

Meanwhile, First Quantum is preparing for an arbitration filing, which is a reasonable defensive move but not one the company wants to pursue. Whatever the merits of each side’s case, Panama has done itself no favors by the way it has handled this.

Given the recent rally in gold stocks, we are holding Franco.

Royal UPS Ante Again on Cortez

Royal Gold Inc. (RGLD:NASDAQ; RGL:TSX) acquired yet more royalties on the Cortez complex in Nevada in the purchase of part of the so-called Idaho Royalty for US$204 million. The Idaho Royalty covers the Cortez Mine and Fourmile project. The purchase was largely funded by drawing down on the company’s line of credit, bringing the outstanding balance to US$575 million. The royalty is between 0.24% and 0.45%.

Royal, whose first royalty was on the Cortez property, has a complicated series of royalties on the complex, with different rates and different structures covering different parts of the complex. Royal divides these royalties into two groups, first on the “legacy” mines of Pipeline and Crossroads, where it estimates an aggregate 9.4% gross smelter royalty, and second the Cortex complex, with an aggregate royalty of 1.6%, with varying royalties on some nearby properties.

The combined royalties will add about 50,000 ounces a year over the next five years, representing about 17% of the company’s NAV.

With both this acquisition and its last, Royal has shown that it is willing to pay up for royalties in this area, which gives it upside optionality but at a price. Cortez is one of the longest-life mines complexes, operated by Nevada Gold Mines (a joint venture of Barrick and Newmont).

Given the strong recent rally, Royal is a hold.

Continued Success at Altius’s Junior Portfolio

Altius Minerals Corp. (ALS:TSX.V) provided its year-end project generation update. Its portfolio of junior equities was valued at just over US$50 million, up from last quarter, though down 10% from a year ago.

Adjusting for additional investments, sales, and distribution, however, the value of the portfolio fell by just over 5% during the year, a very strong performance given the market.

New investments during the year included a small one in Lara Exploration Ltd. (LRA:TSX.V), while it increased its investment in Orogen Royalties Inc. (OGN:TSX.V), both companies on our list. Hold.

WE ARE BUYING little right now, awaiting the rally in the broad market to correct and for a pullback in the gold market to add to positions in that sector.

Adrian Day Disclosures:

Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. (C) 2022. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.


1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: All. 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, which is unaffiliated with Adrian Day’s newsletter, hold shares of the following companies mentioned in this article: All. I determined which companies would be included in this article based on my research and understanding of the sector.

2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.

3) Statements and opinions expressed are the opinions of the author and not of Streetwise Reports or its officers. The author is wholly responsible for the validity of the statements. The author was not paid by Streetwise Reports for this article. Streetwise Reports was not paid by the author to publish or syndicate this article. Streetwise Reports requires contributing authors to disclose any shareholdings in, or economic relationships with, companies that they write about. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy.

4) This article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services, or securities of any company mentioned on Streetwise Reports.

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