Royal Makes High-Return Acquisition

Source: Adrian Day 06/01/2025

Global Analyst Adrian Day discusses developments at some companies on his list, mostly positive.

Royal Gold Inc. (RGLD:NASDAQ) acquired a $200 million royalty and stream on Solaris’ Warintza copper-gold-moly project in Ecuador. The base case return is competitive, with an IRR estimated by analysts at between 8% and 12%, offsetting the early stage status and geopolitical risk. There are also some unusual features, providing some protection to Royal.

First, the stream (which is only on the gold) can be cancelled with full repayment by Solaris in the event of a change of control, or by Royal if the mine is not operational by 2033. In either circumstance, however, the royalty, which is on all metals, would be maintained. In addition, the royalty starts at 0.03% and increases over time until the first delivery.

Many royalty and streaming companies are adding bells and whistles to their contracts to satisfy both parties. For example, a stream on an asset can make the sale of the asset more difficult, and this is an elegant solution, which would satisfy a potential buyer but provide Royal with a no-cost royalty (essentially, for a loan).

Ecuador, for many years, had an anti-mining reputation, but the successful operation of Lundin Gold’s huge Fruta del Norte mine, and recently, the acquisition last month of Lumina’s Cangrejos project by a Chinese company, have helped assuage that reputation. We like Royal for its increasingly diversified asset base, its leverage, and strong balance sheet.

We are holding after the recent stock appreciation.

Another Step for Franco’s Cobre Panama

Franco-Nevada Corp. (FNV:TSX; FNV:NYSE) received potentially positive news with regard to the future re-opening of the Cobre Panama mine, on which it holds a stream, as the government has cracked down on the militant union (Suntracs) that played a key role in the demonstrations leading to the closure of the mine.

The union’s legal status has been cancelled, and arrest warrants have been issued for its leaders. These actions are not related to the protests over the mine, but removing this organization fighting the mine is a positive. Local indications are that support for the mine has been growing, as the impact on the economy becomes apparent.

New President Jose Mulino has said he wants to see the mine reopen, but the precise path forward is not clear. Neither is the timeline. A partnership between mine owners First Quantum Minerals Ltd. (FM:TSX; FQM:LSE) and the government is being raised as a possible solution to the dispute.

Clearly, reopening the mine and the resumption of Franco’s stream would be highly beneficial to the company and are only partly reflected in the stock price. The Cobre Panama stream accounted for 15% of Franco’s NAV and 19% of its revenue in the last year before its closure at the end of 2023.

We are holding Franco as a core position, though it can be purchased if you do not already own.

ERRATUM The look-through value of Altius Minerals Corp.’s (ALS:TSX) 1.5% royalty on the Expanded Silicon Project, based on the sale of Orogen Royalties Inc.’s (OGN:TSXV; OGNRF:OTCQX) 1% royalty, would be $500 million (and not the $500,000 figure inadvertently given in our last Bulletin, #962). Thanks to eagle-eyed Eric L. Both Altius and Orogen can still be bought for modest but low-risk and near-term upside.

Separately, AngloGold Ashanti Ltd. (AU:NYSE; ANG:JSE; AGG:ASX; AGD:LSE), owner of the deposit, has renamed it the Arthur Gold Project.

TOP BUYS this week, in addition to those above, include Kingsmen Creatives Ltd. (KMEN:SI), Ares Capital Corp. (ARCC:NASDAQ), Pan American Silver Corp. (PAAS:TSX; PAAS:NASDAQ), Metalla Royalty & Streaming Ltd. (MTA:TSX.V; MTA:NYSE American), Midland Exploration Inc. (MD:TSX.V), Lara Exploration Ltd. (LRA:TSX.V), and Fox River Resources Corp. (FOX:CSE).

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Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of Franco-Nevada Corp., Altius Minerals Corp., Orogen Royalties Inc., Pan American Silver Corp., Metalla Royalty & Streaming, Midland Exploration Inc., Lara Exploration Ltd., and Fox Riv Res Corp.
2. Adrian Day: I, or members of my immediate household or family, own securities of: All. My company has a financial relationship with: None. My company has purchased stocks mentioned in this article for my management clients: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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Adrian Day Disclosures

Adrian Day’s Global Analyst is distributed for $990 per year by Investment Consultants International, Ltd., P.O. Box 6644, Annapolis, MD 21401. (410) 224-8885. www.AdrianDayGlobalAnalyst.com. Publisher: Adrian Day. Owner: Investment Consultants International, Ltd. Staff may have positions in securities discussed herein. Adrian Day is also President of Global Strategic Management (GSM), a registered investment advisor, and a separate company from this service. In his capacity as GSM president, Adrian Day may be buying or selling for clients securities recommended herein concurrently, before or after recommendations herein, and may be acting for clients in a manner contrary to recommendations herein. This is not a solicitation for GSM. Views herein are the editor’s opinion and not fact. All information is believed to be correct, but its accuracy cannot be guaranteed. The owner and editor are not responsible for errors and omissions. © 2023. Adrian Day’s Global Analyst. Information and advice herein are intended purely for the subscriber’s own account. Under no circumstances may any part of a Global Analyst e-mail be copied or distributed without prior written permission of the editor. Given the nature of this service, we will pursue any violations aggressively.

( Companies Mentioned: FNV:TSX; FNV:NYSE, RGLD:NASDAQ, )

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