In a May 13 research note, BMO Capital Markets analyst Rene Cartier reported that Nomad Royalty Company Ltd. (NSR:TSX; NSRXF:OTCQX) acquired a 0.28% net smelter returns (NSR) royalty on the Caserones copper-molybdenum mine in Chile for US$23 million in cash and 2 million warrants. The transaction went into effect on May 1, 2021.
"Overall, we estimate the NSR royalty as accretive to our [net asset value] estimate with resource extensions and exploration representing further upside," the analyst added.
To pay the US$23 million in cash to Appian Capital Chile, Nomad will draw on its revolving credit facility, Cartier noted. The royalty/stream company is expected to make its first payment in August 2021. As for the warrants, each will be priced at an amount equal to US$1.085 for 3 years.
Cartier highlighted that the Caserones open-pit mine is currently producing, and production there has increased steadily over its five years of operation. Minera Lumina Copper Chile, a subsidiary of JX Nippon Mining & Metals Corp., owns and operates Caserones, located in an established mining jurisdiction.
The mine is estimated to have a life of 19 years and an average annual payable production of about 148,000 tons of copper equivalent, based on reserves. BMO expects production to increase slightly in the near to medium term and then decrease later in the mine's life.
"We have not extended production estimates beyond the expected reserve mine life, though this represents future upside potential," Cartier wrote.
The analyst presented the benefits of the Caserones royalty acquisition, which affirms Nomad's ability to get deals done. The royalty provides immediate cash flow to the Quebec-based company, offers it copper exposure and further diversifies its asset portfolio. Further, future successful exploration and resource expansion at Caserones would add upside.
BMO has an Outperform rating and a CA$1.70 per share target price on Nomad, the current share price of which is about CA$1.11.
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Disclosures from BMO Capital Markets, Nomad Royalty Company, May 13, 2021
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 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