Royal Makes High-Return Acquisition
Contributed Opinion

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Franco-Nevada Corp., Altius Minerals Corp., Orogen Royalties Inc., Pan American Silver Corp., Metalla Royalty & Streaming, Midland Exploration Inc., Lara Exploration Ltd., and Fox Riv Res Corp. 
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Royal Gold Inc. (RGLD:NASDAQ) acquired a $200 million royalty and stream on Solaris' Warintza copper-gold-moly project in Ecuador. The base case return is competitive, with an IRR estimated by analysts at between 8% and 12%, offsetting the early stage status and geopolitical risk. There are also some unusual features, providing some protection to Royal.

First, the stream (which is only on the gold) can be cancelled with full repayment by Solaris in the event of a change of control, or by Royal if the mine is not operational by 2033. In either circumstance, however, the royalty, which is on all metals, would be maintained. In addition, the royalty starts at 0.03% and increases over time until the first delivery.

Many royalty and streaming companies are adding bells and whistles to their contracts to satisfy both parties. For example, a stream on an asset can make the sale of the asset more difficult, and this is an elegant solution, which would satisfy a potential buyer but provide Royal with a no-cost royalty (essentially, for a loan).

Ecuador, for many years, had an anti-mining reputation, but the successful operation of Lundin Gold's huge Fruta del Norte mine, and recently, the acquisition last month of Lumina's Cangrejos project by a Chinese company, have helped assuage that reputation. We like Royal for its increasingly diversified asset base, its leverage, and strong balance sheet.

We are holding after the recent stock appreciation.

Another Step for Franco's Cobre Panama

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) received potentially positive news with regard to the future re-opening of the Cobre Panama mine, on which it holds a stream, as the government has cracked down on the militant union (Suntracs) that played a key role in the demonstrations leading to the closure of the mine.

The union's legal status has been cancelled, and arrest warrants have been issued for its leaders. These actions are not related to the protests over the mine, but removing this organization fighting the mine is a positive. Local indications are that support for the mine has been growing, as the impact on the economy becomes apparent.

New President Jose Mulino has said he wants to see the mine reopen, but the precise path forward is not clear. Neither is the timeline. A partnership between mine owners First Quantum Minerals Ltd. (FM:TSX; FQM:LSE) and the government is being raised as a possible solution to the dispute.

Clearly, reopening the mine and the resumption of Franco's stream would be highly beneficial to the company and are only partly reflected in the stock price. The Cobre Panama stream accounted for 15% of Franco's NAV and 19% of its revenue in the last year before its closure at the end of 2023.

We are holding Franco as a core position, though it can be purchased if you do not already own.

ERRATUM The look-through value of Altius Minerals Corp.'s (ALS:TSX) 1.5% royalty on the Expanded Silicon Project, based on the sale of Orogen Royalties Inc.'s (OGN:TSXV; OGNRF:OTCQX) 1% royalty, would be $500 million (and not the $500,000 figure inadvertently given in our last Bulletin, #962). Thanks to eagle-eyed Eric L. Both Altius and Orogen can still be bought for modest but low-risk and near-term upside.

Separately, AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE), owner of the deposit, has renamed it the Arthur Gold Project.

TOP BUYS this week, in addition to those above, include Kingsmen Creatives Ltd. (KMEN:SI), Ares Capital Corp. (ARCC:NASDAQ), Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ), Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American), Midland Exploration Inc. (MD:TSX.V), Lara Exploration Ltd. (LRA:TSX.V), and Fox River Resources Corp. (FOX:CSE).