In a Dec. 17 research note, analyst Rene Cartier reported that BMO Capital Markets resumed coverage and upgraded its rating to Outperform on Nomad Royalty Company Ltd. (NSR:TSX; NSRXF:OTCQX) after the CA$25 million secondary offering of shares by Yamana Gold Inc. (YRI:TSX; AUY:NYSE; YAU:LSE) closed.
"After a period of underperformance, in our view, the risk/reward looks more compelling for Nomad Royalty, particularly with the targeted production growth in 2021," the analyst added.
Cartier explained how the secondary offering impacted Yamana Gold's position in Nomad. He pointed out a share-buying trend by management and its impact on other stakeholders.
The secondary offering, when announced, represented an 8.3% discount to the share price at the last close, which was CA$1.20. Before the transaction, Yamana Gold held 66.5 million shares. Now, it holds 43.75 million plus a $10 million deferred payment obligation. That obligation may be converted at CA$0.90.
"The offering results in approximately a 4% improvement in float," wrote Cartier.
Orion Mine Finance still holds the most Nomad shares, 396 million, or about 70%, of them. However, Nomad management has been acquiring Nomad shares, according to the research note. For instance, they purchased shares on more than 20% of the active trading days since Nov. 1, 2020. Cumulatively over time, those purchases are diluting the large stakeholders' positions.
"On one hand, active insider purchasing is a signal, in our view, that management sees its shares as undervalued," noted Cartier. "However, with a goal of improving trading liquidity, the purchases limit the amount of free float available."
Cartier highlighted the upcoming catalysts. At Blyvoor, completion of plant construction and the subsequent start of processing operations is imminent, expected in Q4/20. Also anticipated in the near term is clarity on Woodlawn, where a restart is looking more and more likely due to strong base metal prices.
BMO has a CA$1.70 per share target price on Nomad, which is trading currently at about CA$1.02 per share.
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Disclosures from BMO Capital Markets, Nomad Royalty Company, December 12, 2020
I, Rene Cartier, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Analysts who prepared this report are compensated based upon (among other factors) the overall profitability of BMO Capital Markets and their affiliates, which includes the overall profitability of investment banking services. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients, performance of recommendations, accuracy of earnings estimates, and service to clients.
Analysts employed by BMO Nesbitt Burns Inc. and/or BMO Capital Markets Limited are not registered as research analysts with FINRA. These analysts may not be associated persons of BMO Capital Markets Corp. and therefore may not be subject to the FINRA Rule 2241 restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
Company Specific Disclosures
Disclosure 1: BMO Capital Markets has undertaken an underwriting liability with respect to Nomad Royalty Company within the past 12 months.
Disclosure 2: BMO Capital Markets has provided investment banking services with respect to Nomad Royalty Company within the past 12 months.
Disclosure 3: BMO Capital Markets has managed or co-managed a public offering of securities with respect to Nomad Royalty Company within the past 12 months.
Disclosure 4: BMO Capital Markets or an affiliate has received compensation for investment banking services from Nomad Royalty Company within the past 12 months.
Disclosure 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Yamana Gold.
Disclosure 6A: Nomad Royalty Company is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: A) Investment Banking Services
Disclosure 6C: Yamana Gold is a client (or was a client) of BMO Nesbitt Burns Inc., BMO Capital Markets Corp., BMO Capital Markets Limited or an affiliate within the past 12 months: C) Non-Securities Related Services.
Disclosure 9B: BMO Capital Markets makes a market in Yamana Gold in United States.
Disclosure 9C: BMO Capital Markets makes a market in Yamana Gold in Europe.