Trident Royalties PLC (AIM:TRR) royalty asset sale to Franco-Nevada Corporation (TSX:FNV) is a win-win for both parties, according to brokers.
The sale, of several pre-production gold royalties, for up to US$15.8mln in cash delivers a 2.4 times money-on-money return on an investment of just two years ago, said analysts at Liberum Capital.
This reasonably short amount of time for an excellent return is a validation of the business model, added the City broker's analysts, who noted Trident had received plenty of interest in the Rebecca royalty because of the evident exploration upside.
For a larger company such as Franco Nevada, trading at 2-2.5 times NAV, its lower cost of capital means that it can see greater relative value in longer-dated royalties such as Rebecca, they said.
Meanwhile, the sale of these gold assets rebalances Trident’s portfolio to a more even balance between copper and lithium
Once completed, the sale will bring Trident’s cash balance to US$35mln putting the company in a strong position to deploy against a backdrop of weak capital markets.
It also gives the company the ability to exercise its Sonora option, for which US$23.5m is needed, without having to raise additional funds from equity or debt.
'Buy' with a target price of 75p is the Liberum analysts' view. Shares rose 9% to 51p.