Nevada is known as “The Silver State,” a nod to the 1859 discovery of the Comstock Lode. That rich silver endowment led to Nevada’s statehood, and profits from silver mining helped the North come out on top in the American Civil War.
But the discovery of the state’s rich gold districts, including the Carlin and Cortez trends, a century later quickly made Nevada one of the world’s premier gold mining jurisdictions. Those two districts alone have a combined gold endowment of more than 250 million ounces (production + reserves). And gold is the precious metal that remains Nevada’s largest export by dollar value.
However, U.S. Census Bureau statistics show that Nevada’s gold output is slipping. Gold exports of about $4.9 billion in 2018 dropped to $2.7 billion last year, a 45% decrease.
And Nevada is not the only gold-rich jurisdiction with a declining production profile. New discoveries are needed to replace the ounces being mined. And one of the best places to look for gold is on projects that have been orphaned by larger companies or by exploration companies that have shifted their focus elsewhere.
The latter is the story with the past-producing Griffon project at the southern end of Nevada’s Cortez trend. Fremont Gold (FRE-V, USTDF-OTCBB) purchased Griffon and its 89 unpatented mining claims from Liberty Gold (LGD-T) in December 2019, then raised $1.48 million to drill it. The project was orphaned by Liberty (formerly Pilot Gold), which is drilling out its Black Pine oxide gold project in Idaho. Griffon is southeast of Fiore Gold’s (F-V) Pan mine and Contact Gold’s (C-V) past-producing Green Springs heap-leach gold mine.
Fremont plans to drill 2,000 metres at Griffon, beginning in June. Twenty-six drill sites are currently permitted and the project is bonded. Fremont plans to drill a number of untested targets in the hopes of making a new discovery at Griffon.
Griffon was first drilled in 1988. By 1997 two oxide gold deposits had been delineated, at Discovery Ridge and Hammer Ridge. Over the next three years, Alta operated as a small producer, mining oxide gold from those deposits at average grades of 1.03 g/t in a heap-leach operation. That’s well above average grades of 0.6 to 0.7 g/t being heap-leach mined at typical Nevada oxide gold operations.
Alta’s focus was production, not exploration. The company did not thoroughly explore the property and almost all of the holes they drilled were less than 100 metres deep. Fremont has assembled a crack team of geologists to narrow down targets at Griffon:
Clay Newton, Fremont’s VP Exploration and a Phd structural geologist who brings fresh eyes to the project
Andy Wallace, Ph.D., a Carlin expert and co-discoverer of five Nevada gold mines as a principal of Cordex
Jamie Robertson, Ph.D., Alta’s former exploration manager and a regional expert on Nevada’s southern Cortez trend.
Target areas at Griffon include the untested three-kilometre long Blackrock fault to the east of the Hammer Ridge deposit (one of the two deposits mined by Alta Gold Corp.), the Pilot Shale horizon, and a number of geochemical anomalies. In addition, potential remains in and around the two past-producing open pits.
Drilling by Alta in an area southwest of Hammer Ridge hints at the property’s potential. Alta hit near-surface gold mineralization in many holes, including 57.9 metres of 0.86 g/t gold. Other drill holes in this area — all of them within 100 metres of surface — included:
25.9 metres of 1.1 g/t Au
36.6m of 0.93 g/t
24.4m of 0.79 g/t
Last summer, Fremont sold its Gold Canyon project to McEwen Mining for 300,000 McEwen common shares in order to focus on securing more advanced-stage assets. The company’s first move was to option Cobb Creek from Contact Gold. Located in Elko county, Nevada, Cobb Creek is an advanced project with a historical gold resource that hasn’t been drilled since 1992. Although Cobb is an intriguing exploration project, Fremont plans to focus on Griffon this exploration season. The company also has the North Carlin, Hurricane and Goldrun projects in Nevada.
Gold is holding steady above US$1,600 an ounce and doing its job as a safe haven. The precious metal is also, increasingly, a buttress against the impending waves of money-printing as governments globally respond to economic paralysis caused by the COVID-19 pandemic.
Gold producers continue to rely on exploration companies to find the next economic ore bodies. That increases the appeal of well-managed juniors poised to create shareholder value with the drill. Fremont Gold fits the bill as it prepares to drill for discovery at Griffon. Insiders have been adding to their stakes, in both the public market and private placements. I have also been buying shares at these price levels.
Fremont Gold (FRE-V, USTDF-OTCBB) Price: 0.06 Shares out: 81.5 million (121.2M f-d) Market cap: $4.9 million
Disclosure: I own Fremont Gold shares and Fremont is one of three Resource Opportunities sponsor companies. Fremont is a speculative, high-risk exploration stock that may not be suitable for all investors. This article is not intended as financial advice and all investors should conduct their own due diligence and/or consult an investment advisor.
Columbus Gold advances Montagne d’Or towards bankable feasibility study
Fall resource estimate planned at Eastside gold project in Nevada
By James Kwantes
As befits its location about 500 kilometres north of the equator, French Guiana is hot and humid, with average temperatures of 25-30 Celsius year-round. The namesake Cayenne pepper, named for the capital city, spices up cuisine and hints at the Creole roots of the territory, a region of France.
But it’s the heat being generated by a rising gold price that could help revitalize the economy of French Guiana. It’s a prosperous corner of South America, but GDP remains heavily reliant on the Guiana Space Centre. Selected in 1964 to be France’s space centre, the facility expanded to become Europe’s Spaceport in 1975 and is used by other countries launching satellites into space, including Russia.
Once you step off the space centre, however, incomes fall back to earth. French Guiana is heavily reliant on mainland France for subsidies, trade and goods. Traditionally, the region’s main industries have been fishing, logging and small-scale gold mining.
It’s gold that Vancouver entrepreneur Robert Giustra is eyeing. Specifically, the mountain of gold — Montagne d’Or — contained in the deposit that his Columbus Gold is advancing in the jungle 180 kilometres west of the capital city Cayenne. Gold miner Nordgold is earning in to a 50.01% interest in the project by spending at least US$30-million on exploration and delivering a bankable feasibility study by March 2017. In January Columbus sold an additional 5% interest in the project to Nordgold, so their interest would be 55.01% upon completion of the earn-in.
A mine like the one Columbus Gold is proposing would employ about 1,000 people during construction, 800 full-time during operations, and produce an average 270,000 ounces a year. With average mined grades of about 2 g/t in the first 10 years, it would be among the highest grade open-pit gold mines in the Americas.
A WIN FOR FRENCH GOVERNMENT, CGT SHAREHOLDERS
For French Guiana, a large-scale commercial mine would be a game changer, diversifying the economy and boosting the French government’s tax take. It could even help the long-running battle against illegal gold miners in French Guiana. The mostly Brazilian “garimpeiros” use mercury to process the gold and cut a toxic path through the jungle, devastating the environment. The miners then vacate the country with their heavy equipment and the gold, leaving France to clean up the mess.
It’s a problem French authorities have grappled with for a long time, through regular sweeps and arrests. But the illegal miners have the edge through strength of numbers and an intimate knowledge of the jungle. All too often, crackdowns resemble a law enforcement version of arcade game Whac-A-Mole.
The path towards a gold mine at Montagne d’Or could well be a road to riches for shareholders of Columbus Gold, which is also drilling the Eastside gold exploration project in Nevada. Columbus has aggressively developed Montagne d’Or since picking up the project in 2011 when it had a 1.9-million-ounce resource (Inferred). Columbus has delineated 3.9 million ounces in the Indicated category and another 1.1 million ounces Inferred at grades well above global averages.
Last year the company published a preliminary economic assessment for Montagne d’Or showing positive economics at a gold price of US$1,200/oz:
– After-tax NPV of US$324 million (8% discount rate)
– After-tax IRR of 23%
– Initial capex of US$366 million, including US$44 million contingency
– All-in sustaining costs of US$711/oz
– Average annual production of 273,000 ounces at average grades of 2 g/t in Years 1-10
Gold’s rise of more than 27% in 2016 should further improve economics in the Feasibility Study, and it’s not the only factor that will help. The PEA envisioned diesel power being generated on-site at a cost of about US.20/kWh. Columbus is now looking at connecting to the French Guiana grid, which would lower costs to .11-.12/kWh. It’s a substantial savings, since power is one of the mine’s largest operating costs.
In addition to improving economics at the flagship project, gold’s ascent to US$1,350 an ounce has increased the interest level in Columbus Gold shares. The company uplisted from the TSX Venture to the Toronto Stock Exchange on January 26, an accomplishment achieved by only one other company in the previous two years, and shares recently hit 93 cents, a 52-week high.
Sentiment has shifted dramatically from the bear market that took gold down from US$1,900 an ounce to below $1,100/oz, notes Giustra, Columbus’s Chairman and CEO. The resulting flight of capital over the past four years led to liquidity drying up, wreaking havoc on the ability of junior mining firms to raise money and depressing share prices — even for companies with fundamental value. In order to initiate a position, funds would have to sell an existing holding, and there was nobody to sell to. It had the effect of putting the brakes on shares of all mining sector companies, including Columbus Gold. “People would love the story, but couldn’t buy the stock,” Giustra commented.
Capital and interest has returned to the sector, he says, and Columbus Gold shares should continue to benefit. The company has about $4 million in the treasury and two major catalysts on the horizon:
– The bankable feasibility study at Montagne d’Or;
– A planned maiden resource estimate at Eastside, the Nevada project.
EXPLORATION UPSIDE AT MONTAGNE D’OR
Exploration upside around the defined deposit has the potential of turning Montagne d’Or into something even bigger. The aggressive three-year timeline that Nordgold agreed to when it took on the project in March 2014 means little exploration work has been done. That’s despite indications the mineralization at Montagne d’Or remains open along strike to both the east and west, in parallel zones and untested nearby surface anomalies, as well as at depth.
The most recent exploration permits, granted in July by the French Minister of Economy, cover gold-soil anomalies two kilometres to the west and 2.7 kilometres to the east of the deposit. Only two holes have ever been drilled in these areas. One of them, punched in 750 metres east of the deposit, intercepted 31.94 g/t gold over 3.5 metres. Montagne d’Or is also open at depth below the 250 metres modelled by the pit.
The Phase 1 exploration program kicks off this month with prospecting and soil sampling west of Montagne d’Or. For the second phase, Columbus may fly IP (induced polarization) to enhance drill targets. In the 1990s, such geophysical surveying helped trace the gold-sulphide mineralized horizons at Montagne d’Or.
The French geological survey identified the initial gold anomaly that defines Montagne d’Or in the 1990s. But the agency was subsequently privatized and began selling assets including Montagne d’Or, which saw very limited drilling in the late 1990s. Columbus Gold built the resource with drilling campaigns, but the aggressive three-year path to a bankable FS agreed to by Nordgold in March 2014 effectively put a cap on exploration drilling.
As a result, the highly prospective properties that surround Montagne d’Or are virtually virgin territory.
“French Guiana is extremely under-explored, particularly compared to its geological twin in the West African Birimian Shield,” Giustra explains. “That gold region has seen over a century of exploration.”
Having a deep-pocketed major pay the bills on flagship development project Montagne d’Or also helped Columbus Gold weather the bear market storms. Nordgold is the world’s 15th largest gold miner and operates 9 mines in 4 countries. In 2015, the Russia-based producer mined about 950,000 ounces at all-in sustaining costs of US$793 an ounce, making it one of the world’s lowest-cost producers. At 270,000 ounces a year, Montagne d’Or would be the largest mine Nordgold has an interest in.
Nordgold also has a reputation as an efficient and smart operator. The Russia-based miner built its newest mine, the 200,000-oz/yr Bissa gold mine in Burkina Faso, in just 15 months, Giustra points out. The company is also familiar with the geological neighbourhood because it operates three mines in the West African Birimian Shield — two in Burkina Faso, one in Guinea.
Nordgold was founded in 2007 as a division of Russian steel giant Severstal and went public on the London Stock Exchange in January 2012. The company is among the world’s fastest-growing gold miners, a feat accomplished mostly through acquisitions.
“People have said to me ‘Watch out for the Russians,’ ” Giustra says, “but they’ve been great partners. We come to agreements on a handshake and they follow through.”
DRILLING SUCCESS AT EASTSIDE IN NEVADA
Columbus Gold also has a growing Nevada exploration project to go with its Montagne d’Or development project in French Guiana. And the company’s foundation for growth lies under the desert sand at its Eastside project.
Nevada’s gold endowment is well-documented. The state produces about three-quarters of U.S. gold production and more than 6% of the world’s gold. Gold mines in the “Silver State” have been company makers for the world’s largest gold producers, including Barrick Gold and Newmont Mining — not to mention royalty giant Franco-Nevada.
Much of that production has come out of the Carlin Trend, one of the world’s richest gold endowments and home to Barrick and Newmont’s most prolific mines. The Carlin was discovered by legendary geologist John Livermore, who sparked a modern-day gold rush when he discovered a new kind of “invisible gold” mineralization in the early 1960s while working for Newmont. He founded Cordex Exploration in 1970 and went on to discover several Nevada gold mines. Livermore died in 2013.
Geologist Andy Wallace, Livermore’s longtime business partner, is now principal of Cordex Exploration as well as president of Columbus Gold Nevada. Wallace joined Cordex in 1974 at the height of the Nevada gold rush and became Cordex’s Manager of Exploration in 1985. He also has a few mine finds under his belt — under his leadership, Cordex discovered the 5-million-ounce Marigold deposit and the 12-million-ounce Stonehouse/Lone Tree deposits. Silver Standard purchased Marigold from Goldcorp and Barrick in 2014 and Lone Tree is still being mined by Newmont.
Nevada is elephant country for gold. In Cordex, Columbus has an elephant hunter on its team. Columbus has an exclusive exploration arrangement with Cordex, giving the company one of the largest databases in Nevada. Cordex also runs Columbus’s exploration programs in Nevada.
Exploration is now focused on the Eastside project, composed of 725 mining claims making up 57.7 square kilometres about 32 kilometres west of Tonopah, Nevada. The nearby Round Mountain gold mine, which has produced more than 12 million ounces and is now 100% owned by Kinross, is about 32 km away. It’s the world’s largest heap-leach operation.
Columbus recently wrapped up its 2016 drill program at Eastside, completing 17,500 metres of drilling– 12,663 metres of reverse circulation and 4,837 metres of diamond drilling. The company has now drilled more than 37,000 metres at Eastside, mostly confined to a one-square-km parcel dubbed the “Original Target.” Columbus is aiming to complete a maiden resource estimate this fall. Results year-to-date have been positive, with recent intercepts of 97.5 metres of 0.68 g/t gold and 13 metres of 1.12 g/t. Previous hits included 35.1 metres of 4.1 g/t and 152.4 metres of 0.71 g/t.
Gold and silver mineralization at the Original Target occurs in two broad, northerly trending zones called the East Zone and West Zone. The zones coincide with rhyolite flow dome complexes that host the bulk of the mineralization. Drilling to date has determined that strike extends at least 450 metres on the East Zone and 850 metres on the West Zone. Both zones are open at depth and to the south, and the West Zone is open to the north as well.
Initial metallurgical tests determined that gold at Eastside is highly amenable to processing using cyanide. Columbus is now doing further metallurgical tests on samples of varying grades and ore types to evaluate potential heap leaching and whether crushing will be required and if so, the optimum crush size.
Eastside is located in an infrastructure sweet spot. It’s adjacent to Highway US95, the main road route between Las Vegas and Reno, and is connected by a county-maintained gravel road. A major transmission line runs through the Eastside property and there is available water from shallow aquifers in the area, Giustra says. Year-round drilling is possible at the property.
If Columbus Gold can connect the dots and mineralization at Eastside, the Nevada gold property could become an impressive flagship project. In Cordex, Eastside has an experienced minefinding partner. The project’s good metallurgy, superior road infrastructure, power and water access lower the threshold to develop a mine in America’s most important gold-producing state.
Price: 0.76 Shares outstanding: 142.9 million Market capitalization: $108.6 million Treasury: $4 million
Disclosure: The author owns shares of Columbus Gold and the company is one of a small number of Resource Opportunities sponsors, who help support the subscriber-funded newsletter. The work included in this article is based on SEDAR filings, current events, interviews, and corporate press releases. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value, so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.
“Royalty” — the primary definition refers to kings, queens and others of royal blood. And that usage hints at the strength of the mining industry variety — a defined share of revenues from a mining operation.
Mining royalties can be a fabulous business model, as demonstrated by royalty and streaming giant Franco-Nevada. The company has become a $15-billion powerhouse with claims on assets ranging from gold and base metals mines to oil and gas operations.
It all started in 1985 when cofounders Seymour Schulich and Pierre Lassonde purchased a 4% royalty on a small Nevada gold mine called Goldstrike. The $2 million they paid was no small bet — it represented the majority of cash on the budding company’s balance sheet. But the titans reasoned they were buying both a cut of production and exploration upside on the surrounding properties.
It turned out to be the bet of a lifetime. Barrick Gold purchased Goldstrike and soon hit a rich discovery on the way to a 50-million-ounce gold deposit. As Goldstrike grew to become Barrick’s flagship mine, it became a golden goose for Franco-Nevada.
Investors have taken note — Franco-Nevada shares have returned more than 140% in the past five years as commodity prices cratered and mining shares descended.
Others have followed in Franco-Nevada’s footsteps. One of the largest is Royal Gold, which also expanded rapidly by deploying cash flow from its flagship royalty on Barrick’s massive Cortez mine complex. More recently, Silver Wheaton, Osisko Gold Royalties and Sandstorm Gold have entered the scene, as well as smaller plays including AuRico Metals, Eurasian Minerals and Abitibi Royalties.
Mining exploration is a notoriously difficult, Darwinian business that weeds out the weak. Few junior exploration companies will find a mine and those that do face multiple headwinds that include regulatory, operating and financial risks. In short, it’s a tough business.
Royalty companies bypass most of these pitfalls. Royalties represent a perpetual, iron-clad claim on revenues, usually for life-of-mine. Royalty companies get paid whether the mine makes money or not. They get upside exposure to exploration and expansions, while being insulated from operating risks. Shares of royalty companies typically outperform mining company equities.
It’s no surprise the royalty structure is popular among mining investors who appreciate the upside exposure to attractive deposits minus the operational risks. But the key to profiting is not so different from hockey superstar Wayne Gretzky’s approach on the ice — skate to where the puck is going, not where it has been.
There’s a new royalty company on the scene and like young Franco-Nevada, its flagship asset is an attractive royalty on a Nevada gold deposit — Waterton’s Spring Valley. The company, Terraco Gold, recently closed a deal that sees it exercise options on the Spring Valley royalties and add another royalty on an adjoining property in Pershing County, Nevada.
Terraco exercised its option to buy the royalties through a US$19-million agreement with Waterton, the mining-focused private equity group that acquired Spring Valley last year from Barrick Gold (70%) and Midway Gold (30%). The deal sees Waterton pick up Terraco’s Moonlight property adjoining Spring Valley on the north by paying Terraco US$7 million in cash and subscribing to a US$12-million convertible debenture. The five-year debenture bears interest at .05% annually (more or less zero coupon) and is convertible to shares of Terraco at an exercise price of 18 cents or convertible into 45% of a Terraco subsidiary.
Terraco used US$16 million of the debenture and cash proceeds to exercise options to acquire and directly owna 3% royalty on most of the Spring Valley gold deposit, as well as royalties of up to 1% on contiguous properties that cover additional gold ounces. Terraco also retains a 2% NSR on the large 35-square-km Moonlight property adjoining Spring Valley to the north, which Waterton picked up as part of the deal.
Terraco Gold is run by Todd Hilditch, not Lassonde and Schulich. The company’s royalties are on a deposit that is not yet producing. And the deal just closed on June 17. Terraco Gold is a minnow, Franco-Nevada a whale.
But Hilditch doesn’t have to duplicate Franco-Nevada’s success to make Terraco shareholders a lot of money. The stock trades at 14.5 cents, giving the royalty upstart a market capitalization of just $20.8 million, including more than $3 million in the treasury. Terraco also owns the Almaden-Nutmeg Mountain gold deposit in western Idaho, which has a NI 43-101 compliant resource of 864,000 ounces Measured and Indicated (near-surface) and 84,000 Inferred.
The debenture deal with Waterton, subject to a conversion into equity at 18 cents, hints at the value embedded in Terraco’s shares. Put differently, the group that is developing Spring Valley (and knows the most about it) has assigned a value to Terraco stock 25% higher than current levels.
Do the math on Terraco’s enterprise value and the picture gets even more interesting. A share price of 14.5 cents means a market capitalization of about $20.8 million. Add in debt of US$12 million ($15.6 million Canadian) and subtract Terraco’s cash — about $3.3 million — and the enterprise value comes to $33.1 million.
That works out to about 23 cents a share. And it doesn’t factor in rising gold or any blue-sky potential, including Hilditch’s plan to use the cash and/or stock to bolt on more royalties. He thinks Terraco stock is undervalued and has been accumulating in the public market. He’s purchasedmore than 1.6 million shares in the past year (between $0.07 and $0.13 a share), including spending more than $15,000 on shares in the past month at 13 cents. Hilditch owns more than 7.5 million shares, a 5.25% stake.
“Some people call me crazy, but I’ve never sold a Terraco share and I’ve added plenty,” he says of the company he co-founded 20 years ago as an oil and gas play. “This is my first-born.”
Terraco’s portfolio now includes:
3% NSR on the majority of current resources of Spring Valley (the “Schmidt claims”);
1% NSR on an additional portion of Spring Valley;
a right of first refusal relating to a 1% NSR on certain lands within one-half mile of the Schmidt claims;
2% NSR on the Moonlight Project;
the Almaden-Nutmeg Mountain Gold Project located in Western Idaho;
about $3.3 million Canadian in cash.
According to a 2014 resource estimate, Spring Valley hosts 4.37 million ounces of gold Measured and Indicated at average grades of .55 g/t, as well as 1.07 million ounces Inferred at a grade of .47 g/t. The deposit is located north of and along trend with Coeur Mining’s Rochester silver-gold mine, which has produced 1.47 million ounces of gold and 134 million ounces of silver.
Hilditch’s plan is to build a royalty company with the Spring Valley gold royalties as the flagship. And while the Vancouver mining executive keeps a low profile, his track record shows he’s no rookie when it comes to creating shareholder value in the mining space.
A lithium score
Hilditch’s biggest score was in the lithium space, well before lithium plays became the TSXV’s hottest commodity. The financial crisis had taken the wind out of gold’s sails, and Hilditch was looking around for other opportunities. He co-founded and became president and CEO of Salares Lithium, which structured a deal on 7 lithium brine salars in Chile. Salares IPOed at 16 cents (included a concurrent 2 for 1 rollback from 8 cents)and was taken over by private lithium giant Talison Lithium just 17 months later, in 2010, for $1.25 a share.
For Salares shareholders, the gains didn’t end there. Talison, which produced hard-rock lithium in Australia, used the Salares listing to go public. In 2012 Talison sold for $850 million ($7.50 a share) to Chengdu Tianqi, a Chinese company that outbid Rockwood Lithium (which itself later sold to Albemarle).
“Salares helped pay the bills while Terraco was on the back burner during a tough market time from 2008,” Hilditch says. But gold — specifically, royalties in Nevada — beckoned.
A passion for hockey is a thread woven through Hilditch’s life — he was drafted in 1988 by the Washington Capitals and later played pro in Europe. He now coaches his own kids. And it was through hockey that he got into the gold mining business.
Hilditch grew up in Vancouver and co-founded Terraco (with a junior hockey teammate and good friend)as an oil and gas play after studying business and economics at Rensselaer Polytechnic Institute (RPI) in New York. He also played defence at RPI, a NCAA Division 1 university whose most famous mining graduate is probably Western Copper and Gold chairman Dale Corman.
One of Hilditch’s grandfathers was a miner who worked at Bralorne and Britannia, two legendary British Columbia mines. Bralorne was a storied underground gold mine that was a rare employment bright spot during the Great Depression and Britannia, now a mining museum, used to be the largest copper mine in the British Empire.
But it was an encounter at a hockey tournament in the early 2000s that got Hilditch started in gold. He was relaxing poolside one evening playing cribbage with a teammate who ran a gold company with Nevada projects. The CEO’s phone was buzzing non-stop. Conversation turned to business and Hilditch’s oil and gas play, which was struggling with its Saskatchewan properties.
Hilditch pivoted to gold and optioned two Nevada gold projects, including one from a mining veteran named Paul Schmidt. Schmidt had also optioned the Spring Valley gold project to Midway Gold. Hilditch broke his pick on the two Terraco projects, but impressive drill results from Spring Valley began to capture his attention. Terraco picked up the Moonlight property, adjoining Spring Valley on the north, in 2006. And he kept in touch with Schmidt, who had retained valuable royalties on the Spring Valley properties.
In 2010 Terraco picked up the Almaden-Nutmeg Mountain gold project in Idaho through a takeover of Western Standard Metals. Hilditch built a strong team at the operational and board levels. One of Terraco’s directors is William Lamb, the Lucara CEO whose company is preparing for Wednesday’s live auction of its historic 1,109-carat Lesedi La Rona diamond. Lamb was a Salares Lithium director at the time of the Talison Lithium takeover.
Securing the Spring Valley royalties
In 2011, Hilditch was reminded of Schmidt’s Spring Valley royalties while watching the ounces build at Spring Valley through Barrick’s joint venture program with Midway Gold. He went to visit the veteran geologist at his Colorado home in the fall of 2011 to see if Schmidt would part with the NSR royalties he owned. Schmidt was skeptical.
“I said to him, Paul, I’m interested in doing a deal here,” recalled Hilditch, who had come to the meeting prepared. “He said, well, I’ve got somebody coming to see me tomorrowand besides Todd, you and Terracocan’t afford these royalties!”
“I don’t think he expected me to drop a $20-million term sheet on his kitchen table.”
On the way back to the Denver airport, Hilditch broke into a sweat wondering how he was going to pay for the royalty options. Schmidt had given him a 45-day term to come up with the cash, which he managed to secure and got the deal done. For Hilditch, the June 17, 2016 royalty financing agreement with Waterton represented the conclusion of a journey that began in Schmidt’s kitchen in Evergreen, Colorado five years ago.
Securing the option to exercise NSRs on Spring Valley over the past five years gave Terraco a toehold in a royalty space occupied by much larger players. The market, on the other hand, provided a few hurdles to full valuation for the company. Firstly, the NSR royalties were under an option and not full ownership yet.
“The market clearly gave us a discount for ‘leasing the car’ … not owning it,” Hilditch said. The junior bear market didn’t help, especially for companies with several different asset types, including royalties, advanced-stage and exploration projects. What was Terraco going to be when it grew up?
“Terraco went into stealth mode to ride out uncertainty in the junior mining space, we were very quiet,” Hilditch explained. “The Spring Valley project itself was garnering a lot of attention based on its results, so we felt that riding the quiet period out until we could exercise the royalty options was priority #1 — and it worked.”
The intercepts at Spring Valley, by now a Barrick-Midway Gold joint venture, had become even more eye-catching. In June 2013, for example, Barrick drilled 361 metres of 1.47 g/t gold. Through their option deal with Midway Gold, Barrick upped their interest in Spring Valley to 70% by spending US$38 million as of February 2014. Including earlier private placements, Barrick spent more than $70 million at Spring Valley. The pre-feasibility-stage project was one of four flagship Nevada development projects (pre-feasibility) for Barrick.
And that’s where things stood when Barrick’s JV partner, Midway Gold, went bankrupt last year. It had nothing to do with Spring Valley — the problems were at Midway’s Pan project, also in Nevada. Barrick was grappling with a few problems of its own — most significantly, a crippling debt load of more than $10 billion.
That’s when Waterton Global Resource Management swooped in. The Toronto-based private equity giant paid US$25 million for Midway’s 30% stake in Spring Valley (through bankruptcy court)and another US$110 million to purchase two projects from Barrick — 70% of Spring Valley and the Ruby Hill gold mine.
Gold in Nevada — it’s been a company maker for Franco-Nevada and Barrick Gold and it’s a major focus for Waterton as well. Several of their deals have been for Nevada assets, with the Spring Valley transactions among the most significant. As other mining companies struggled through the bear market, Waterton has put a strong technical team (many of them ex-Barrick employees) to work with money raised from sovereign wealth funds, university endowments and foundations.
And the private equity giant isn’t done yet. After raising $1 billion in 2014, Waterton just announced another US$725-million fund for mining investments in stable jurisdictions.
That gives Waterton an estimated US$2-billion-plus under management — and ensures Terraco Gold shareholders have a serious, deep-pocketed mining group advancing Spring Valley.
There are few small- to medium-sized players in the royalty space withhigh-quality, safe-jurisdiction assets that don’t become targets of the majors. Mid-tier royalty companies like Sandstorm Gold and Osisko Gold Royalties need to acquire or expand organically in order to maintain and grow their stature. So do the biggest players in the space, including Franco-Nevada and Royal Gold.
Terraco’s new royalty platform, starting with the 3% NSR on a multi-million-ounce Nevada gold deposit, gives the company a solid base for growth. It could also put a target on Terraco’s back before long.
Terraco Gold Price: 14.5 cents Shares outstanding: 143.6 million Market cap: $20.8 million Cash: $3.3 million
Disclosure: Author owns shares of Terraco Gold and the company is one of a small number of Resource Opportunities sponsors, who help support the subscriber-funded newsletter. The work included in this article is based on SEDAR filings, current events, interviews, and corporate press releases. It may contain errors, and you shouldn’t make any investment decision based solely on what you read here. This publication contains forward-looking statements, including but not limited to comments regarding predictions and projections. Forward-looking statements address future events and conditions and therefore involve inherent risks and uncertainties. Actual results may differ materially from those currently anticipated in such statements. This publication is provided for informational and entertainment purposes only and is not a recommendation to buy or sell any security. Always thoroughly do your own due diligence and talk to a licensed investment adviser prior to making any investment decisions. Junior resource companies can easily lose 100% of their value, so read company profiles on www.SEDAR.com for important risk disclosures. It’s your money and your responsibility.
James Kwantes is the editor of Resource Opportunities, a subscriber supported junior mining investment publication. Mr. Kwantes has two decades of journalism experience and was the mining reporter at the Vancouver Sun. Twitter: @JamesKwantes
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Resource Opportunities (R.O.) is an investment newsletter founded by geologist Lawrence Roulston in 1998. The publication focuses on identifying early stage mining and energy companies with the potential for outsized returns, and the R.O. team has identified over 30 companies that went on to increase in value by at least 500%. Professional investors, corporate managers, brokers and retail investors subscribe to R.O. and receive a minimum of 20 issues per year. Twitter: @ResourceOpp