Golden Predator’s (GPD-T) decision in late January to transition to a royalty-only mining company and build on its existing base of 34 projects pushed the junior’s shares up 16.7% to 38.5¢ on 2.7 million shares traded.
The new company will be called Gold Bullion Royalty and will divest its Brewery Creek gold project and a number of other assets it holds in the Yukon into Golden Predator Canada Corp.
Management said that splitting the business units into separate entities will increase efficiency, visibility, analysis and recognition of asset values that would ultimately provide superior returns to shareholders.
Royalty companies certainly have done well in recent years. A Jan. 17 research report from CIBC’s institutional equity research team, estimated that last year precious metal royalties generated more than 40% higher returns than producers.
“Throughout 2012 the royalty companies shone by generating significant free cash flow, and using that cash flow to make opportunistic and highly accretive royalty acquisitions, including Franco-Nevada’s acquisition of the Cobre Panama stream, and Silver Wheaton’s acquisition of the Constancia stream,” analysts Cosmos Chiu, Barry Cooper and Kevin Chiew wrote, adding that they believe royalty companies will continue to do well this year.
“Early into 2013 we continue to see many producers struggle with managing operational expectations, rising operating costs and capital spending,” they continued. “Given the beneficial characteristics inherent in the precious metal royalty model (i.e. reduced exposure to operating risk and cost, exploration and expansion upside, etc.) we believe the royalties are set to shine once again in 2013.”
As a result the CIBC analysts have raised their 12-18 month price targets on Franco-Nevada (FNV-T, FNV-N) from $62 per share to $65; for Royal Gold (RGL-T, RGLD-Q) from $89 to $92; and for Silver Wheaton (SLW-T, SLW-N) from $45 to $48.
Golden Predator’s existing portfolio includes gross proceeds royalties on Midway Gold’s (MDW-V) Pan and Gold Rock deposits, a 4% gross proceeds royalty on the DTR property at Barrick Gold’s (ABX-T, ABX-N) Bald Mountain mine, and a 1% gross proceeds royalty on land held by Barrick in an area between and around the Bald Mountain and Alligator Ridge mines. The company also holds a 2% net smelter return royalty on Silver Predator’s (SPD-T) Taylor silver project.
Its royalty package on 34 projects spans 40 hectares in North America, primarily in Nevada but also in Wyoming, Oregon, California and Mexico. Most are under lease to a variety of companies including Evolving Gold (EVG-T, EVOGF-O), Orsa Ventures (ORN-V), and others. Its portfolio holds several deeded royalties covering projects of McEwen Mining (MUX-T, MUX-N), NV Gold (NVX-V), and Silver Scott Mines (SILS-O).
Last year the royalty package generated $799,762 in revenue.
The company noted that Gold Bullion Royalty’s portfolio “remains unique in the mineral development industry due to its ability to receive the majority of projected revenues in-kind (gold bullion as opposed to cash), adding that the core of the portfolio was acquired from the Lyle F. Campbell Trust.
It also pointed out that none of its principal royalty projects are subject to any reductions or buy-back provisions.
After the divestment, Golden Predator Canada will continue to advance the Brewery Creek project and other Yukon-based properties.
Brewery Creek, 55 km east of Dawson in the northwestern region of the Yukon has indicated resources of 20.4 million tonnes grading 0.89 gram gold per tonne for 581,000 oz. of contained gold and 13 million tonnes at 0.83 gram gold for 346,000 oz. gold in the inferred category.
The company says it expects to update that resource estimate in the first quarter of this year. It also anticipates starting construction of the infrastructure this year and believes the project could enter production in 2014.
Golden Predator acquired 100% of the project last year from Alexco Resource (AXR-T, AXU-X), subject to a 2% net smelter return royalty. Between 1996 and 2002 the property was operated as a heap-leach mine and produced about 280,000 oz. gold, from seven near-surface oxide deposits. It was shut down due to low gold prices.
Over the last year Golden Predator has traded in a range of 27¢ and 86¢ per share and has about 153 million shares outstanding.
After the transaction is closed, shareholders of Gold Bullion Royalty will hold the same percentage interest in Golden Predator Canada as they held in Gold Bullion Royalty Corp.
Golden Predator Canada plans to list its shares on the TSX Venture Exchange or the Toronto Stock Exchange.
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