Terra 2019 FTLP Update

We are pleased to provide this interim update for the Terra 2019 Short-Term Flow-Through Limited Partnership
(“2019 LP”). 

With the arrival of the COVID-19 pandemic, stock markets have reacted sharply with many stocks down at least 30 percent. Resource sectors have also been hard hit with the TSX energy and mining indices down 64% an 38% respectively year to date as investors worry that lower economic growth will cause less demand for various commodities. 

Gold: Where you want to be

Although gold stocks have also been a casualty of a liquidity crisis and the forced margin call selling for stocks and corporate credit during this market decline, we remain optimistic about precious metal stocks. Gold is unlike other resource commodities, because its demand typically increases in times of growing uncertainty. 

Canadian mining explorers have some of the world’s most attractive gold deposits that can be purchased at low valuations to proven reserves and resources in the ground. Junior gold mining companies will be the beneficiaries of under-investment in exploration and development over the last decade by the senior producers.  

Although we expect gold juniors to perform well, there will be an initial decline as the indiscriminate selling puts downward pressure on all stocks, including those active in the gold sector. At the outset of any correction, the initial decline is least for gold bullion, then large capitalized gold firms and royalty companies. Gold juniors will on average decline more in the early stages of a stock market correction as they are more speculative in nature than either gold bullion or larger gold firms. However, if the price for gold bullion continues to rise, which we believe is likely to happen as more investors seek the safe haven of gold bullion, the corresponding valuations for gold mining firms, including junior gold mining firms should rise. 

In fact, we expect gold juniors will outperform both gold bullion and large gold firms. Higher gold prices will give major gold producers larger cashflows and a new ability to invest in junior explorers to replenish their reserves. 

Terra 2019 LP: Overview

For the reasons outlined above, we believe the 2019 LP is well positioned for a rebound as 61% of the portfolio is invested in junior gold mining firms (see tables below). 

The investments held in the 2019 LP are typically delineation plays and potential takeout targets with impactful drill results expected for 2020. Approximately 24% of the LP is also invested in the Diamond, Uranium, Copper and Zinc sectors. The remainder of investments are in Nickel, Cobalt, Lithium, Rare Earth and Palladium focused firms. The LP has a 0% weighting in Canadian oil and gas.

Terra 2019 LP: Highlights

The 2019 LP owns a portfolio of attractive gold juniors, of which two are highlighted below:

Wallbridge Mining (“Wallbridge”): Wallbridge is working towards defining a gold resource at Fenelon in Quebec. It is offsetting the Detour Gold trend which was recently acquired by Kirkland Lake Gold. A robust 2020 exploration program is underway with 100,000 – 120,000 meters to be drilled to delineate the asset. With the pending acquisition of Balmoral Resources, Wallbridge has a significant presence with a long-term goal of +100,000-ounce annual gold production. If drilling continues to be successful Kirkland Lake Gold would be the natural acquirer (currently owns 8% of the company). The company is well capitalized to fund its capital program through 2020. Eric Sprott is also a large shareholder and has continued to add to his position through 2019. Wallbridge currently is 20.6% of the 2019 LP.

Osisko Mining (“Osisko”): Osisko is drilling the world-class Windfall gold project located in Quebec and is undertaking 250,000 meters of drilling in 2020 to further refine the infill, expansion and regional targets. The 2020 drilling has already increased the resource size (indicated/inferred) by over 60% from 2019. Osisko is well financed with over $250 million in fully diluted cash and equities. An updated resource and feasibility study is scheduled for Q4/20 – Q1/21. Osisko currently represents 11.5% of the 2019 LP.

In summary, we believe the likely upward repricing of gold in the near future has tilted the short and medium risk-reward profile back in favour of junior gold investments, which should bode well for the 2019 LP.