September 13th, 2023 | 09:55 CEST
Cannabis stocks on a high - Aurora Cannabis, Viva Gold, Canopy Growth
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"[...] Both the geology and the infrastructure around the project make for a very attractive cost structure. We expect to be able to produce at 50% of the current gold price. [...]" Bill Guy, Chairman, Theta Gold Mines Limited
Relaxation of drug policy as a catalyst
The starting signal for a fierce upward impulse was already provided last week by the US Department of Health and Human Services HHS. In an official application to the Drug Enforcement Administration (DEA), a reclassification of cannabis is proposed. The agency is to move cannabis from the Schedule 1 category, where it is currently listed alongside substances such as heroin, LSD and ecstasy, to the Schedule 3 category. The latter category includes substances such as ketamine, anabolic steroids, and codeine-based products that are considered to have moderate to low dependence potential. The current classification of cannabis implies that there are no accepted medical uses and a high risk for abuse.
Despite the legalization of cannabis for recreational use in many US states, the current classification has inhibited the growth of the cannabis industry. As the agency responsible for regulating controlled substances, the DEA has the authority to reclassify cannabis. A DEA spokesperson confirmed to CNBC that a substance review is being considered. Due to the lack of federal regulations, cannabis businesses do not have access to conventional banking services or institutional financing in states where sales are legal. The Secure and Fair Enforcement Banking Act, a Congressional bill, aims to remove these restrictions. Although it has passed the House of Representatives several times, it has not yet passed the Senate.
Aurora Cannabis steps up
Exorbitant losses on the balance sheets of cannabis companies have been one of the main reasons for the bear market that has lasted since the beginning of the decade. In terms of profitability, Aurora Cannabis, which serves both the consumer and medical markets, was able to report positive news. The Company, based in Edmonton, Alberta, announced it had completed the repurchase of USD 9.0 million of convertible senior notes. These transactions were funded by the issuance of a total of 20.1 million common shares of Aurora.
Upon completion of these transactions, Aurora has approximately USD 39 million worth of debt remaining. The primary objective of these repurchases was to reduce the Company's overall debt and lower annual cash interest costs. This is another step in Aurora's efforts to achieve positive free cash flow by calendar year 2024. These recent transactions will reduce the Company's annual interest payments by USD 0.66 million.
Since December 2021, Aurora has repurchased approximately USD 306 million par value of debt securities, resulting in total cash interest savings of about USD 23.9 million. Commenting on the recent developments, Miguel Martin, CEO of Aurora, said: "As of today, Aurora has reduced its convertible debt from USD 345 million to under USD 39 million. With one of the strongest balance sheets in the Canadian LPs, as evidenced by our net cash position and continued commitment to prudent financial management, we are confident that we will achieve our goal of positive free cash flow by calendar year 2024."
Following the release of the announcement, Aurora shares shot up more than 72% to USD 0.91, while Canopy Groth surged some 81% to USD 1.69.
Viva Gold - Insider tip in the gold sector
Similar to cannabis stocks, smaller and medium-sized gold mining stocks corrected disproportionately in the recent correction that has been ongoing since August 2020. For example, the exploration company Viva Gold lost over 70% to CAD 0.13. However, the mining company based in Langley, British Columbia, has already left the lows clearly behind since September of last year. The downward trend established since August 2020 currently runs at CAD 0.17. A successful breakthrough would generate short-term potential up to the area of CAD 0.25. The share, which has a market capitalization of CAD 17 million, could receive a tailwind from a rising strike price. Thus, the gold price continues to hover in the range of USD 1,900 per ounce. The general conditions with an uncertain geopolitical situation and an end of the strict monetary policy are at least for once good for rising precious metal prices.
Viva Gold operates the 100% owned Tonopah Gold project. The 4,250-hectare project is located in Nevada's Walker Lane Trend, an area known for its rich mineral deposits. Within 30 km of Tonopah, Kinross operates the Round Mountain mine, which reported production of 258,000 ounces of gold in 2021. There are also active mines in the immediate area from companies such as Coeur Mining, Augusta and Centerra.
The Tonopah project has an indicated gold resource of 394,000 ounces at a concentration of 0.78 g/t and an inferred resource of 206,000 ounces at 0.87 g/t. Since its acquisition in 2017, Viva Gold has reported an increase in mineral resources every year. A preliminary economic assessment (PEA) of the project, designed as an open pit heap leach mine, showed positive economic indicators in 2022. A revised NI 43-101 resource estimate and preliminary economic assessment have been commissioned. Recent drilling returned mineralization of 1.9 g/t gold over a length of 59 m.
After a year-long bear market, cannabis stocks such as Canopy Growth and Aurora are sending positive signals that could lead to a sustainable bottom. Viva Gold could successfully continue its drilling program. In the process, the stock is about to overcome its downward trend.
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