The summer rally came to a screeching halt midway through the third quarter; ending at new 2022 lows for many global markets. The ongoing strength in the US dollar along with growth worries from rising interest rates brought the commodity rally to an end. Worries about slowing demand finally had an impact on oil prices. Despite fighting US dollar headwinds, gold was a relative bright spot.  In the third quarter, the portfolio was down -5.3% versus the S&PTSX Small Cap index -2.5%.

Below is a chart with equity returns for the major global indices. Of note is the relative outperformance of Canada versus other international markets this year.

Over the course of the quarter, the portfolio started adding to small cap technology stocks as investor sentiment approached maximum pessimism. Valuations across the sector are significantly cheap and although we believe commodity stocks will be the strongest performers over the next few years, technology stocks have become considerably oversold, and are likely to rally first. Below are the portfolio and index sector positions as of September 30, 2022:

The three positions having the largest negative contribution to the portfolio in the third quarter include Premier Nickel Resources, Osino Resources and Bonterra Resources. Collectively these three names cost the portfolio -2.2%.

Premier Nickel is a mineral exploration and development company focused on the discovery and advancement of high-quality nickel-copper-cobalt-platinum metals. The company has a variety of global projects, but the flagship project is a re-development project in Botswana. The focus will be to re-establish a quality resource and expand the size and scale using modern exploration techniques. This mine was a past producer and comes with permits and much of the mine development complete. The company completed a capital raise in April and only started trading well during the market correction. Not surprising, the stock sold off with the market and we will look to add to the portfolio’s position.

Osino Resources is making great strides in advancing its Twin Hills in Namibia. Since discovery in 2019, Osino management has advanced the project through resource definition drilling and their first PEA in Q2 2021. This management has had previous success advancing and selling assets in Namibia (selling Otjikoto Gold to B2Gold) and we continue to hold the position as we like both management and asset.

Bonterra Resources is a Canadian gold exploration company with a large portfolio of exploration and mining assets including Gladiator, Barry and Moroy and with a large asset exploration package in the Quebec Abitibi Greenstone Belt. The company also owns the Bachelor Mill, which is the only permitted gold mill in the region. Although we like the region and think the mill is an asset that others covet, we have been reducing the position in favour of other gold companies with more high-grade ounces.

The three top contributors over the quarter included Reunion Gold, Freegold Ventures and Lifespeak. Collectively these names contributed +1.5% to the portfolio’s performance.

Reunion Gold is a gold exploration company in the Guiana Shield with projects in Guyana, Suriname, and French Guiana. In 2021 the company made an exciting discovery at Oko West in Guyana where it has outlined over 2.5 km of strike length to a vertical depth of over 400 m. This discovery appears to be suitable for an open pit mine with a very strong grade profile. Reunion’s management team has deep roots in this area with a strong history of success. This discovery is one of the more significant gold discoveries in the portfolio. We have trimmed the position on strength but continue to hold a significant weight as the company continues to delineate this exciting deposit.

Freegold Ventures is focused on exploring for copper and gold in Alaska. At Golden Summit, Freegold’s primary asset near Fairbanks, the company continues their 2022 drill program. The program is a continuation from 2021, with the company looking for deeper, higher-grade mineralization that encompasses the down dip extension of the higher-grade vein zones from Cleary, Colorado, Wackwitz and Wyoming. An updated resource is expected in the next few months.  This company is putting together a significant resource in a stable jurisdiction, with road access and year-round exploration potential. We had reduced the position last year but maintain a position in the portfolio.

When M&A activity resumes in the gold sector, we believe Freegold and Reunion will be acquired for their large, long-life, low-cost resource base.

Lifespeak is a mental health and wellbeing platform that provides expert education and advice for the individual users. The learning platform is distributed through employers to their employees through their benefit programs. The system is scalable and addresses a need that many employers are trying to address. The stock had been under significant pressure with the loss of a significant contract.  The portfolio acquired the stock after a significant holder sold their position and knocked down the stock price substantially.

Continue to page 2 for our Outlook

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