The combined company will provide exposure to both
near- and longer-term projects.
Terraco
Gold Corp. (TEN:TSX.V; TCEGF:OTCPK), which holds a royalty on the Spring
Valley gold project in Nevada, is being acquired by Sailfish Royalty. The
combined company will hold a geographically diverse set of royalties,
including projects in Nevada, Mexico, Brazil and Nicaragua.
According to the terms of the deal, Terraco shareholders will receive 0.12
of a common share of Sailfish for each Terraco share. The arrangement
represents a premium of approximately 53% over the trailing 20-day volume
weighted average price of the Terraco shares as at June 19, the day before
the announcement. The deal, which has the unanimous recommendation of the
boards of both companies, is expected to close in mid-August.
"To join together with Sailfish is a great opportunity for us,"
Terraco CEO Todd Hilditch told Streetwise Reports. "We have a royalty
portfolio on the Spring Valley gold project, that has size, scale and will be
long-life depending on the production profile and the operator. Having a
near-term production story made sense to us. With a combined Sailfish and
Terraco we see….one plus one equaling three with a current cash flowing
royalty, a stream/royalty in the shorter term (within 12 months), and then
longer-term growth with our royalties as well as acquisition opportunities."
In addition, funds managed by Wexford Capital LP, collectively the largest
shareholder of Sailfish with a 76% ownership stake, have completed a private
placement into Terraco at C$0.13 per share, for gross proceeds of C$4.7
million. The placement gives Wexford a 19.9% ownership of Terraco on a
non-diluted basis, the company reported. This arrangement is not contingent
upon the closing of the Sailfish acquisition.
The Spring Valley property is controlled by the private equity group
Waterton Global Resource Management, which acquired it from the Barrick
Gold-Midway Gold joint venture at the end of 2015 after Midway declared
bankruptcy (due to a different production project). Last fall, Waterton was
seen drilling as many as 30 holes at Spring Valley, where
Terraco holds up to a 3% net smelter return (NSR) royalty. As a private
entity, Waterton has no obligation to make public its plans or drill results.
The Spring Valley project is highly regarded. James Kwantes wrote in Resource
Opportunities on June 23, "Spring Valley is one of the—if not
THE—largest undeveloped gold deposit in Nevada, making it an attractive prize
for any major. It's also outside the Barrick-Newmont Nevada JV
boundary."
Akiba Leisman, CEO of Sailfish, told Streetwise Reports, "The
consummation of the Barrick-Newmont joint venture staked most of the
prospective part of the state of Nevada. This makes projects outside of the
joint venture boundaries more valuable. The Spring Valley royalty was always
on our radar, and it has been since Terraco acquired the royalty, which
increased our eagerness to get involved in this jurisdiction."
"Multimillion ounce deposits in Nevada are rare," Leisman
stated. "Spring Valley is one of the most attractive projects that is
outside of the joint venture between Barrick and Newmont. So not only do you
have a sizeable world-scale asset in the best mining jurisdiction, but it's
in a place within the state where any global senior mining company could take
a serious look at it. To have a project that is of strategic merit and to
have a royalty on a project like that is taking the cream of the crop off a
very attractive asset."
Sailfish's diverse portfolio of royalties includes:
- a 1.5% NSR on El Compas, a producing silver and gold
mine in Zacatecas, Mexico, operated by Endeavour Silver Corp.
- a stream equivalent to a 3% NSR on the advanced San
Albino project in Nicaragua that is operated by Mako Mining Inc., as
well as a 2% NSR on a district-scale land package on the site that is
currently undergoing exploration drilling
- a 1% NSR on La Cigarra, an early state exploration
project operated by Kootenay Silver Inc. in Chihuahua, Mexico
- a 3.5% NSR on Tocantinzinho in Para State, Brazil, which
is in an advanced development stage.
Akiba Leisman, in addition to being the CEO of Sailfish, manages the
precious metals portfolio for Wexford Capital, a $3 billion private equity
fund that has previously started a multibillion dollar royalty company. The
firm created an E&P company in the oil and gas sector called Diamondback
Energy in the late-2000s. It is now a $20 billion market-cap company and
S&P 500 member. Through Diamondback, Wexford started a royalty company
called Viper Energy Partners, which went public in 2013. Through acquisitions
and organic growth, it's now a $4 billion company that generates over $250
million per year in royalty cash flows.
"We aim to do with Sailfish what we did at Viper, but in the gold
space," Leisman stated.
Industry observer James Kwantes sees the Terraco acquisition as being a
positive for Terraco shareholders, writing, "Under the deal, Terraco
shareholders will have that Spring Valley risk diversified by becoming part
of a larger gold royalty company that has a better chance of being rerated.
When Waterton sells the deposit to a major and it goes into production,
Spring Valley should be a powerful cash flow generator. 90% of that cash will
flow to Sailfish shareholders, assuming Sailfish still owns the Spring Valley
royalties."
Disclosure:
1) Patrice Fusillo compiled this article for Streetwise Reports LLC and
provides services to Streetwise reports as an employee. She or members of her
household own securities of the following companies mentioned in the article:
None. She or members of her household are paid by the following companies
mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors
of Streetwise Reports: Terraco Gold. Click here
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5) From time to time, Streetwise Reports LLC and its directors, officers,
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Additional disclosures
Resource Opportunities editor and publisher James Kwantes owns shares of
Terraco Gold.
