Trident Royalties PLC (LON:TRR) is acquiring an existing 1.5% net smelter royalty on the Lake Rebecca gold project in Western Australia, an asset that’s currently being worked up by Apollo Consolidated (ASX:AOP), and which already boasts a resource of a million ounces.
With a ticket price of A$8mln, it’s the company’s largest transaction since it listed in March, but what’s even more noticeable is that the consideration comprises a sizeable component of shares.
It’s the first time Trident has used its own paper as significant currency in a transaction, and it comes after the company’s share price has risen by around 50% since it first listed in March.
Since that time, Trident has struck several deals and built credibility, such that it is now able to step it up a gear.
The deal, says Trident’s Tyron Rees, sits exactly in the “sweet spot” that Trident is going to be targeting in terms of size. It’s not so big that Trident might have been muscled out by a larger rival, but is big enough to be very accretive.
In fact, given that at this early stage Lake Rebecca has all the hallmarks of being a 100,000 ounces per year producer, it ought to end up generating much meaningful cash for Trident.
A calculation on the back of an envelope shows that on those parameters it could generate more than US$2.5mln per year. Allowing for a ten year mine life, that would put Trident significantly in the money, and especially so if the mine life ended up being extended, as is so often the case.
Much of that is supposition, of course. A full economic study on Lake Rebecca has not yet been run and completed by Apollo, but the Trident team have of course been all over the project, and there is plenty to be optimistic about.
“We’re very confident this will be a material mining operation within the next couple of years,” says Rees.
“They’ve been talking about 2023 in terms of production, and we think that’s reasonable. The infrastructure there’s really good. It’s a good, simple and robust Western Australian gold project. It’s a very solid royalty.”
But if that’s the case, why sell the royalty?
The answer is that the vendors are private holders who recognize that the value of royalties are best maximized in dedicated companies and can monetise the value of their asset sooner, albeit at a discount, rather than hold on for payments on a drip feed over the course of the course of the mine life. In that sense, this deal represents a win-win for all parties, especially since the vendors are taking Trident shares and will be able to retain their interest that way, as well as participating in any further upside Trident may generate.
As it stands, the deal will mean that Trident will be more weighted to gold than any other commodity. With gold still strong up at around US$1,900, that’s not a bad way to position a new company.
It won’t necessarily stay that way, as Trident’s long-term goal is to build a diversified royalty portfolio that’s representative of the mining industry as a whole. But for now, building up exposure to gold looks a good move, especially since the asset in question is in such a tier one jurisdiction as Western Australia.