The first two companies are gold/precious metal stocks. Silvercrest is an exploration/development company with a high-grade silver mine in Mexico called Las Chispas. The company’s drill campaign this year has been very successful, leaving further opportunity next year to further expand current targets. The company reported a favourable PEA with a 78% IRR, resulting in a 9-month payback. Management continues to march the project forward. The Silvercrest holdings were reduced when the portfolio lowered its gold sector weight. The portfolio maintains a 1% position in the stock.

K92 is a gold producer operating the Kainantu Gold project located in Papua New Guinea (PNG). In August the PNG government put Barrick and Zijin on notice over the Porters gold mine negotiations, with the government wanting a larger stake. Other companies stock price with significant operations in PNG (aka Newcrest) were unaffected, however K92 sold off aggressively, despite having fully updated permits and recently undergone an expansion. Despite this recent selloff, K92 was up 19.7% in quarter and was one of the portfolio’s top performers. The company has commenced gold production from the Kora Gold Deposit with commercial production being declared. The drilling continues expanding the high-grade resource that is open in all directions with parallel structures (Judd Vein) being intersected. K92 is the portfolio’s largest position despite having sold some stock in the quarter on profit taking and the Barrick news.

Horizonte is a nickel developer with two assets both located in Brazil. They have been moving their Araguaia and Vermelho projects forward over the last few years in a challenging environment for base metal companies. The most interesting project is the Vermelho project; a large high-grade nickel resource, with a long mine life and low-cost source of sulphate for the battery industry. With a 38-year mine life, this project provides an after-tax IRR of 26% and a post tax NPV of U$1.7 billion. Horizonte has benefited from the initial short squeeze on the nickel price, with the price increasing to greater than U$8.00 per pound. We continue to believe that nickel (especially battery grade) will be in deficit over the next coming years and continue to hold the Horizonte position.
The three names that detracted the most from returns included Yangarra Resources Ltd, Baylin Technologies and Hudbay Resources. Overall these three names detracted -2.6% from overall returns.

Yangarra is a small cap energy name focused the Cardium region in central Alberta. We have owned the name over many years as we like the company’s assets and management team. Although small, this company has great flexibility to increase its production with a better priced oil deck. It has fantastic netbacks, a prudent balance sheet and one of the lowest G&A per barrel of production in the sector. The stock has suffered due to the correction in the sector. The portfolio holds a 2% position in Yangarra.

Hudbay is a diversified metals company with operating assets and projects in Canada, the USA and Peru. The company has had delays regarding their Rosemont property in Arizona. The stock has sold off due to these delays as well as the pressure on the zinc and copper prices. The portfolio had reduced its position at the announcement of delays. We currently hold a 1% position in the portfolio and expect the stock price to recover with higher copper prices.

Baylin is a radio / frequency antenna company focussed on the 5G wireless rollout. The company has had to revise its revenue guidance for the next quarter which caused the stock to drop in sympathy. We believe the company is well positioned to service the 5G market as it begins to roll out. The management is focused on profitable growth and in keeping up with the 5G demands for ever evolving products. The company has been very competent in managing through this short term slow down in capex spending from their clients. Jeffrey Royer is a significant holder of Baylin and has continued to support the company via stock purchases. We have added to the position recently on the weakness.

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