Early Q4 Updates

  1. $IMPUY — We exited Impala Platinum Holdings at our target of $7 for a return of 150%.
  2. $FCUUF — We doubled our stake in Fission Uranium on 22 October.
  3. $AAU — We took advantage of the Ixtaca permitting suspension to aggressively purchase shares on sale at $0.50 on 30 October.
  4. $GUYFF — We took advantage of the Halloween guidance scare to double our stake in Guyana Goldfields.
  5. $TGB — We like Taseko’s pipeline, especially the Florence Copper Project. We also like the way copper is behaving generally. We started to build a stake on 12 November.

“[Copper is] more strategic than cobalt, more strategic than lithium. You can’t replace copper on conductivity. It is a modern metal.”

Mark Bristow

$NORZF : NorZinc — Independent Economic Analysis

Long-Term Price Case$24/oz. Ag, $1.10/lb. Zn, $1.00/lb. Pb
ProjectPrairie Creek
Mineral Reserves186,795,000 AgEq ozs.
Shares Outstanding369,700,000
Market Cap$24,030,500
Average Annual Production10,829,166 AgEq ozs.
Recovery87% Ag, 88% Pb, 83%, Zn
LoM15 Years
Payable Product162,437,490 AgEq ozs.
True All-in Cost (TAIC) $21.86/oz.
Gross Revenue$3,898,499,770
Smelter Deductions($454,000,000)
TCRC + Penalties($432,800,000)
Gross Income$3,011,699,770
Total Operating Cost($1,797,500,000)
Operating Profit$1,214,199,770
Income Taxes + Royalties($469,895,310)
Total Capital Costs ($395,900,000)
Net Income$348,404,460
Net Profit Margin9%
Absolute Cost Structure (ACS)91%
MTQ Score0.1
True Value$0.94/sh.
True Value Discount (TVD)93%
Cash Flow Multiple5x
Annual Cash Flow$23,174,415
Future Market Cap$115,872,075
Future Market Cap Growth382%

Notes: All Values in U.S. Dollars

NorZinc is at the high end of the Absolute Cost Structure curve and the low end of the Net Profit Margin curve. In other words, Prairie Creek is a Project that will require substantially higher Silver, Lead and Zinc prices in order to be viable.

In a raging silver bull market, we think shares could appreciate by as much as 382%, which assumes shares will trade at approximately 5x future net annual cash flows.

Fahy Capital Management is not an investor in NorZinc.

Q2 Updates

In Q2, we reduced our exposure to uranium and increased our exposure to gold, silver and agriculture; our allocations to platinum and rare earths remain unchanged.

At Fahy Capital Management, our investment decisions are based upon quantitative data. Analysis of that data enables us to execute in what we perceive to be a timely and prudent manner. When our data suggest the gap between price and value has closed, we sell. This approach ensures that we do not fall in love with a particular idea or stock. We perceive stocks as inventory and we like to see that inventory get worked off.

Over the course of a 12-month time frame, we typically expect inventory to be reduced by as many as 2 or 3 names, and this has proven a rate that allows us to reinvest and grow.

New Directions

We remain committed to the value proposition, but how we arrive at determinations of value is changing. We have developed new formulas and new ratios that we believe better reveal the merits and shortcomings of businesses under investigation, while conferring to us an edge on the hairy margins.

We are looking forward to sharing some of our results here in our blog. Those results, however, don’t constitute a recommendation to buy or sell; it’s just food-for-thought.

$ASM : Avino Silver & Gold Mines — Independent Economic Analysis

Long-Term Price Case$1,700/oz. Au | $24/oz. Ag | $2.72/lb. Cu
ProjectAvino Mine
Mineral Resources50,525,000 AgEq ozs.
Shares Outstanding65,420,000
Market Cap$36,635,200
Average Annual Production2,731,357 AgEq ozs.
Recovery86% (Ag); 67% (Au); 91% (Cu)
LoM15 Years
Payable Product40,970,350 AgEq ozs.
True All-in Cost (TAIC)$12.06/oz.
Gross Revenue$983,288,400
Transportation, Refining & Insurance Costs($15,623,865)
Gross Income$967,664,535
Total Operating Cost($94,068,000)
Operating Profit$873,596,535
Income Taxes($327,598,700)
Total Capital Costs ($56,920,000)
Net Income$489,077,835
Net Profit Margin50%
Absolute Cost Structure (ACS)50%
True Value$7.48/sh.
Cash Flow Multiple10x
Annual Cash Flow$32,612,403
Future Market Cap$326,124,030
Future Market Cap Growth790%

Note: All Values in U.S. Dollars

Investment Case
  • Measured & Indicated Resources have grown by 100% over the last 3 years.
  • Mine Life has effectively doubled.
  • Net Profit Margin and Absolute Cost Structure (ACS) are excellent at $24/oz. Ag.

$AAU : Almaden Minerals — Independent Economic Analysis

Long-Term Price Case$1,700/oz. Au & $24/oz. Ag
Flagship ProjectIxtaca
Mineral Reserves2,589,245 AuEq ozs.
Shares Outstanding111,700,000
Market Cap$73,722,000
Average Annual Production208,171 AuEq ozs.
LoM11 Years
Payable Product1,840,664 AuEq ozs.
True All-in Cost (TAIC) $1,255/oz.
Gross Revenue$3,129,128,000
Almadex NSR($62,582,560)
Gross Income$3,066,545,440
Total Operating Costs($1,283,000,000)
Operating Profit$1,783,545,440
Extraordinary Mining Duty($8,917,727)
Special Mining Duty($133,765,908)
Income Tax($535,063,632)
Total Capital Costs($286,000,000)
Net Income$819,798,173
Net Profit Margin26%
Absolute Cost Structure (ACS)74%
True Value$7.34/sh.
Cash Flow Multiple5x
Annual Cash Flow$92,636,095
Future Market Cap$463,180,475
Future Market Cap Growth528%

Notes: All Values in U.S. Dollars

$MISVF : Minco Silver — Independent Economic Analysis

Long-term Price Case$24/oz. Ag
Flagship ProjectFuwan
Mineral Reserves55,300,000 ozs.
Shares Outstanding60,704,748
Market Cap$27,317,137
Average Annual Production5,500,000 ozs.
LoM9.2 Years
Payable Product50,323,000 ozs.
True All-in Cost (TAIC) $19.80/oz.
Gross Revenue$1,207,752,000
Gross Income$1,159,441,920
Total Operating Costs($313,800,000)
Operating Profit$845,641,920
Total Capital Costs($73,059,822)
Net Income$211,585,336
Net Profit Margin18%
Absolute Cost Structure (ACS)82%
True Value$1.35/sh.
Cash Flow Multiple5x
Annual Cash Flow (TMRC, 30%)$23,100,000
Future Market Cap$115,500,000
Market Cap Growth323%

Notes: All Values in U.S. Dollars

$BCEKF : Bear Creek Mining — Independent Economic Analysis

Long-term Price Case$24/oz. Ag | $1.18/lb. Zn | $0.86/lb. Pb
Flagship ProjectCorani
Mineral Resources (M&I)534,479,167 AgEq ozs.
Mineral Reserves412,340,833 Ag Eq ozs.
Fully-Diluted Shares110,985,814
Fully-Diluted Market Cap$137,622,409
Average Annual Production13,978,703 AgEq ozs.
Recovery69.9% (Ag)
Payable Product251,616,667 AgEq ozs.
LoM18 years
True All-in Costs (TAIC)$20.82/oz.
Gross Revenue$6,038,800,000
Total Operating Costs ($3,350,000,000)
Operating Profit$2,688,800,000
Royalty Tax (12%)($322,656,000)
Specialty Tax (IEM, 8.4%)($225,859,200)
Worker’s Participation Tax (8%)($171,222,784)
Income Tax (29.5%)($580,873,295)
Total Capital Costs ($585,000,000)
Net After-Interest Income$803,188,721
Contribution to OSINERGMIN (0.13%) ($1,044,145)
Contribution to OEFA (0.13%) ($1,044,145)
Net Income$801,100,431
Net Profit Margin13%
Absolute Cost Structure (ACS)87%
True Value$7.22/sh.
Cash Flow Multiple10x
Annual Cash Flow$44,452,276
Future Market Cap$444,522,760
Future Market Cap Growth223%

Notes: All Values in U.S. Dollars

$AXU : Alexco Resources — Keno Hill Drilldown

Long-term Price Case$24/oz. Ag | $1,700/oz. Au | $1.18/lb. Zn | $0.86/lb. Pb
Flagship ProjectKeno Hill
Mineral Resources (Indicated)83,561,000 ozs.
Mineral Reserves30,453,000 ozs.
Shares Outstanding117M
Market Cap$161,460,000
Average Annual Production4,142,779 AgEq ozs.
Payable Product33,142,232 AgEq ozs.
LoM8 years
True All-in Cost (TAIC)$17.15/oz.
Gross Revenue$795,413,568
Yukon Mining Royalties($95,449,628)
Net Revenue$699,963,940
Total Operating Costs ($274,966,410)
Operating Cash Flow$414,498,071
Total Capital Costs($‭75,656,972)
Yukon Taxes($49,739,769)
Federal Taxes($62,174,711)
Net Income$226,926,619
Net Profit Margin29%
Absolute Cost Structure (ACS)71%
MTQ Score (Higher is Better)0.4
True Value$1.94/sh.
Cash Flow Multiple10x
Annual Cash Flow$28,378,036
Future Market Cap$283,780,360
Future Market Cap Growth110%

Notes: All Values in U.S. Dollars

$ABBRF : AbraPlata — Updated Independent Economic Analysis

Long-term Price Case $24/oz. Ag & $1,700/oz. Au
Flagship Project Diablillos
Ownership 50%
Mineral Resources66,425,000 AgEq ozs.
Shares Outstanding82M
Market Cap$3,599,800
Average Annual Production4,919,765 AgEq ozs.
Payable Product39,358,121 AgEq ozs.
LoM8 Years
True All-in Cost (TAIC) $17.59/oz.
Gross Revenue$944,594,904
Total Charges ($28,337,847 )
Royalty NSR ($9,445,949)
Net Revenue$906,811,108
Total Operating Costs($279,674,860)
Operating Profit $627,136,248
Income Taxes ($219,497,687)
Total Capital Costs($155,479,000)
Net Income$252,159,561
Net Profit Margin27%
Absolute Cost Structure (ACS)73%
MTQ Score (Higher is Better) 0.4
True Value$3.08/sh.
True Value Discount (TVD)99%
Cash Flow Multiple5x
Net Annual Cash Flow$31,535,694
Future Market Cap$157,678,470
Future Market Cap Growth4,280%

Notes: All Values in U.S. Dollars

According to our calculations, the AbraPlata story gets interesting above $17/oz. Ag. If Aethon has a breakthrough and is able to demonstrate that recoveries above 80% may be achieved, the AbraPlata story could get interesting below $17/oz. It’s a wait-see.

The Net Profit Margin and Absolute Cost Structure are middling, so we have assigned AbraPlata a 5x Cash Flow Multiple and Future Market Cap Growth up to 4,280%.

Merger Update: 30 July 2019 — Jane pays John to take her to prom…

On a fully-diluted in-the-money basis, AbraPlata shareholders will own ~48% of Diablillos following a business combination with Aethon.

As our assumptions were within a +/- 5% margin of error (+4%) regarding future ownership, our existing valuation dated 20 June 2019 remains valid, for all intents and purposes.