The Feds Dovish Tilt Means Patience Is Required
Global Analyst Adrian Day comments on Jerome Powell's latest press comments and looks at recent developments from a few companies on our list of current recommendations.
Fed chairman Jerome Powell took away the punch bowl before it had even been served. In a surprisingly hawkish statement, the Federal Reserve made clear that, although the tightening bias has gone, it was not yet ready to cut rates. In his press conference following the Fed meeting and statement, Powell said the Fed would "begin dialing back sometime this year" but added that March was "not the most likely case" for a rate cut.
He emphasized that the Fed was firmly committed to its 2% inflation target, clearly pushing back against market optimism. This press conference by Powell was a direct contrast to his suddenly dovish comments in mid-December. I said that his comments last week were "surprisingly" hawkish; rather, it was his December comments that were surprisingly dovish.
In this week's press conference, he seemed confident relaxed, and even attempted humor. In contrast, at December's meeting, he seemed hesitant and uncomfortable. December was the anomaly.
Why Was Powell So Dovish in December
I suspect that in December, the dovish estimates of 2024 rates by the majority of other Fed board members in their so-called "dot plot" took him by surprise, and he was probably also somewhat rattled by Treasury Yellen's remarkable interview occurring just a few moments before he started to speak. In that interview, Yellen said that it was time to start cutting rates.
So, the likelihood is that we won't see an initial rate cut until the Fed's meeting in May or even the one after that (though March is not off the table if events demand it). One significant item in the Fed's extensively rewritten prepared statement: it removed the comment, "The U.S. banking system is sound and resilient." (Thanks to Larry McDonald for pointing that out.)
Does the Fed know something?
Once the Fed first cuts, we shall not most likely see a series of cuts, so Powell wants to wait before embarking on that cycle. Gold had been strong after the December meeting on exaggerated optimism about the timing and pace of rate cuts. The new bull market in gold and gold stocks has been postponed, but it has by no means been canceled.
Buy While You Can: Franco, Lara, and Orogen
Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) raised its quarterly dividend by almost 6%, declaring a March dividend of 36 cents. This represents the 17th consecutive annual increase in Franco's dividend (though it equates to a modest yield of 1.4%). The company also hinted that it would take an impairment charge for the Cobre Panama mine stream when it releases financial results in early March; the mine was ordered shut by the Panamanian government in December.
However, Franco will see new revenue streams this year. G Mining has drawn approximately $42 million on its $75 million secured loan from Franco-Nevada. The loan, along with a $250 million gold stream previously paid, is being used for the construction of the Tocantinzinho Gold Project in Par? State, Brazil, where commercial production is expected in the second-half of this year.
Franco will also see new revenue from its 3% royalty on Equinox's Greenstone project in Ontario, which is expected to start production by mid-year. Franco's stock had arguably been overvalued before Panama shut down Cobre Panama, sending the stock sharply down from nearly $140, even as peers moved up, and wiping out a multiple of the value of the mine to Franco.
Take advantage of the current weakness and buy Franco.
Lara Updates Flagship Property and Adds More Expertise
Lara Exploration Ltd. (LRA:TSX.V) provided an update on its flagship Planalto Copper Project in the Caraj?s Province in Northern Brazil. The company said that its drill program, linking two discoveries into a single body of mineralization, was completed in the fourth quarter.
Metallurgical testing on the new Cupuzeiro orebody was also completed, with the results showing copper recoveries of 88-92%. The company has now started work on resource estimates, with additional technical studies planned for the coming months. Lara also announced that Anthony Polglase, founder and Managing Director of a company operating 12 km from Planalto, had been appointed as a technical advisor.
Mr. Polglase's Avanco Resources was acquired by Oz Minerals in 2018 for over $300 million. This is the second addition to the company this month, with Simon Ingraham, Reservoir's former CEO, joining as CEO at the beginning of the month. Lara is one of our top exploration companies, with not only the Planalto but also two other assets that could also be worth the company's market cap of CA$27 million. This is a great time to accumulate the stock; one day, I believe, the stock will start to run away from the current level.
Lara is a Strong Buy at this level.
Orogen Updates Business, Revenue, and Upside
Orogen Royalties Inc. (OGN:TSX.V) released an exploration and project generation update and forecast. The Ermita?o gold-silver mine in Mexico, where the company holds a 2% net smelter return ("NSR") royalty, produced 28,056 ounces of gold and 582,484 ounces of silver in the fourth quarter, representing a 1% decrease in gold ounces and a 67% increase in silver ounces from the previous quarter.
Its main non-producing asset, a royalty on part of AngloGold Ashanti Ltd.'s (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE) Greater Silicon project, is advancing rapidly, with an update from Anglo expected sometime over the next month in its year-end results. Orogen's other royalty assets also saw advancement with drilling, exploration, and permitting on various projects, including the MPD South and Onjo projects in British Columbia and the Cuprite project in Nevada.
Orogen is another of our top exploration picks, underpinned by revenue and a strong balance sheet. Arguably, though not as undervalued as some, its upside is also more certain, and its downside is strongly protected. We have been thumping the table on Orogen for the last several months as the stock price rose steadily from the 50s.
Buy Orogen.
Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American) was removed from the SILJ silver ETF, along with 26 other companies, when the ETF index changed its mandate to buy stocks listed on Nasdaq. Metalla's share price was hurt by the ETF selling and index-huggers follow-on selling. Metalla is a buy.
TOP BUYS this week, in addition to above, include Barrick Gold Corp. (ABX:TSX; GOLD:NYSE), Agnico Eagle Mines Ltd. (AEM:TSX; AEM:NYSE), Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ), Fortuna Silver Mines Inc. (FSM:NYSE; FVI:TSX; FVI:BVL; F4S:FSE), Altius Minerals Corp. (ALS:TSX.V), and Midland Exploration Inc. (MD:TSX.V).
Questions from Readers
I have been a subscriber for a year and all of your sell recommendations have been at large losses. Don't you have any winners? FB, Tampa
You are quite correct that most of our recent sells have been undertaken at large losses. Sometimes, one needs to cut bait rather than continue to hold a losing position. For some people, there is a valuable tax loss, while for everyone, it frees cash for another pick. I suspect we shall sell a few more positions at losses in the months ahead.
It is important to look at all sales in the Closed Positions table on our website. There have been 86 of them since we started this service, with an average return of over 85%. That's not too bad. Then, our Current Holdings also on our website for subscribers only though we do not calculate an average return, include some strong performers that we continue to hold. Of the 25 stocks listed, 11 have returns of over 100%, while three have returned more in dividends than we originally paid for the stock.
There's an old Wall Street saying that one should cut one's losses and let winners run. Though it's not always as simple as that, we feel our track record, in totality, is not so bad, while there are plenty of strong winners in our Current Holdings table.
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Important Disclosures:
As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Franco-Nevada Corp., Lara Exploration Ltd., Orogen Royalties Inc., Metalla Royalty & Streaming, Agnico Eagle Mines Ltd., Pan American Silver Corp., Altius Minerals Corp., and Midland Exploration Inc..Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with All. I determined which companies would be included in this article based on my research and understanding of the sector.Statements and opinions expressed are the opinions of the author and not of Streetwise Reports, Street Smart, or their officers. The author is wholly responsible for the accuracy of the statements. 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. Any disclosures from the author can be found below. Streetwise Reports relies upon the authors to accurately provide this information and Streetwise Reports has no means of verifying its accuracy. This article does not constitute investment advice and is not a solicitation for any 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. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company.For additional disclosures, please click here.
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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. www.AdrianDayGlobalAnalyst.com. 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) 2023. 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.