Navigating a Golden Opportunity With One Experts Top Picks

Source: Malcolm Shaw 03/15/2024

Malcolm Shaw of Hydra Capital Partners shares some of his own investment ideas in the metals and energy markets. He also shares a myriad of stocks that he owns and follows. He presents these ideas as a jumping-off point for those looking to kick-start their own due diligence in the commodity sector.

The gold sector has taken center stage this month, with prices soaring to unprecedented heights.

Despite the impressive rally, many investors remain skeptical, having been burned by false starts in the past. However, as central banks continue to accumulate gold and the U.S. dollar weakens, the precious metal's prospects are looking brighter than ever.

Gold's Breakout and Investor Sentiment

Gold's recent surge past the $2,080 resistance level has caught many investors off guard. Most have little to no exposure to the sector and are unfamiliar with the relevant tickers and valuations.

This lack of participation means that the gold rally may still have significant room to run as disbelief slowly fades and investors start to pile in, similar to the energy sector's recovery in late 2020/early 2021.

Despite the recent rally, many gold stocks are trading at historically attractive valuations based on price-to-net asset value (P/NAV) multiples, free cash flow yields, and cash flow multiples.

Even major players like Newmont Corp. NEM have yet to show signs of froth, trading near their 5-year lows. These compelling fundamentals, combined with the fact that gold has never been this high, suggest that the sector may be poised for a sustained rally.

Other Commodities To Watch

While gold steals the spotlight, other commodities are also showing promise. Silver seems to be riding along with gold, though a lot of "silver bugs" think it may even outperform the yellow metal.

Copper, a key player in the energy transition, is now through the critical $4.00/pound level. A weakening U.S. dollar and healthy supply-demand fundamentals bode well for the red metal. Zinc is following copper.

Oil and natural gas stocks remain cheap relative to other sectors, while uranium's structural supply-demand picture remains bullish.

Lithium, on the other hand, has been weak and may be vulnerable to tax-loss selling later this year, and Nickel is still seeing overhang from new Indonesian supply.

Be Right and Sit Tight

As a seasoned commodities investor, I prefer to keep my approach straightforward. Examining the TSX Venture index's long-term chart reveals the potential for significant upside if we are indeed witnessing the beginning of a synchronized commodity upswing. Should the current momentum persist for a couple/few more weeks, the Venture index may experience a "golden cross," where the 50-day moving average surpasses the 200-day moving average — which would be a promising technical indicator for those looking for the next significant advance in the commodity sector.

While I remain cautiously optimistic, the mere act of penning this article could suggest that the market may need to consolidate before continuing its ascent. It's important to note that prior to this emerging trend, commodity stocks have endured a prolonged period of lackluster performance. However, given the current market conditions, I believe that a comprehensive commodity rally could have staying power.

I must admit that I'm more optimistic now than I have been for quite some time, and I can only hope that sharing these thoughts doesn't inadvertently hinder the market's progress. In the sections that follow, I provide a few thoughts on both familiar and new investment ideas while maintaining a patient and steadfast approach, adhering to the mantra of "be right and sit tight."

Energy and Copper Recommendations

Tenaz Energy Corp. ATUUF:

Tenaz is a favorite of mine. With a disciplined M&A strategy and a lean, experienced management team, Tenaz Energy is well-positioned to capitalize on the current market environment whereby larger energy companies are looking to rationalize their portfolios while finding credible, competent teams to which they can divest their non-core assets.

The company's low share count and sub-$100 million market cap provide ample room for growth as it executes on its business plan. Given the company's M&A focus, Tenaz's growth is inevitable. Meanwhile, Tenaz is among the cheapest energy stocks out there, trading at one of the lowest EV/CF (enterprise value divided by annual cash flow) multiples in the sector (around 1.5x, versus peers at 2.5-4x). I believe the company represents one of the best risk-reward situations that I've seen in my career. Management is first-class and I believe patience is the only requirement here as this proven team drives the company towards its production goal of 50,000-100,000 barrels of oil equivalent per day through targeted and thoughtful acquisitions. Patience is a rare commodity, but I believe that those who can employ it with respect to Tenaz will be well-rewarded in time.

TAG Oil Ltd. TAOIF:

Tag Oil's drilling campaign in Egypt, targeting the Abu Roash F formation, has generated significant interest among specialist investors, but drilling delays have meant that the stock is in a holding pattern as the market waits for test results from its first horizontal well. It's worth noting that the Abu Roash F formation is an oil source rock that is analogous to the prolific Eagle Ford play in the southern United States.

With the potential for 60-80+ locations in the company's Badr concession area, the company is poised for substantial growth in the coming years should its pending well test show commercial rates. Anything over 1,000 barrels of oil per day as an initial production rate should be viewed as a success. With flow test results expected in early April, Tag Oil represents a timely and interesting speculation

New Stratus Energy Inc. RDRIF:

Led by the charismatic (and well-connected) Jose Francisco Arata, New Stratus Energy is positioning itself as the next Latin American energy champion.

The company's current Venezuelan deal serves as a stepping stone for future expansion in the region, with plans to add projects in one or two additional jurisdictions. New Stratus is one to watch for those interested in the Latin American energy scene.

Condor Energies Inc. CNPRF:

Condor Energies offers investors a unique opportunity to gain exposure to the energy markets in Central Asia.

The company's recently awarded gas field management contract in Uzbekistan and its LNG initiatives in Kazakhstan showcase its expertise in navigating niche markets.

In Uzbekistan the company is in the process of optimizing/revitalizing eight existing gas-condensate fields. More details on the assets will follow late this summer, but my impression is that there is some very low-hanging fruit there. In Kazakhstan, the company is looking to capitalize on the arbitrage between diesel prices (high) and natural gas prices (low) in the country. With a natural gas supply contract recently granted to the company by the Kazakh government, Condor is expected to begin construction of modular LNG plants to serve local markets later this year.

Valeura Energy Inc. VLERF:

Trading at roughly 50% of its proven+probable net present value, Valeura Energy presents a compelling value proposition for investors.

The company's recent reserves report demonstrates the success of its field-life extension strategy, while its debt-free balance sheet and strong cash position (US$150 million) provide a solid foundation for future growth.

Hercules Silver BADEF:

Don't let the name confuse you. Backed by a substantial recent investment from Barrick (~$23 million late in 2023), Hercules Silver is an exciting emerging copper exploration story in Idaho. With a large copper-porphyry system recently identified underneath previously-known silver mineralization, the company is now focusing on drilling for grade and tonnage in the copper zone.

Positive drill results could quickly put Hercules Silver on the radar of investors seeking exposure to the copper market. The company is expected to start a substantial drill program this spring.

Critical Elements Corp. CRECF: Despite the frustrating delays in permitting and securing an off-take agreement, Critical Elements' lithium project remains promising on paper.

While the stock has been a disappointment thus far, the underlying economic fundamentals suggest that the company could still deliver value to patient investors.

Libero Copper and Gold Corp. LBCMD:

The involvement of high-profile resource investor Frank Giustra has recently brought Libero Copper into the spotlight.

With a massive porphyry deposit (>600 million tonnes) already identified at its Mocoa project in Colombia and the potential for further growth, Libero Copper could be a multi-bagger for investors willing to tolerate some political risk. The company is expected to restart drilling on the project in Q2 2024.

Sun Peak Metals Corp. SUNPF:

For investors with a higher risk tolerance, frontier markets can sometimes offer the potential for outsized returns. Sun Peak Metals, with its Shire project in Ethiopia, is one such opportunity.

The company's exploration targets bear a striking resemblance to the Bisha VMS deposit, which was successfully developed by Nevsun Resources and later sold to Zijin Mining for $1.86 billion. Drilling is expected to begin on Sun Peak's Shire project later this year.

Atex Resources Inc. ECRTF:

The company is exploring a large-scale copper porphyry project in Chile. Backed by Pierre Lassonde, Atex has already identified a significant resource and is now focusing on expanding the high-grade core of the deposit, with some key holes pending at the time of writing of this article.

If successful, Atex could quickly become a prime target for major copper producers and investors alike.

Gold Ideas

Since I think enough has been said on gold lately for those who have been paying attention, I won't take up too much time giving details. As a friend of mine likes to joke, "Just the tickers please…" Here is a list of some of the names that I own and/or follow in the sector, in no particular order, that I think are either cheap, or intriguing, or both.

1. Kinross Gold Corp. KGC
2. Falco Resources Ltd. FPRGF
3. OceanaGold Corp. OCANF
4. New Gold Inc. NGD
5. Aya Gold and Silver Inc. AYASF
6. Goliath Resources Ltd. GOTRF
7. Ascot Resources Ltd. AOTVF
8. Karora Resources KRRGF
9. Osisko Mining Inc. OBNNF
10. Rupert Resources Ltd. RUPRF
11. Red Pine Exploration Inc. RDEXF
12. Canadian Gold Corp. STRRF
13. Radius Gold Inc. RDUFF

One Uranium Recommendation

While I don't have a lot new to add when it comes to uranium, there is one stock that has caught my attention: CanAlaska Uranium Ltd. CVVUF

CanAlaska recently announced a remarkable drill hole intercept at its West McArthur joint venture project with Cameco, where CVV holds an 83.35% stake. The drill hole encountered an impressive 16.8 meters of mineralization grading 13.75% eU3O8, a result that firmly places CVV on the radar of junior uranium exploration companies with noteworthy discoveries.

Although the reported grades are based on gamma probe readings (hence the "e" prefix before U3O8), the company expects to receive chemical assay results within the next six to eight weeks.

In the interim, CVV is likely to conduct additional drilling around this high-grade intercept, so investors should keep a close eye on further developments. Such exceptional grades typically indicate a long-lived mineralizing system, which often suggests the potential for significant scale. This discovery has undoubtedly piqued the interest of the mining industry and investors alike.

Important Disclosures:

1. Tag Oil Ltd. is a billboard sponsor of Streetwise Reports and pays SWR a monthly sponsorship fee between US$4,000 and US$5,000.As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of New Stratus Energy Inc. and Libero Copper and Gold Corp.
2. Malcolm Shaw: I, or members of my immediate household or family, own securities of: All. I determined which companies would be included in this article based on my research and understanding of the sector.
3. 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.
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Disclosures for Hydra Capital

This is not investment advice, nor is it a recommendation to buy or sell shares in the company/companies mentioned.

The information contained herein is accurate to the best of the author's knowledge, but the material and interpretations contained herein should be independently verified by any party using this information as part of any research, editorial, or decision making process. Any views expressed here represent the author's opinion only, and as such readers should do their own research and come to their own conclusions if they are using the opinions contained herein as part of any larger due diligence process. The author may have long or short positions in the companies mentioned and may be buying or selling in the market depending on which way the wind is blowing at any given moment. Opinions are subject to change without notice. Prospective resources, predictions, comparisons, financial projections, and extrapolated metrics are, by their nature, subjective and interpretation dependent. The topics covered are highly speculative and involve a high degree of uncertainty and risk. Speculative companies can and do go to zero. By using this site, you agree that the author(s) and Hydra Capital is/are not responsible for any damages incurred by the use of the presented materials. Anyone reading these blog posts should know that they are the author's thoughts and opinions, which are not to be confused with or construed as research reports.