Peter Epstein Blog | Blockbuster Metalla Royalty & Streaming Deal With Coeur Mining | Talkmarkets
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Consultant / analyst, blogger in Natural Resources. Covering uranium, coal, potash, gold, graphite and Oil & Gas stocks.

Blockbuster Metalla Royalty & Streaming Deal With Coeur Mining

Date: Monday, June 19, 2017 11:10 AM EDT

On June 12th Metalla Royalty & Streaming (CSE: MTA) (OTCQB: EXCFF) (FRANKFURT: X9CP) announced that it had entered into a transformational agreement to acquire a portfolio of 3 Royalties and 1 Streaming assets from Coeur Mining (NYSE: CDE).  The purchase price was US$ 13 M, consisting of common shares in Metalla that will be 19.9% of pro-forma capital structure.  As per terms of the agreement, assuming a C$0.60 deemed conversion price, the remainder of the US$ 13 M purchase price would be a ~US$ 6.6 M unsecured convertible bond with a 5.0% coupon. 

This low-coupon convertible note funding mechanism is highly attractive.  Since Metalla will be generating meaningful cash flow, management will not need to raise equity capital in the market.  The note will automatically convert based on the share price at the time of the next material portfolio transaction.  As can be seen in the chart above, the higher the deemed conversion price, the lower the pro-forma # of shares.    

Game-Changing Transaction, Template for Future Deals

This is a game-changer and it highlights management’s capabilities in this niche sector.  Upon closing, Metalla will be robustly cash flow positive, a remarkable achievement at this stage of the Company’s short life.  In 2018-2019, cash flow of roughly C$ 6 M/yr. is a reasonable expectation, bridging the gap until other promising royalties / streams start throwing off cash.  On a pro-forma market cap (@C$0.60/share), the Company is trading at about 8x Enterprise Value (“EV”) to Cash Flow (“CF”) ratio.  Several peers, including precious metal royalty / streaming (“R/S”) Majors Franco Nevada (~25x) and Royal Gold (~20x) are trading at or above 20x trailing 12 month CF.  

Metalla has delivered a tremendous transaction that puts the Company on the radar (on both sides of the table) of precious metal companies of all shapes and sizes.  The US$ 13 M acquisition is fairly complex, highlighting the skill set of Brett Heath and his expert business development / structuring teammates.  Conducting business with C$2 billion, top-10 silver producer Coeur Mining opens the doors to others seeking sophisticated win-win transactions to monetize non-core assets and gain partial ownership of Metalla’s high-growth R/S platform.  Equity participation in Metalla offers miners the diversification benefits of the Company’s entire portfolio.  And, shares of Metalla held in lieu of divested non-core assets have tangible value that is more readily appreciated by investors.    

The Endeavor Silver Stream

Metalla estimates that the Endeavor Silver Stream (“ESS”) will generate cash flow of C$ 2.5-3.0 M for the balance of 2017 and C$5.0 – 5.5 M (at an average price of US$17/oz Ag) in 2018.  Based on the Endeavor mine plan delivering 987,500 ounces of Silver (“Ag”) over the next 24 months, quarterly cash flow of ~C$1.35 M is expected through mid-2019.  Metalla will have the right to buy 100% of Ag production for many years from the Endeavor underground zinc-lead-silver mine in New South Wales, Australia.  However, the current mine life is 24 months.  

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