Attractively valued metals stocks that may not be on your radar

What are we looking for?

In doing a search through the StockCalc database, I filtered the list of stocks that fall into the “Other” metals and minerals(including other precious metals) category, which are listed on the TSX. That query produced 61 stocks out of a list of just under 800 total. Let’s have a look at some of these stocks and see what we are getting for valuations:

The screen

We used StockCalc’s screener to select the top 10 listed “Other” metals and minerals stocks by market capitalization on the TSX. The “Other” category focuses on companies whose primary metals exposure isn’t copper, gold or silver – although they can still produce or be involved with some of those metals on a non-core basis. We then used StockCalc’s valuation models to calculate fundamental (or intrinsic) valuation for each stock to see if they are undervalued or overvalued compared with current price.

Overview of the techniques used:

• Discounted cash flow (DCF value) is a valuation technique in which cash-flow projections are discounted back to the present to calculate value per share;
• A price comparables (price comps) technique values the company on the basis of ratios from selected comparable companies;
• An adjusted book value (ABV) is calculated by multiplying book value per share by its 10-year average price-to-book ratio;
• If we have analyst coverage, we may include the consensus target price in our valuation.

More about StockCalc

StockCalc is a fundamental valuation platform with tools to calculate and report on value per share for thousands of public companies listed on major North American stock exchanges. StockCalc also contains numerous tools to understand what the stocks you are investing in are worth. Globe Unlimited subscribers can subscribe to StockCalc using the promo code Globe30, which offers a 30-day free trial and special pricing for the second month.

What we found

The“Other” metals and minerals group represents a diverse collection of companies involved in mineral exploration, mine development, production and supporting services. Market capitalizations in our list range from $50-million to $4-billion, reflecting substantial differences in company size, financial resources and stages of development. The group includes early-stage explorers, companies advancing projects toward production, established mining operators, royalty and streaming businesses, and specialized drilling contractors serving the mining industry.

These companies operate across Canada, the United States and international markets, including South America, Africa and Asia. Their exploration and development activities cover a broad range of minerals, including lithium, nickel, copper, cobalt, rare earth elements, platinum group metals and vanadium. Many of these minerals are essential to electric vehicles, battery storage, renewable energy, electrical infrastructure, aerospace and advanced manufacturing.

Let’s look at a few companies in this space:

Talon Metals Corp TLO-T is a base metals company in a joint venture with Rio Tinto on the high-grade Tamarack Nickel-Copper-Cobalt Project located in central Minnesota. Talon is focused on expanding and infilling its current high-grade nickel mineralization resource prepared in accordance with NI 43-101 to shape a mine plan for submission to Minnesota regulators. On Jan. 9, Talon completed its acquisition of the producing Eagle nickel-copper mine and Humboldt Mill in Michigan from Lundin Mining. The stock has risen substantially over the last 12 months and our models show it as overvalued at this point.

McEwen Mining Inc. MUX-T is a mining and minerals production and exploration company focused on precious and base minerals in Argentina, Mexico and the United States. It recently agreed to sell the Fuller and Paymaster properties and related surface rights for US$55-million and monetized a US$13.5-million McEwen Copper loan receivable for potential additional liquidity. The company has had production shortfalls at the Gold Bar mine and is working on financing requirements for its growth projects, specifically $4-billion for Los Azules. Our weighted model shows upside for this stock with analyst targets almost double current price.

We also have a few stocks that have experienced large price declines over the last 12 months but show upside in the modelling:

Lithium Americas’ stock has declined owing to shareholder dilution, weakening lithium prices, rising construction costs and the financing requirements of its Thacker Pass project in Nevada.

Largo Inc. recently did an equity financing, is discussing debt restructuring with its lenders, has limited cash reserves and operating losses and production costs have been difficult to control. On the positive side, the outlook for vanadium prices is cautiously positive over the next 12 to 24 months and the company is now producing copper, gold, platinum and palladium as byproducts of its operations. This is the highest risk/reward stock on the list.

You can see in the accompanying table the percentage difference between each stock’s recent closing price and its intrinsic value. The “StockCalc Valuation” column is a weighted calculation derived from the models and analyst target data if used.

Brian Donovan, CBV, is the president of StockCalc, a Canadian fintech based in Miramichi, N.B.