SmallCapPower | March 9, 2016: Let’s face it, resource stock returns during the past few years have been downright lousy. But that’s not to say investors should neglect a sector that, in some cases, offers tremendous value currently and has historically produced some eye-popping gains. That being said, on January 22, 2016, we put together a resource portfolio, consisting of 10 stocks with approximately the same dollar value invested in each one, which we think will outperform long-term during both good and not-so-good times.
The key, as always, is choosing the right stocks at the right time. That being said, on January 22, 2016, we put together a resource portfolio, consisting of 10 stocks with approximately the same dollar value invested in each one, which we think will outperform long-term during both good and not-so-good times.
Our investing criteria were fairly simple. We chose companies with one or more of the following attributes: industry leaders, a top-notch project that more than one expert likes, and/or big-money backers. It is important to note that our chosen stocks were made for the purpose of a friendly competition and are NOT to be considered buy recommendations.
Since making these sections about six weeks ago, our portfolio is up 26% as of March 4, 2016. Timing, of course, is everything. As well, for the purpose of this exercise we’ve tried to include as many different commodities as possible in our picks.
NexGen Energy Ltd. (TSXV: NXE): Our top performer thus far. Canada’s Athabasca Basin has some of the richest uranium grades globally and NexGen’s Arrow deposit in Saskatchewan is looking more and more like the next big thing to come out of the Basin. The Company recently released its maiden Mineral Resource estimate for Arrow, which showed 201.9 M lbs grading 2.63% U3O8.
Ivanhoe Mines (TSX: IVN): It’s tough to bet against past success and Robert Friedland is arguable the biggest name in the business. Ivanhoe has significant ownership stakes in three big development projects in southern Africa. The Kamoa copper discovery in the Democratic Republic of Congo (DRC) could turn into the world’s largest, highest grade mine of its kind. The Kipushi Project, meanwhile, which is also located in DRC has been ranked in the Top 20 for zinc.
Kaminak Gold Corporation (TSXV: KAM): Its Coffee gold project in the Yukon has been the talk of more than a few experts/analysts. And, a January 2016 feasibility study confirmed its potential – estimated production of 184,000 ounces of gold per year over a 10-year mine life from heap leach operations. Requiring C$318 million of capital, this project could generate an NPV (5% discount) of C$295 million and an IRR of 27%, at a gold price of US$1,000 per ounce.
Franco-Nevada Corporation (TSX: FNV): We would argue this stock should be a core holding in any resource portfolio seeing that the gold-focused royalty and stream company has outperformed both the gold price and TSX Gold index nearly every year since going public late in 2007. Franco-Nevada also pays a modest dividend (currently 1.5%) but its payout has surged 424% since 2011, and the Company spreads its risk over many projects and countries.
Pretium Resources Inc. (TSX: PVG): Commercial production is expected next year at Pretium’s Brucejack Project in northern British Columbia, which the Company claims is fully funded and permitted. The economics here are most compelling – 404,000 gold ounces are expected to be mined each year over an 18-year mine life at all-in sustaining cash costs of just US$446 per ounce.
Energy Fuels Inc. (TSX: EFR): The uranium market may have seen a mini meltdown since Fukushima in 2011 but with several nuclear reactors either planned or under construction, a nuclear renaissance may occur sooner rather than later. A deal to acquire Denison Mines’ U.S. mining assets and operations in 2012 was a game changer for EFR. Since then, the Company has acquired competitor Uranerz Energy as well as other uranium assets in the western United States. In fiscal 2015, Energy Fuels sold more than one million pounds of uranium, making it among the largest U.S. uranium producers.
Nemaska Lithium Inc. (TSXV: NMX): Green energy appears to have a bright future but storage is key since the sun isn’t always shining and the wind doesn’t always blow. These batteries for green energy storage require lithium. Tesla’s decision to build a battery plant for its electric cars in the United States and source its materials locally set off a ‘lithium rush’ as some speculators poured money into juniors that could be the next lithium producer in North America. Nemaska contends that its Whabouchi deposit in Quebec is the second richest and largest deposit in the world with 27.3 MT Proven and Probable Reserves at an average grade of 1.53% Li2O. It is also permitted and has the support of the Quebec government.
Oban Mining Corporation (TSX: OBM): With heavy hitters Ned Goodman and Sean Roosen as Co-Chairmen, this Company should go places. Oban has taken advantage of this depressed junior resource market to acquire some promising juniors and properties all in the northern Ontario region and over the border into Quebec – 13 transactions since June 2015, and the Company is now sitting on a Measured & Indicated gold resource of approximately 3.5 million ounces.
Fission Uranium Corp. (TSX: FCU): Many consider the Company’s Patterson Lake South (PLS) project in Canada’s Athabasca Basin to be one of the richest undeveloped mineral deposits in the world. In fact, investor interest has been building ever since it released estimates of a 100 million plus pound high-grade uranium resource at its Triple R prospect. A failed merger with Denison Mines may turn out to be a good thing as Fission now has a Chinese partner to pony up some cash. The Preliminary Economic Assessment (PEA) from September estimates a C$1.1 billion open pit and underground operation, producing on average 7.2M pounds per year of uranium oxide over a 14-year mine life, with strong economics at a long-term uranium price of US$65/Ib.
Agrium Inc. (TSX: AGU): Of the 10 stocks we hold in our portfolio this is the only one currently in the ‘red’, yet the producer of nitrogen, potash and phosphate fertilizers has been a steady performer over the years with its retail-distribution network of more than 1,400 facilities and about 3,800 crop consultants. Its stock presently has a yield of a little over 4% and during the past five years Agrium’s dividend has increased at a compound annual growth rate of 77.3%.
Do you think you could put together a better resource stock portfolio? If so, please send it to sean@smallcappower.com and let us know if you would be willing to have your picks published on SmallCapPower.com.
