Although much of the newsflow generated in recent months by TNR Gold Corp (TSX-V:TNR, OTC:TRRXF)’s royalty portfolio has been to do with the major Los Azules copper development being undertaken by McEwen Mining in Argentina, it was actually another project that has secured the future of the company.
Back in February, TNR announced that it had repaid in full its investment loan of just over C$6.9mln, including the interest related to it.
That loan can effectively be viewed as the money that got TNR going in the first place – it allowed it to build up the portfolio to the point where it now includes the Los Azules royalty, major advanced exploration project in Alaska, a royalty on Batidero properties I and II of the Josemaria Lundin Mining copper-gold project in Argentina, and a royalty on the Mariana lithium project, also in Argentina, which is owned by Ganfeng of China.
It was the sale of a partial interest in the royalty on this last project, Mariana, that has just lately allowed TNR Gold’s chief executive Kirill Klip to put the company on a secure footing.
The company sold a 0.5% net smelter royalty to Lithium Royalty Corp for US$9mln. This represents one-quarter of the NSR royalty held by the company. That’s the money that’s allowed TNR to pay off all debt, and to push on ahead into 2023 with renewed confidence.
To be sure, the lithium price is down. But it’s not out.
And construction is proceeding apace at Mariana, according to filings by Ganfeng to the Argentinian authorities.
“Representatives of Ganfeng Lithium confirmed to the Governor of Salta Gustavo Sáenz that the Mariana project, on which construction began last June, will start producing, in 2024, an estimated 20,000 tons per year of lithium chloride,” explains Kirill Klip, executive chairman of TNR Gold.
“The Government of Salta has reported on Ganfeng Lithium’s announcement that the operational phase of the Mariana lithium project began in January 2023.”
That means that for TNR, the royalty will shortly become less about benchmarking its value against the ups and downs of the lithium price, and more about enjoying the chunky cashflow that will be coming in.
To be sure, more cash will come in if the lithium price is higher.
But even if it isn’t the 0.45% royalty that TNR is likely to be left with if Ganfeng exercises its right to acquire the other 1% that TNR owns, should still prove lucrative enough. Assuming a long-term lithium price of US$40,000 per tonne, pre-tax income is likely to amount to US$3.6mln a year. Equally, if the price returns to anything like the levels it was at last year, that number rises to over US$7mln per year.
That’s looking ahead.
Were one to take a backwards-looking perspective, then the sale of half of the Mariana royalty at a time when the lithium price was sky-high looks very timely. Would TNR be able to get US$9mln for its interest today? – maybe not.
Whichever way you look at it, though, there’s upside. Because, with cash inside the company TNR is now secure in what looks to be a fairly choppy period on the capital markets. And at the same time, it still holds a very significant portion of the royalty from which it will benefit in due course.
“It’s put our company in a completely different shape and form,” says Klip.
“We repaid our investment loan, and that was a major milestone for the company because that loan allowed us to create a very strong royalty portfolio.”
But there’s likely to be more to come from Mariana, perhaps even before first production. An additional C$1mln will come into TNR if Ganfeng exercises its option to buy a further 1% of the royalty back off TNR, and the chances are, with a project this size, that it will.
What’s more, the transaction with Lithium Royalty Corp put TNR on the map, and other companies are thought to be nosing around and making enquiries about the remaining royalty. Klip has no intention of selling at this point, but more people now know that he’s here.
If TNR ever chose to, it seems likely there would be no problem at all monetizing the remainder of the Mariana royalty. The issue would be the price, and the board decision would be whether to forsake all that potential cashflow.
Not an easy decision, to be sure, and for now Klip is not selling, but on the whole it’s a nice conundrum to have.
Meanwhile, McEwen Mining continues to make progress on Los Azules copper gold and silver project, pulling in serious funding partners and releasing drilling intercepts that junior miners would give their eye teeth for.
Rio Tinto’s Nuton has already invested USD$55mln into McEwen Copper, which is developing Los Azules. Separately, Stellantis, a major auto maker, bought a stake as well for over US$150mln.
A preliminary economic assessment for Los Azules is expected in the current quarter, with an IPO likely to follow. Mine design is likely to be complete by the end of 2024, so at this point it looks as though cashflow from Mariana will come into TNR’s coffers before any cash from Los Azules.
But with the cash that’s now in the back from the partial sale of the Mariana royalty, TNR can afford to sit tight and wait for the majors to go about their work and get production rolling.
The current market capitalisation of TNR is C$13.3mln.
But you can bet it won’t be at that level when the two major royalties it has to its name actually start to produce.