The new Trident Royalties PLC (AIM:TRR, OTCQX:TDTRF) royalty agreement announced on Wednesday with New World Resources (ASX:NWC) has "attractive economics" that led analysts at Stifel to immediately increase their share price target.
Under the deal, Trident will pay A$11 million cash for a 0.90% NSR over the Antler project area and a 0.45% NSR over any ground subsequently acquired within five kilometres.
"The royalty appears to add an appealing mix of commodity exposure in an established mining jurisdiction and the structure of the transaction enables Trident to potentially realise a near-term return despite the asset seeming to be some time away from contributing revenue," said Stifel in a note to clients.
Overall, analysts at the US bank estimate that the transaction is about 5.0% accretive to their NAV estimate at both long-term and spot commodity prices.
As a result, Stifel's target price was increased to 90p, with the 'buy' reiterated.
On long-term or spot commodity prices, the Antler royalty is valued by Stifel at $24.2 million, with the initial investment generating roughly a 20.0% internal rate of return (IRR) and being paid back in six years.
The agreement includes two buyback provisions enabling New World to reduce the royalty rates to 0.60% and 0.30% with respective payments of A$9 million and A$4 million at any time within three months of obtaining at least 75% of the funding required for the development of Antler.
"If the buyback over the project area is exercised, we estimate that the NPV would reduce to $18.9m, but the IRR would increase to approximately 24.0% and payback would be achieved in 4.5 years," the analysts wrote.
"If both buybacks are executed, Trident will have recovered 120% of its investment prior to construction while still retaining two-thirds of its initial uncapped perpetual royalty exposure."