Mining’s old guard needs strong medicine
A new report details subpar investor returns in the mining industry over the last decade, particularly big cap diversified companies which have not adapted to new realities.
With lower gold prices putting pressure on overextended miners, M&A activity is heating up. At close to $3 billion in deals already done so far in 2015, including the $1.2-billion combination between Tahoe Resources and Rio Alto Mining, another deal has been reached, this time between a gold streaming company and a gold royalty company.
On Wednesday Sandstorm Gold ((NYSE MKT:SAND, TSX:SSL) announced that it has entered into an arrangement with Gold Royalties Corporation (TSXV:GRO), whereby Sandstorm will acquire all of its outstanding shares. The transaction is valued around $5.7 million, based on Sandstorm’s Feb. 17 closing share price.
“Despite a challenged equity market for junior mining, Gold Royalties has successfully built a substantial portfolio of valuable gold royalty assets in Canada. Not only does the agreement with Sandstorm provide a tremendous premium for our shareholders, but equally important, it is structured such that our shareholders continue to have exposure to not only our existing gold royalty assets but also to the diversified and growing royalty portfolio held by Sandstorm,” stated Ryan Kalt, founder & CEO of Gold Royalties Corporation.
The combination will add GRO’s 18 royalties and 13 mining projects in Canada to Sandstorm’s portfolio, including one that is generating cash from gold production, giving the Vancouver-based firm a total of 10 streams and 59 royalties. Gold Royalties also brings $2-million in cash to the deal.
The arrangement still requires approval by two-thirds of Gold Royalties shareholders at a meeting scheduled for April.
As a gold streaming company, Sandstorm’s business model is to provide financing to cash-strapped gold mining companies, and receive a gold streaming agreement in return. The gold stream give Sandstorm the right to purchase a percentage of the gold produced from a mine at a fixed price per ounce, thus creating a revenue stream. Gold Royalties operates under a similar principle, but its royalties are based upon a net smelter return royalty on operating mines and exploration projects. The company’s royalties are focused in Ontario and Quebec.
