On June 11th, Metalla (MTA.C) announced that it is acquiring a portfolio of three (3) royalties and one (1) stream from Coeur Mining (CDE.NYSE).
In its news release, Metalla described the USD $13 million deal as a “Transformational Agreement”.
Streaming companies exist because bankers don’t know how to read drill logs. They give cash to miners, usually to finance exploration or mine construction, in exchange for a share of the mine’s future production. They are 3-headed beasts: geology, metallurgy, accountancy.
Coeur Mining (CDE.NYSE) has a market cap of $1.7 billion. It operates five precious metals mines in the Americas (Mexico, Nevada, Alaska, South Dakota and Bolivia). The company also has a non-operating interest in the Endeavor mine in Australia.
Metalla is a relative minnow, with a modest market cap of $35 million.
Coeur Mining is taking control of 19.9% of Metalla’s stock through a Convertible Debenture. Coeur will be paid interest on the $13 million, while the investment converts into common shares of Metalla during future equity financings. This makes the financing less dilutive to Metalla’s existing shareholders if the MTA share price goes up.
Is this deal truly “transformative”?
The answer is “yes”.
It’s a blockbuster. It’s a slam dunk. It’s a craft beer spiked with Percocet.
5 distinct benefits Metalla gains from this deal:
- Immediate Significant Cash Flow: Two out of the four streams/royalties are currently in production with the third planned for development by a major silver producer.
- New High Profile Partners: Counterparties include CBH Resources, Pan American, Dynasty Metals and Regulus Resources Inc.
- Expanded Global Footprint: Exposure to high-grade assets in Australia, Argentina, Ecuador, and Chile.
- Big Horizon Cash Generator: Near term cash flow is complimented by long life development assets.
- Acquire Heavyweight Shareholder: Coeur Mining will become MTA’s largest shareholder.
Franco-Nevada (FNV.TSX), Silver Wheaton Corp. (SLW.TSX) and Royal Gold (RGLD.NASDAQ) are three big commodity streaming companies. They have an average market cap of $8.5 billion.
On June 12, 2017, we had a phone chat the President and Director of MTA, Brett Heath. As detailed above – the benefits to MTA in this deal are obvious (MTA’s share price rose 40% in the 48 hours following the news). But I was curious about Heath’s assessment of Coeur Mining’s objectives.
“Their end game is the same as ours,” stated Heath. “They see us as a take-over candidate, particularly in a rising metal price environment. When the issuers have access to equity, the bigger guys then look down to do accretive transactions. If that scenario doesn’t unfold, we are likely to start issuing a dividend.”
There’s more ..
The MTA/Coeur Mining transaction provides investors with these four gems:
- Endeavor Silver Stream – underground zinc, lead, and silver mine – is expected to generate cash flow of $3.3 million for the balance of 2017 and $5 million for 2018.
- The Joaquin Project – provides a 2% Net Smelter Royalty on this Argentine project which contains about 65.2 million oz silver and 61,100 ounces of gold.
- The Zaruma Gold Mine – in Ecuador provides a 1.5% Net Smelter Royalty on a project with a M&I resource of about one million ounces of gold.
- The Puchuldiza Project – provides a 1.5% Net Smelter Royalty on an asset in North Chile, with an estimated inferred resources of 686,000 ounces of gold. The Puchudiza royalty is capped at USD$5 million.
On April 28, 2017, Metalla announced that it has signed an agreement to acquire 15% of a privately held company, Silverback for US$1.86 million. They now own a piece of Tanzanian underground mine.
Other signed streaming deals include:
In 2016, Coeur Mining produced 36 million silver equivalent ounces, and had revenues of $723 million.
From Coeur’s perspective – these streaming/royalty deals are small items buried on big spreadsheets; for a $1.7 billion company – you get no shareholder-love from a 1.5% net smelter royalty on an asset in North Chile.
So we understand why Coeur might want to trim its balance sheet. But the way this deal is structured, it’s clear that Coeur sees MTA as a long-term growth story.
Interesting.
FULL DISCLOSURE: Metalla is an Equity Guru marketing client.