Six Large Cap Commodity Based Companies in the News

by: Lorimer Wilson

Most people think of warrants as being associated primarily with micro/nano cap i.e. junior gold and silver mining companies, but that is not entirely the case. Of the 35 companies offering warrants of 24 or more months duration (of which there are 47 in total) 6 are large-cap commodity based companies (2 gold mining companies; 2 royalty companies; 1 oil and gas company; and 1 molybdenum miner).

Below is a description of each of these companies and the performance of their stock and associated warrants week-ending July 10th.

Silver Wheaton Corp. (SLW) is a silver focused royalty company with nine long-term purchase agreements with companies in Mexico, Sweden, Peru, Portugal, Greece, USA and Canada to purchase a fixed percentage of their silver production at contracted prices for the life of the mines involved.

  • Blackmont Capital analyst Richard Gray has called Silver Wheaton’s May 2009 $243-million acquisition of smaller rival Silverstone Resources Corp. a "very astute move" as it eliminates Silver Wheaton's primary competitor in the silver streaming business. It also gives the company three silver streams from low-cost copper mines and is accretive on a number of key metrics increasing Silver Wheaton's sales to 20 million for the year, growing to 27 million in 2010 and 32 million by 2012.
  • UBS Securities analyst Dan Rollins pointed out that with $400-million available under Silver Wheaton's revolving debt facility, the company has the financial capability to make more silver stream acquisitions within the next 12 months.
  • BMO Capital Markets analyst David Haughton maintains that while Silver Wheaton's main catalyst for growth is still Goldcorp Inc.'s (NYSE:GG) Penasquito mine the Silverstone acquisition appears accretive to "all" valuation metrics, and has the potential to provide additional royalty revenue in the future through expansions and development of new products.

Silver Wheaton stock was down 11.78% while its 50 month duration warrant (wt.U) was down 13.04%.

  • Franco-Nevada Corp. (FNNVF.PK) is a gold focused royalty company with additional interests in platinum group metals, oil and gas and other assets. The majority of the company’s revenue is derived from properties located in the USA, Canada and Australia.According to Canaccord Capital the closing of Franco-Nevada’s financing on June 16th that raised more than $370 million Canadian now gives F-NC total acquisition firepower exceeding $750 million Canadian. This money will be used in the near future to aggressively pursue additional growth opportunities by investing in gold royalties, buying existing royalties and creating new royalties, often by funding development companies.

Franco-Nevada stock was down 11.42% while its 96 month duration warrant (wt.A) was down 8.12% and its 32 month duration warrant (wt) was down 20.90%.

Kinross Gold Corp. (KGC) is a gold mining and processing company and, as a by-product, silver ore, and the exploration for, and the acquisition of, gold bearing properties in the Americas and the Russian Federation.

  • Toronto, Ontario, July 8, 2009 -- Unionized employees at Compañía Minera Mantos de Oro in Chile, a subsidiary of Kinross, have initiated strike action at the La Coipa mine following unsuccessful collective agreement negotiations. The strike affects production of approximately 300 gold equivalent ounces per day from the La Coipa operation.
  • In late June Kinross increased its investment in Underworld Resources Inc. ((TSX.V:UW)) pursuant to a private placement consisting of shares and warrants which, when exercised, will give Kinross a 11.1% interest in Underworld's outstanding common shares. The investment in Underworld is part of Kinross' strategy to maximize exposure to new prospects and experienced explorationists at a relatively small capital investment by partnering with promising junior companies on a select basis. Underworld is a junior exploration company focused on expanding its new gold discovery in Canada's Yukon Territory.
  • Gregory Beischer, President & CEO, announced on behalf of the Board of Directors of Millrock Resources Inc. ((TSX.V: MRO)) that the private placement with Kinross, consisting of common shares and warrants and amounting to CDN $350,000, has closed. Millrock Resources Inc. is intent upon the discovery of high value mineral deposits, with a focus on Alaska gold deposits and Arizona copper-gold porphyries. The Company follows a Project Generator - Joint Venture business model that shares risk by partnering with other companies that invest capital to move exploration projects toward development and production. Millrock currently has four active exploration projects in Alaska, and three in Arizona.
  • RBC Capital Markets’ updated “20 Best Ideas” portfolio for the 3rd Qtr. of 2009 has added KinrossGold anticipating that the gold price will rise as Indian demand rebounds in August through September and, as such, would buy shares on near-term weakness (i.e. like now) as a result.
  • Scotia Capital, on the other hand, has downgraded Kinross Gold Corp. to Sector Perform due to market price appreciation. Analyst David Christie said Monday that while gold and silver prices have not seen their annual summer pullback this year they will remain "stagnant" until August and then will move much higher during the seasonal rallies of August-September and November-February. He maintains that over the next month investors should move to overweight gold and silver equities in anticipation of higher commodity prices.
  • In mid-March Kinross made its first foray into the diamond mining business by completing a US$150-million deal to acquire a 22.5% stake in Harry Winston Diamond Corp.’s (HWD) 40% stake in their high-grade Diavik diamond mine in the Northwest Territories of Canada.

Kinross stock was down 5.74%. Its 50 month duration warrant (wt.C) was down 10.18%and its 26 month duration warrant (wt.B) was down 18.15%.

Agnico-Eagle Mines (AEM) is a gold mining company with operations in Canada (Quebec) and Finland; mine construction projects in Canada (Quebec and Nunavut) and Mexico; and exploration activities in Canada, Finland, Mexico and the USA.

  • North American Tungsten Corp Ltd ((TSX-V: NTC)) said July 8th that it has concluded an agreement to sell its remaining interest in the non-core Jennings property, formerly known as Tootsie River, to joint venture partner Agnico-Eagle Mines Ltd for C$1.0 million cash.
  • Sean Boyd, Vice Chairman and Chief Executive Officer recently advised The Financial Post that the company has executed a new non-amortizing US$600 million revolving credit facility, maturing June 2012, which in addition to its current non-amortizing US$300 million revolving credit line which matures in January 2013, now gives it a total US$900 million of credit lines. Boyd reported that the new facility would provide Agnico-Eagle with additional liquidity for internal expansion opportunities, as well as financial flexibility to deal with potential investment opportunities and other corporate priorities.
  • Canada’s ‘CFO of the Year Award’ for 2009 has been awarded by Financial Executives International Canada, PricewaterhouseCoopers LLP and The Caldwell Partners International to David Garofalo, Senior Vice President, Finance and Chief financial Officer of Agnico-Eagle Mines in recognition of his excellence in guiding his company through such difficult times.

Agnico-Eagle stock was down 8.17% while its 53 month duration warrant was down 9.30%.

Thompson Creek Metals (TC) is a pure molybdenum mining, milling, processing and marketing company with operations in Canada and the USA.

  • Kevin Loughrey, Chairman and Chief Executive Officer recently announced that, as a result of recent improvements in the molybdenum market, the company was making operational adjustments at its mines that will result in molybdenum production and sales in 2009 being approximately 10% higher than previously announced estimates i.e. 22 to 26 million pounds.
  • RBC Capital Markets’ updated “20 Best Ideas” portfolio for the 3rd Qtr. of 2009 has deleted Thompson Creek believing that base metal equities remain risky given the weak global economy. They also see no near-term positive catalysts for bulk commodity prices.

Thompson Creek stock was down 5.87%while its 27 month duration warrant was down 14.17%.

Pacific Rubiales Energy (PEGFF.PK) is engaged in the exploration, development and production of heavy crude oil and natural gas in Colombia (31 blocks) and Peru (3 blocks).

  • CEO Ronald Pantin reported recently in the Wall Street Journal that he expects output from the company’s existing fields in Colombia to rise to 75,000 barrels a day of oil equivalent by the end of 2010 (from its present day 35,000bpd) as a result of the July 8, 2009 completion of a pipeline to replace the current trucking of its crude to market. Pantin expressed further confidence in the company being able to boost production again in 2011 thanks to future findings. Pacific Rubiales also produces about 60 million cubic feet of natural gas a day which is sold domestically and is evaluating a project to export an additional 60 million cubic feet a day of compressed natural gas to Jamaica and the Dominican Republic who are currently generating electricity with fuel oil that is much more expensive. Pantin also mentioned that the company plans to list its shares on the Colombian stock market in August or September to make the company more Colombian, boost demand for its shares, and in the future raise cash from local investors even though current projections are for abundant cash flow.
  • RBC Capital Markets has added Pacific Rubiales to its updated “20 Best Ideas” portfolio for the 3rd Qtr. of 2009.

Pacific Rubiales’ stock was up 1.52%and its 36 month duration warrant was up 0.57%.

Disclosure: No holdings