Outright takeovers get the glory, but good speculations are possible in juniors that retain some stake after selling a project to a major mining company. And I'm not talking about prospect generators, either.
Coral Gold (TSX.V:CLH) has been active in Nevada for over 30 years, developing a meaningful relationship with Barrick Gold (TSX:ABX) that has already led to one significant asset sale. Coral Gold negotiated a nice royalty with a sliding scale for the NSR and annual payments due if not the Robertson is not in production by 2025! Coral has several other assets nearby that could have similar success, but CEO Mr. David Wolfin has already described the royalty on the Robertson as a potential company maker.
Bell Copper (TSXV:BCU) has a deal with Kennecott Exploration under Rio Tinto (LSE: RIO, ASX:RIO) for a porphyry project in Arizona that is close to becoming a copper porphyry. Bell Copper is still the majority owner for the project, but their partner is earning in quickly. Bell Copper will ultimately retain 25% of the Kabba project if the deal is fully executed, at which point they may be able fund ongoing expenditures at the project to retain that stake or monetize it in some way.
These are two particular examples of one exit path for successful juniors: retain some residual ownership stake after selling a project. The other exit paths are to sell the company outright or try to advance the project yourself. They may get more attention, but these residuals can be really valuable down the line.
Royalties can pop up in surprising places decades later generating cash flow (Callinan Royalties, anyone?). Look to EMX Royalties (NYSE:EMX), "The Royalty Generators", for more on the virtues of all this. But there's always risk -- where is it?
The biggest risk for single-asset stories like Coral Gold and Bell Copper is the timeline. After the major gets control, they may decide to wait 5 years before doing any work on the project for one reason or another. How do you anticipate the majors behaviour?
I see 2 macro trends that help bound the majors’ actions with Bell Copper or Coral Gold.
- There are concerns over long-term sources of supply for gold and copper.
- Nevada and Arizona are great places for mining.
We could discuss these points at length, but I think they mean that it is likely Rio Tinto and Barrick Gold will do meaningful work on these projects from Bell Copper and Coral Gold. The timelines are uncertain and will remain so because the majors have a limited responsibility to tell the juniors exactly what they are doing, when, and why.
The fact that the majors are in the driver’s seat creates a situation where speculative investors in the juniors must risk action before knowing all the relevant information. It's always that way, but the tight control over information that the majors exercise on these projects really compounds the uncertainty we have over what is happening at these projects.
So, the question becomes: Is the price right? Well, Coral Gold is trading at a discount to cash, which is approximately $0.45 per share. And Bell Copper is trading at approximately $10 million, which sounds more like the valuation of a new junior than one the cusp of a proving up a copper porphyry after 20 years of exploration efforts! Both are undervalued, unloved, and in an uptrend.
Please note that I was not compensated by the companies to prepare and distribute this promotional material. I hold shares in the companies and may buy or sell at any time.
