Quick thoughts on what I found interesting.
Tether
Disclosure: I cancelled my meetings with EMX and Elemental Altus after the merger announcement. None of this reflects any official company position.
Everyone has a take on the new entrant with the firehose of cash and an appetite for royalties, but nobody has any solid information. The impression of Tether is they’re inexperienced buyers at best. Talking to my crypto industry contacts I think the mining folks are missing context: Tether wants to move quickly to tokenize real world assets without taking on operational risk. There’s also a rush to deploy capital before margins come down in their USDT business and an overall operational philosophy that hard assets are underpriced in fiat terms.
Gold Royalty
The pro-forma market cap of GROY is closer to $1-billion USD after all the warrants are exercised and debentures are converted. That’s probably low if you’re valuing Gold Royalty on a private market value basis, or what Tether would have to pay to swallow the prize.
I don’t see these guys taking Elemental paper. If Tether wants the prize – and 30,000 gold equivalent ounces by 2030 is a prize – they’d have to come up with more than a $1-billion US in cash. Probably closer to $1.5-billion.
Tether made $13-billion USD last year.
The elephant in the room
I talked to the GROY team about their acquisition track record and having a stock that goes up specifically because they have sworn off M&A. I’m not the first person who’s asked about that and they were prepared. The answer is any future acquisition would be self-evidently accretive, therefore the market wouldn’t puke the stock. They also noted the ability to use debt financing going forward now that there’s cash flow and cash flow growth.
No way to know until an acquisition actually happens, but this tracks as Gold Royalty is now subject to the law of large numbers. It’ll take something big to move the needle going forward, assuming Tether doesn’t swallow them first.
Other notes: The royalty on Cote is front-loaded. Payments from the Cote will diminish over time as production moves away from their area of interest. At the same time production from Malartic is moving underground so that cash stream will increase. GROY is doing a small amount of prospect generation work in Nevada, continuing the business they picked up from ELY Gold Royalties back in 2021.
Sailfish
Kenorland’s Frotet royalty is a little too far from production, leaving Sailfish Royalty’s Spring Valley royalty as the last man standing. FISH has a sub $1-billion market cap with a cornerstone gold NSR available for purchase if Tether decides to pick up the phone. Mako Mining management confirmed they’d be interested in extinguishing the San Albino streams and royalties as part of any deal where Spring Valley gets sold.
Mako and Regulus Resources
These are very different companies. But in terms of differentiated thinking, creative tactics and value creation as the end goal, they’re the closest I’ve seen in this sector to running like private equity. Both would probably get more credit for what they do as private businesses or if they changed their name to Waterton.
Banyan
I couldn’t get a meeting. According to the organizers CEO Tara Christie was sold out for months with a long waitlist. If I want more shares I’ll have to pay up. Christie did a great job of laying out Banyan’s relative valuation and the accretive transactions with the receiver for those who haven’t been keeping up with the Victoria Gold CCAA process.
Hemlo
The Jason Kosec/Hemlo purchase has a lot of you Minera Alamos shareholders curious and confused, at best. Or you’re just spitting mad about where the priorities of MAI’s chairman lie going forward. The purchase price works out for everyone directly involved:
- Barrick got paid. That’s a great price for a non-core asset.
- Wheaton Precious Metals is going to get paid. They extracted a lot of value out of the Hemlo asset in exchange for non-dilutive capital.
- Hemlo Mining/Carcetti Capital which should get paid at spot gold. They seem to have executed the mining equivalent of a 1980s-style leveraged buyout. Someone has been reading Barbarians at the Gate.
I suspect the Wheaton deal could be renegotiated if that was the impediment to flipping Hemlo in future.
Particular congratulations are in order for those of you who got into that Carcetti private placement. Nicely done.
Be aware and beware
One speaker was touting his many winners, before mentioning that he owned more than 160 mining stocks. If I went to 160 strip clubs I’m sure I’d have at least one humblebrag about nailing a stripper, but what would it have cost me?
