Analysts' Ideas of the Week - Biden's Next Package Focused on Infrastructure to Boost Base Metals' Demand - Baystreet.ca
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Analysts' Ideas of the Week
Biden’s Next Package Focused on Infrastructure to Boost Base Metals’
Demand
January 18, 2021
www.researchfrc.com
Page 2
FRC Top Picks
The following table shows last week’s top five performers among our Top Picks,
including three electric vehicle metals juniors, one cannabis, and one betting/gaming
company. The top performer, Noram Ventures (TSXV: NRM), was up 66% WoW.
Our latest report on Noram (published on January 15, 2021) can be viewed here.
Top Five Performers Last Week
Source: FRC
Overall, our portfolio (equally weighted) was up 11.4% in the past month, inline
with the benchmark (TSXV). Our top picks were up 66.7% (on average) since initiation
of coverage vs the benchmark’s 2.5%.
Source: FRC
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Performance by Sector
Source: FRC
Our complete list of top picks (updated weekly) can be viewed here.
Weekly Mining Commentary
Global equity indices were relatively flat in the past week, after a strong rally in the prior
week. Four of the seven equity indices we track are trading well above pre-COVID
levels (blue bars).
Source: FRC / Various
Gold and silver prices declined again, amid a rebound in the US$ from higher treasury
yields. Among base metals, nickel prices were up 6% WoW on rising expected
demand for electric vehicle batteries, and a decline in inventory levels on the SHFE
(Shanghai).
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Valuations of both gold and base metals producers declined by approximately 4% WoW.
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Inventory levels of base metals were generally flat on the LME. As for the SHFE
(Shanghai), nickel and copper experienced significant declines, supporting prices
of both metals.
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The pace of vaccine rollout is gradually picking up. Approximately 40M people in
the world have been vaccinated to date (28M same time last week), including 12M in
the U.S. (9M last week). Currently, 3.2% of the U.S. population has received
vaccinations vs 2.5% at the same time last week. This compares to 1.5% for Canada
(up from 0.9%), and 6.0% in the U.K. (up from 3.9%). Israel leads the pack at 25% (up
from 21%).
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The U.S. is currently administering 0.8M doses per day vs 0.6M at the same time last
week. At this rate, we estimate it will take approximately six months to vaccine
25% of the U.S. population vs our last week’s estimate of eight months.
While the U.S., U.K., Russia, and India reported a decline in new cases, most of Europe,
Mexico, and South America reported record high numbers.
Source: https://www.worldometers.info/coronavirus/
Weaker than expected employment figures in December, and the surge in new
cases/deaths impacted consumer sentiment in the U.S. in January.
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U.S. Consumer Sentiment
Considering the six-month rollout of vaccines, and that restrictions remain tight in most
of the hard hit nations, we do not expect a recovery until H2-2020. Last week, Biden
rolled out a $1.9T rescue package aimed at helping individuals and businesses through
the pandemic. A number of Republicans have already opposed Biden’s plans; therefore,
it is early to say which of the proposed initiatives will be passed. Next month, Biden is
expected to announce a separate package focused on infrastructure, which we
believe will be positive for base metals.
We continue to believe there is a disconnect between investor sentiment/ valuations,
and the expected weakness in H1-2020. As a result of the continued strength in
demand for copper and nickel on the SHFE, and Biden’s next package focused on
infrastructure, we are raising our 2021 forecasts for copper (US$3 to US$3.15/lb)
and nickel (US$6.75 to US$7.25/lb), while maintaining all of our other forecasts.
In the following section, we review companies that announced key developments in the
past week.
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Mining / Exploration
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Barrick Gold NYSE: GOLD US$23.14 US$31.05 Jan 14, 2021
PR Content FRC Opinion
Barrick produced 4.8 Moz gold in 2020, Negative – 2020 production was 2% lower
which is at the midpoint of the 4.6 to 5.0 than our 4.9 Moz estimate. We are lowering
Moz guidance range. our 2020 EPS estimate from US$1.24 to
US$1.21, and our fair value estimate from
US$31.79 to US$31.05. The current
dividend yield is 1.0% p.a., compared to the
sector average of 1.4% (Source: FRC and
S&P Capital IQ).
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Gran Colombia TSX: GCM $7.70 $11.69 Jan 13, 2021
Gold Corp
PR Content FRC Opinion
Produced 57,265 oz of gold in Q4, Neutral - 2020 production of 220,194 was
bringing 2020 production to 220,194 oz, 0.1% higher than our 220 Koz estimate. Our
inline with management’s guidance of 2020 revenue estimate is $393M, with net
218,000-226,000 oz. Segovia produced income of $52M/EPS: $0.84 (unchanged).
196,362 and Marmato produced 23,832 The current dividend yield is 2.3% p.a.,
oz. compared to the sector average of 1.4%
(Source: FRC and S&P Capital IQ).
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Caldas Gold TSXV: CGC $2.31 $3.74 Jan 13, 2021
Corp
PR Content FRC Opinion
Produced 7,181 oz of gold in Q4, bringing Positive – 2020 production of 23,832 was
2020 production to 23,832 oz, inline with 1.3% higher than our 23.5 Koz estimate.
management’s guidance of 23,000- Our 2020 revenue estimate is $43M, with
26,000 oz. Year-end results are expected $3M in EBITDA (unchanged).
in March 2021.
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Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
FPX Nickel TSXV: FPX $0.76 $1.34 Jan 12, 2021
Corp.
PR Content FRC Opinion
Confirmed that its Baptiste project in B.C. Positive – This aspect significantly
has potential to produce refined nickel enhances Baptiste’s marketability as an
with a significantly lower carbon footprint acquisition target, especially considering
than most nickel producers in the world. that electric vehicle and battery
The company is currently testing for manufacturers are seeking long-term
potential sequestration of CO2 in the environmentally sustainable nickel
project’s tailings, which, if successful, will production. An updated PEA completed in
further lower the project’s carbon September 2020 had returned an After Tax
emissions. Baptiste’s low carbon footprint – Net Present Value (“AT-NPV”) at 8% of
is primarily due to a low strip ratio, and US$1.72 billion, and an After Tax – Internal
use of hydroelectricity. Also, its Rate of Return (“AT-IRR”) of 18.3%, based
concentrates can be sold directly to on US$7.75/lb nickel. Nickel spot price is
stainless steelmakers (due to high metal US$8.18/lb, and FPX’s market capitalization
content), without any need to go through is just $136M.
smelters.
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Rockcliff Metals TSX: RCLF $0.07 $0.32 Jan 14, 2021
Corporation
PR Content FRC Opinion
Commenced a resource expansion drill Neutral - A recently completed PEA on the
program on the Tower property. The 100% owned Tower and Rail projects in
focus will be on a highly prospective and central Manitoba had returned an AT-
untested geophysical anomaly named T3, NPV8% of $71M, using US$3.15/lb copper.
located approximately 1,200 m north of The NPV8% increases to $131M at spot
the project’s known deposit. prices. RCLF’s current market cap is just
$22M.
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Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Renforth CSE: RFR $0.055 $0.12 Jan 11, 2021
Resources Inc.
PR Content FRC Opinion
Released additional results of an ongoing Positive – The company has announced
(9,644 m/27 holes completed) resource results of five out of 27 holes. Grades of the
expansion/infill drill program on its Parbec new holes are in line with the project’s
gold project in Quebec. We believe key resource estimate, and we were pleased
results were – 13 m of 1.72 g/t Au and 3.6 that all the holes returned encouraging
m of 1.63 gpt. mineralization. The project has a resource
of 105 Koz (1.78 gpt) indicated, and 177
Koz (1.77 gpt) inferred. RFR is well funded,
and does not have to pursue any immediate
financings.
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Latin Metals TSXV: LMS $0.18 $0.43 Jan 13, 2021
Inc.
PR Content FRC Opinion
Rock sampling results from the 100% Positive – Lacsha is one the three newly
owned Lacsha copper property in Peru acquired projects in Peru. Management
confirmed the presence of copper intends to conduct additional sampling and
mineralization. From 17 samples, the mapping through Q1 to identify drill targets.
program returned values ranging from The company has not announced any
110 ppm to 6,410 ppm copper, and 1.5 - immediate plans for its primary assets in
86.8 ppm molybdenum. Historical Argentina, namely, the Esperanza copper-
sampling has delineated anomalous gold project in San Juan province, and the
copper over a large 5.0 km by 2.5 km Organullo gold project in Salta province. We
area. believe Latin’s primary focus for 2021 will be
on the newly acquired Peruvian projects.
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Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
New Age Metals TSXV: NAM $0.13 $0.27 Jan 11, 2021
PR Content FRC Opinion
Mapping and sampling on the Lithium Positive – We are pleased to see the
One project (Manitoba) returned assays company preparing to actively explore the
of up to 3.82% Li2O. Received a drill lithium assets. A PEA on River Valley
permit for the Lithium Two project in (flagship asset) had returned an AT-NPV at
December 2020, and awaiting a permit 5% of $139 million, based on US$1,200/oz
for Lithium One. palladium. Palladium is currently trading at
US$2,395/oz. NAM’s current enterprise
value of $12 million is only 9% of the AT-
NPV at US$1,200/oz palladium.
Special Situations and Technology
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Banxa Holdings TSXV: BNXA $2.28 N/A Jan 14, 2021
Inc.
PR Content FRC Opinion
Announced it processed a record A$2.9M Positive – We are pleased to see the
in orders in a single day vs A$5.2M for company benefitting from the recent surge
the entire month same time last year. The in cryptocurrency trading. In addition,
company also reported the addition of a adding another exchange to its portfolio
new client, Swyftx, an Australian increases its revenue generating potential.
cryptocurrency exchange. At a 2.5% commission, we estimate that
A$2.9M in orders can add A$72.5k/day in
revenue (A$18M annualized). We will
release our initiating report shortly with a fair
value estimate and 2021 projections.
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Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
Diginex Limited NASDAQ: US$18.00 US$24.70 Jan 11, 2021
EQOS
PR Content FRC Opinion
Entered into agreements to raise Positive – We believe the new product
US$38.6M (US$15 for a share and a offerings allow the company to expand and
warrant with an exercise price of diversify its revenue streams. As a result of
US$18.75) to fund the rollout of its this, and the growing appetite for
products. The company also recently cryptocurrency trading (primarily driven by
expanded its Bitcoin-related product the recent surge in Bitcoin prices), we are
offerings by adding futures contracts, and raising our 2021 revenue forecast from
crypto borrowing/lending facilities to allow $8.44M to $10.21M, and our 2022 forecast
margin trading. from $70.88M to $87.15M. We have also
raised our long-term forecasts. As a result
of these changes, we are raising our fair
value estimate to $24.70 (previously
$16.13). Shares are up 74% since we
initiated coverage in September 2020.
Cannabis
Company Ticker Current Share FRC Fair Value Date of PR:
Name: Symbol Price: Estimate:
AgraFlora CSE: AGRA $0.04 $0.08 Jan 13, 2021
Organics
International Inc.
PR Content FRC Opinion
Announced it expects to enter the edibles Positive – We are pleased to see the
market in Q1-2021, with a primary focus company move forward in line with our
on white labeling production of gummies expected timeline for edibles sales
for other companies. commencement. We are estimating 2021
revenues to be $15.98M, of which, 30% will
come from edibles sales (unchanged).
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Weekly Cannabis Commentary
Cannabis Industry Performance
January 15, 2020
Company YTD 1-Week 1-Year
Aphria Inc. 78% 46% 130%
Aurora Cannabis Inc. 42% 21% -53%
Canopy Growth Corp. 34% 12% 31%
Cronos Group Inc. 58% 23% 28%
Tilray Inc. 134% 78% -8%
HEXO Corp. 96% 52% -5%
Organigram Holdings Inc. 35% 6% -43%
The Supreme Cannabis Co., Inc. 27% 17% -63%
AVERAGE 63% 32% 2%
MIN 27% 6% -63%
MAX 134% 78% 130%
Indexes YTD 1-Week 1-Year
HMMJ 8% 18% 19%
MCAN 34% 13% 29%
XCAN 41% 16% 3%
Source: TMX Money, FRC
Over the past week, the Horizons Marijuana Life Sciences ETF (TSX: HMMJ / “HMMJ”),
the Standard & Poor’s/MX International Cannabis Index (“MCAN”), and the Standard &
Poor’s/TSX Cannabis Index (“XCAN”) generated returns of 18%, 13%, and 16%,
respectively. The market continues to trend upwards with growing optimism for federal
legalization of marijuana in the U.S., following the Democrat win in the Senate. Last
week, Aphria (TSX: APHA), reported a record $120M sales in its Q2-FY2021 (ended,
November 30, 2020), which reaffirmed the increasing sales trend of the Canadian
cannabis industry.
Valuation of Select Canadian LPs
The following chart shows the average Enterprise Value to Revenue (“EV/R”) ratio of
the Canadian cannabis companies we track.
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Average EV/R (October 2019 – January 2021)
January 8, 2021 January 15, 2021
Company Ticker TEV/Revenue TEV/EBITDA TEV/Revenue TEV/EBITDA
Aphria Inc. TSX: APHA 5.7 44.3 9.0 84.5
Aurora Cannabis Inc. TSX: ACB 8.8 NM 10.3 NM
Canopy Growth Corp. TSX: WEED 28.2 NM 31.4 NM
Cronos Group Inc. TSX: CRON 75.4 NM 99.1 NM
Tilray Inc. NASDAQ: TLRY 10.2 NM 16.3 NM
HEXO Corp. NYSE: HEXO 7.1 NM 11.1 NM
Organigram Holdings Inc. TSX: OGI 6.3 NM 6.4 NM
The Supreme Cannabis Co., Inc. TSX: FIRE 3.8 NM 4.1 NM
AVERAGE 18.2 NM 23.5 NM
MEDIAN 8.0 NM 10.7 NM
MINIMUM 3.8 NM 4.1 NM
MAXIMUM 75.4 NM 99.1 NM
Source: S&P Capital IQ, FRC
The average EV/R, as of January 15, 2021, was 23.5x – a WoW increase from 18.2x.
The average EV/R, from October 7, 2019 to January 15, 2021, was 12.2x.
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Canadian Retail Cannabis Pricing
Province (As of 2021/1/18) Average Price per Gram Average Price per Gram THC Average Price per Gram CBD # of Products Min. Price Max. Price
B.C. $ 10.10 $ 10.18 $ 8.42 285 $ 3.93 $ 80.29
Ontario $ 9.67 $ 9.87 $ 8.08 317 $ 4.00 $ 23.98
Quebec $ 9.27 $ 9.24 $ 9.55 221 $ 4.85 $ 15.06
Alberta $ 11.42 $ 11.42 $ 11.39 333 $ 3.93 $ 22.00
N.B. $ 9.98 $ 10.25 $ 7.58 162 $ 3.57 $ 16.28
P.E.I. $ 9.80 $ 9.82 $ 9.49 163 $ 2.20 $ 23.30
Newfoundland $ 10.12 $ 10.08 $ 10.36 155 $ 4.46 $ 15.40
Yukon $ 14.98 $ 15.07 $ 13.95 12 $ 10.49 $ 16.15
N.S. $ 10.39 $ 10.44 $ 9.82 177 $ 5.36 $ 42.85
Nunavut $ 11.73 $ 11.85 $ 12.41 33 $ 5.19 $ 17.91
Northwest Territories $ 11.54 $ 11.54 2 $ 12.08 $ 17.28
Manitoba $ 11.49 $ 11.46 $ 11.62 323 $ 4.90 $ 20.43
Saskatchewan $ 12.70 $ 12.74 $ 12.08 181 4.95 38.50
CANADA $ 11.01 $ 11.07 $ 10.40
Province (As of 2021/1/11) Average Price per Gram Average Price per Gram THC Average Price per Gram CBD # of Products Min. Price Max. Price
B.C. $ 10.08 $ 10.17 $ 8.42 282 $ 3.93 $ 80.29
Ontario $ 9.67 $ 9.88 $ 8.08 314 $ 4.00 $ 23.98
Quebec $ 9.27 $ 9.24 $ 9.55 221 $ 4.85 $ 15.06
Alberta $ 11.41 $ 11.40 $ 11.39 331 $ 3.93 $ 22.00
N.B. $ 9.97 $ 10.25 $ 7.58 161 $ 3.57 $ 16.28
P.E.I. $ 9.81 $ 9.83 $ 9.49 162 $ 2.20 $ 23.30
Newfoundland $ 10.12 $ 10.08 $ 10.36 155 $ 4.46 $ 15.40
Yukon $ 14.98 $ 15.07 $ 13.95 12 $ 10.49 $ 16.15
N.S. $ 10.39 $ 10.44 $ 9.82 177 $ 5.36 $ 42.85
Nunavut $ 11.69 $ 11.80 $ 12.41 34 $ 5.19 $ 17.91
Northwest Territories $ 11.54 $ 11.54 3 $ 12.08 $ 13.00
Manitoba $ 11.49 $ 11.46 $ 11.62 323 $ 4.90 $ 20.43
Saskatchewan $ 12.70 $ 12.74 $ 12.08 181 4.95 38.50
CANADA $ 11.01 $ 11.07 $ 10.40
Source: Online Provincial Cannabis Stores, FRC
The average retail price per gram remained the same week-over-week at $11.01.
The below chart shows Canadian retail dried cannabis flower pricing since we initiated
price coverage.
Canadian Retail Dried Cannabis Flower Pricing
Source: Online Provincial Cannabis Stores, FRC
Canadian Retail Cannabis Stores
As of January 18, 2021, there are 1,454 retail cannabis stores, a week-over-week
increase of 20 stores across Canada, of which, Ontario had 18, and Alberta had two. As
we noted before, we expect Ontario’s store growth to significantly outpace other
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provinces as a result of the recent mandate of the Alcohol and Gaming Commission of
Ontario (AGCO) to increase retail store authorizations.
Nationwide Store Count
Jan-4-2021 Jan-11-2021 Jan-18-2021
Geographic Region Store Count Store Count Store Count Population Population / Store
Alberta 547 551 553 4,428,247 8,008
B.C. 303 304 304 5,120,184 16,843
Manitoba 38 56 56 1,379,121 24,627
N.B. 20 20 20 780,890 39,045
N.S. 20 21 21 978,274 46,584
Newfoundland 27 30 30 520,437 17,348
Northwest Territories 5 5 5 44,982 8,996
Nunavut n/a na na 39,486 N/A
Ontario 322 336 354 14,745,040 41,653
P.E.I. 4 4 4 158,717 39,679
Quebec 46 57 57 8,552,362 150,041
Saskatchewan 50 45 45 1,181,987 26,266
Yukon 5 5 5 41,293 8,259
CANADA 1,387 1,434 1,454 37,971,020 26,115
Source: Provincial Websites, FRC
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