Analysts' Ideas of the Week - Hawkish Fed and Omicron Vs Inflation www.researchfrc.com - Baystreet.ca
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Analysts' Ideas of the Week
Hawkish Fed and Omicron Vs Inflation
December 6, 2021
www.researchfrc.com
Page 2
FRC Top Picks
The following table shows last week’s top five performers among our Top Picks,
including four junior resource companies (two copper, one gold, and one lithium), and
one cannabis company. The top performer, Hot Chili Limited (ASX: HCH), was up
15.9%. We had initiated coverage last month. Our report can be viewed here.
Source: FRC
Companies in our Top Picks list were up 40.9% since we initiated coverage vs 0.8% for
the benchmark (TSXV).
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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 markets were down 0.3% last week (down 2.5% in the prior week) amid
uncertainties from the emergence of Omicron and the U.S. Fed’s hawkish remarks last
week.
Source: FRC / Various
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Although Omicron has now spread to 47 countries globally, preliminary indications
suggest that this highly mutated variant is less dangerous than Delta. South Africa
is experiencing a spike in daily new cases, but the number of daily deaths remain flat.
Last week, five countries (previously five) out of the 15 hardest hit nations experienced
higher daily new cases. However, only one country (unchanged) experienced a WoW
increase in deaths. Globally, 55.04% have received at least one dose, up 0.8 ppt WoW
vs 0.9 ppt the same time last week. 76.44% of Canadians are fully vaccinated (0.3 ppt
vs 0.4 ppt) vs 68.21% in the U.K. (0.3 ppt vs 0.2 ppt), and 59.47% in the U.S. (1.6 ppt vs
0.1 ppt). African nations are severely under-vaccinated primarily due to a lack of
vaccine supply; South Africa is at 24.90% (two doses), Nigeria (1.70%), Egypt
(14.88%), and Ethiopia (1.23%).
Source: Our World in Data / FRC
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Metal prices retreated as well even though inventory levels of base metals declined
both on the LME, and the SHFE (Shanghai).
Source: FRC / Various
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Valuations of gold producers were down 2% WoW; base metal producers were up
1%.
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Last week, both the U.S. and Canada reported positive jobs data. Unemployment levels
are reaching pre-pandemic levels. Typically, strong economic data are catalysts for
equity markets. However, in the current environment, strong economic data is
negative for equity markets as central banks will be prompted to raise rates
sooner.
U.S. Unemployment Canada Unemployment
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Weak manufacturing data from China has confirmed that the country’ economic growth
is slowing. In addition to Evergrande (HKG: 3333), another real estate developer is
currently facing a liquidity crisis. A ripple effect will severely impact China’s growth.
China Manufacturing Index
Source: Trading Economics
Bottomline, if Omicron is not as troublesome as the Delta variant, we believe rate hikes
will be quicker than our previous expectations, especially considering the strong jobs
data and the Fed’s statements last week. That said, real rates are negative in the
U.S. As the Fed is unlikely to make large rate changes, we believe real rates will be low
through 2022, as inflation is likely to persist due to increased money supply and the
temporary supply crisis.
We are maintaining our price forecasts, and expect gold/silver to outperform base
metals in the near-term. The recent fall in crypto prices will also prompt a segment of
investors to move back to gold/silver.
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Updates from Resource Companies Under Coverage
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
GCM Mining TSX: GCM $5.30 $9.17
(formerly Gran
Colombia Gold
Corp)
PR Title FRC Opinion
Announced updated resource estimate Positive – The updated PEA showed
and PEA for its Toroparu project in improvements in almost every key metric.
Guyana M&I resource increased from 7.4 Moz to 8.4
Moz; grades increased from 0.91 gpt to 1.4
gpt. Initial CAPEX relatively flat at US$355M
(fully funded). OPEX increased from
US$658 to US$742/oz (this was the only
negative metric). As a result of the above,
AT-NPV5% increased from US$760M to
US$794M, and AT-IRR increased from 28%
to 46%, based on US$1,500/oz gold.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Lumina Gold TSXV:LUM $0.59 $1.35
Corp
PR Title FRC Opinion
Announces signing of an exploration Positive – Reflects a strong vote of
investment protection agreement with the confidence and support from the
government of Ecuador government. The company is planning infill
and step-out drilling for a pre-feasibility
(expected in early 2023) study. We continue
to believe that Cangrejos is an excellent
acquisition target.
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Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Tartisan Nickel CSE: TN $0.34 $0.77
Corp.
PR Title FRC Opinion
Drills deepest hole to date at the Positive - These grades are significantly
Kenbridge nickel project and intersects higher than the average grade of 0.6% Ni in
3.18% Ni, 0.19% Cu over 1.05 metres the 2020 resource estimate. We believe the
current program has confirmed
mineralization at depth. A preliminary
economic assessment is expected shortly,
which we believe will be the next major
catalyst for TN’s shares.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
East Africa TSXV: EAM $0.19 $0.68
Metals Inc.
PR Title FRC Opinion
Provides Ethiopian update Negative – Exploration continues to be on
hold due to the political unrest in Ethiopia. In
addition, Ethiopia’s Ministry of Mines and
Petroleum (Ministry) has granted certain
exploration licenses held by EAM to a third
party. EAM will be taking legal action
against the Ministry. On a positive note,
these licenses are not related to any of
EAM’s existing mining licenses or priority
exploration targets. Therefore, we are not
making any changes to our fair value
estimate.
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Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Monarch Mining TSX: GBAR $0.71 $1.44
Corporation
PR Title FRC Opinion
Intersects 73.5 g/t Au over 1.35 m, Positive – Continues to return high-grade
expanding the McKenzie Break deposit to values; expanded mineralized area by 200
the southwest meters to the southwest, and 100 meters to
the east and northwest, implying resource
expansion potential.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
E3 Metals Corp TSXV: ETMC $2.21 $4.20
PR Title FRC Opinion
Lab pilot prototype initial tests deliver Positive – Highly encouraging results; tests
97% lithium recovery are expected to be completed this month,
with full results available in early 2022. The
company expects to build a pilot plant in
2022.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Gold Springs TSX: GRC $0.24 $0.30
Resource Corp
PR Title FRC Opinion
Discovers a new gold system on the new Positive – 1 gpt gold equivalent over a
“Tremor” target long interval of 163 m is highly encouraging,
especially considering that the results came
from a new discovery. Results of another 15
holes are pending. We believe the current
program has not only expanded ounces, but
also grades.
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Company Ticker Current Share FRC Fair Value Estimate:
Name: Symbol Price:
Hannan Metals TSXV: HAN $0.23 $0.57
Ltd.
PR Title FRC Opinion
1.0 metre at 2.1% copper, 29 g/t silver Positive – These are very high copper
within 8 km by 1 km area at San Martin grades for a copper-silver project. Although
project, Peru most of the project area remains largely
untested, there are similarities with Poland’s
large and high-grade Kupferschiefer copper-
silver mine.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Ion Energy Ltd. TSXV: ION $0.48 $0.91
PR Title FRC Opinion
Identifies new lithium discovery: White Positive – Encouraging results from two
Wolf prospect, with highly-encouraging holes: one returned up to 1,502 ppm and
results up to 1,502 ppm the other returned up to 860 ppm – we note
that grades of over 750 ppm are considered
attractive for brine lithium deposits. Results
of only 12.5% of drill holes received to date.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Kingman TSXV: KGS $0.05 $0.28
Minerals Ltd.
PR Title FRC Opinion
Private placement Neutral – Pursuing a $2.1M equity
financing; upon receipt of results of prior
drilling and completing this financing, the
company will resume its Phase II drill
program.
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Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Enertopia OTCQB: US$0.05 US$0.16
Corporation ENRT
PR Title FRC Opinion
Provides solar booster and rainmaker Neutral – Procurement issues have delayed
update testing programs. Management expects to
commence testing by the year-end. Note
that, for conservatism, our fair value
estimate does not include any value on the
company’s proprietary technologies.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Kootenay TSXV: KTN $0.19 $0.60
Silver Inc.
PR Title FRC Opinion
Drill results from Copalito silver-gold Positive – Results to date indicate potential
project - highlights include 276 gpt silver for a sizable resource. Drilling indicates
eq. over 23 meters and 642 gpt silver eq. potential for high grades in at least four
over 5 meters veins.
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Goldplay Mining TSXV: AUC $0.14 $0.38
PR Title FRC Opinion
Announces encouraging results of up to Positive – Sampling returned multiple high-
5.90 gpt gold and 155 gpt silver from the grade values. The project is close to
first exploration program completed on Pretium Resources’ (TSX: PVG) Brucejack
the Scottie West project mine. Although too early to comment on the
project’s prospects, we believe these high-
grade values, and close proximity to past
producing mines, warrant a detailed
exploration program.
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Financials, Technology, Energy, and Special Situations
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
TAAT Global CSE: TAAT $3.09 $5.92
Alternatives Inc.
PR Title FRC Opinion
Reports record domestic performance in Positive – We are expecting record
November 2021 with multiple pallets sold revenue in Q4. Our revenue estimate for
each week / Grows northeastern U.S. FY2021 (year end Oct 31) is $4.3M
footprint with 350 additional stores in (unchanged).
Virginia
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Trillion Energy CSE: TCF $0.20 $0.48
International
Inc.
PR Title FRC Opinion
Announces resource and reserve update Positive – Although reserves remain
unchanged YoY, their NPV10% increased
approximately 20% due to higher gas
prices. Q3 revenue was up 78% YoY due to
higher commodity prices and production.
We will be publishing an update shortly.
Weekly Cryptocurrency Commentary
Last week, we had warned of a potential correction in crypto prices due to weaker
crypto trading volume and uncertainties in the equity markets. Note that our studies
indicate a positive low-moderate correlation between Bitcoin and trading volume/the
S&P 500. The global MCAP of cryptos were down 9.9% WoW to US$2.4T. Global
crypto trading volume was up 24% WoW, but considering the S&P 500 could face
downward pressure due to uncertainties related to Omicron, we are expecting crypto
prices to remain flat this week,
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Source: Coinmarketcap
Performance of Select Cryptos
Prices of mainstream/popular cryptos were down 15% on average last week.
Source: FRC / Yahoo Finance
Companies operating in the crypto space are trading at an average EV/R of 12.9x
(previously 13.0x).
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Source: S&P Capital IQ/FRC
Source: S&P Capital IQ/FRC
Key sector development listed below (positive):
➢ El Salvador’s President announced over the weekend that his country has
“bought the dip.” Sources indicate that the country’s entry in Bitcoin was at
approximately US$48k.
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Weekly Cannabis Commentary
Cannabis Industry Performance
Source: FRC
Last week, both U.S. and Canadian cannabis stocks fell, although Canadian companies
had a steeper fall. Key sector developments below (all positive):
➢ According to BDSA, cannabis sales were up MoM in Arizona, California, Colorado,
Oregon, Illinois, Maryland, and Massachusetts. Nevada experienced a 0.9% decline,
as the state gets most of its cannabis sales from tourists. Tourism has not yet fully
recovered due to travel restrictions.
➢ Treasury Secretary, Janet Yellen, expressed her support for the SAFE Banking Act
last week. The banking act would allow state-legal marijuana companies to access
federal banking services.
Valuation
As of December 6, 2021, the Canadian big four LPs were trading at a 31% premium
(down from 45% in the previous week) over their U.S. peers.
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Source: S&P Capital IQ, FRC
Average EV/R
Source: S&P Capital IQ, FRC
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Canadian Retail Cannabis Pricing
Source: Online Provincial Cannabis Stores, FRC
The average retail price per gram fell $0.01, to $10.98, last week.
Canadian Retail Dried Cannabis Flower Pricing
Source: Online Provincial Cannabis Stores, FRC
Canadian Retail Cannabis Stores
As of December 6, 2021, there are 2,821 retail cannabis stores in Canada, a WoW
increase of 11 stores, including three in Alberta, four in Quebec, and four in B.C. For
two weeks in a row, store-count growth has been significantly below the historic
weekly average. If growth remains low for another few weeks, we can confirm that the
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sector is slowing down for real. Note that we believe there is room for 1,500+ stores in
the country.
Nationwide Store Count
Source: Provincial Websites, FRC
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Updates from Cannabis Companies Under Coverage
Company Ticker Current Share FRC Fair Value
Name: Symbol Price: Estimate:
Pure Extracts CSE: PULL $0.11 $0.90
Technologies
Corp.
PR Title FRC Opinion
Ships repeat order of one-gram vapes Positive – Pleased to see repeat orders for
products, a sign of brand awareness among
retailers and customers.
Weekly Psychedelic Commentary
Psychedelic Industry Performance
Source: TMX Money, FRC
Today, the Drug Enforcement Administration (DEA) and the National Institute on Drug
Abuse (NIDA) came out supporting a White House proposal to streamline the research
process of Schedule 1 drugs like psilocybin, MDMA, and other psychedelics. The
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agencies testified at a House Energy and Commerce subcommittee hearing saying “it is
critical that the scientific and medical community study Schedule 1 substances, as some
may turn out to have therapeutic value.”
Reddit Discussed Stocks
Our pick last week, Gores Guggenheim Inc. (NASDAQ: GGPI), dropped below our 10%
threshold on Tuesday. The Electric Vehicle sector remains the most actively discussed among
retail investors, followed by crypto, betting, and cannabis. This week, we are observing strong
retail sentiment around NVIDIA Corp. (NASDAQ: NVDA). We suggest exiting if the stock rises
or drops by at least 10%.
Key parameters used may include – a) total number of mentions, b) percentage change in the
number of mentions, c) stock sentiment, and d) market capitalization.
Historic Weekly Returns (Mar 1, 2021 – Present)
33 out of 40 picks have generated positive returns
Average return = 18.67%
➢ Mar 1 – Nov 22: Returns were calculated based on the assumption that picks were sold at
their peak the same week.
➢ Nov 29 – present: Returns were calculated based on the exit guidance provided by us prior
to each recommendation.
➢ Past performance is not indicative of future performance.
Source: FRC
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Disclaimers and Disclosure
The opinions expressed in this report are the true opinions of the analyst(s) about any companies and industries mentioned. Any
“forward looking statements” are our best estimates and opinions based upon information that is publicly available and that we
believe to be correct, but we have not independently verified with respect to truth or correctness. There is no guarantee that our
forecasts will materialize. Actual results will likely vary. Certain companies mentioned in pages 2, and 9-14, and 21 are covered by
FRC under an issuer paid model. FRC or companies with related management, and Analysts, may hold shares in some companies
mentioned in this report including Barrick, AUC, and TCF. Distribution procedure: our reports are distributed first to our web-based
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