In an Oct. 29 research note, BMO Capital Markets analyst Rene Cartier
reported that Nomad Royalty Company Ltd. (NSR:TSX; NSRXF:OTCQX) agreed to purchase a gold stream on the metal to be produced from the Greenstone mine in Ontario, Canada. This is the first precious metal transaction of this kind for Nomad.
"The acquisition size is meaningful for Nomad, and demonstrates the ability to execute on a stream transaction," commented Cartier.
The analyst described the deal and benefits of it to Nomad. The royalty company's agreement is with Orion Mine Finance, which owns 40% of Greenstone; Equinox Gold owns the other 60%.
According to the agreement, Nomad is entitled to 5.938% of gold production attributed to Orion's 40% interest until 120,333 ounces are delivered. Afterward, it is entitled to 3.958%.
For the stream, Nomad will pay a total of $95 million ($95M) upfront, $13.3M in Q4/21 and the remaining $81.7M by June 30, 2023. Subsequently, Nomad will make "payments of 20% of spot gold" plus $30 per ounce to support the environmental, social and governance (ESG) programs in effect at Greenstone, Cartier noted. This ESG component of the agreement is "unique" and, thus, "stands out."
Cartier highlighted that the stream acquisition carries an internal rate of return of about 4.1%, or about 7% using spot prices, according to BMO's calculations.
Plus "additional upside potential exists through the incorporation of other deposits, resource conversion and exploration success," Cartier pointed out.
Regarding Greenstone, production is expected to start there in 2024. Life of mine is about 14 years, based solely on reserves.
Summarizing the deal, Cartier wrote, "Nomad largely paid for reserves with upside potential still to be unlocked. The simple structure, which includes no buybacks or buydowns, is clean for investors, enhances portfolio diversification and provides relatively near-term production."
The stream also provides Nomad exposure to the jurisdiction and alignment with Orion Mine Finance, its largest shareholder. Both could lead to additional opportunities for Nomad.
BMO has an Outperform rating and a CA$16 per share target price on Nomad Royalty, the current share price of which is about CA$9.41. This difference implies a potential return of about 72%.
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IMPORTANT DISCLOSURES for BMO, Nomad Royalty Company Ltd., Oct. 29, 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 5: BMO Capital Markets or an affiliate received compensation for products or services other than investment banking services within the past 12 months from Equinox 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: Equinox 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.
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BMO Capital Markets or its affiliates will buy from or sell to customers the securities of issuers mentioned in this report on a principal basis. BMO Capital Markets or its affiliates, officers, directors or employees have a long or short position in many of the securities discussed herein, related securities or in options, futures or other derivative instruments based thereon. The reader should assume that BMO Capital Markets or its affiliates may have a conflict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein.