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."
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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.
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Additional disclosures
Resource Opportunities editor and publisher James Kwantes owns shares of Terraco Gold.
