Trident Royalties PLC (LON:TRR) (FRA:5KV) said its wholly-owned subsidiary TRR Services UK Ltd has entered into a binding, conditional agreement with Bellatrix Ltd, a wholly-owned subsidiary of Orion Resource Partners, to acquire a portfolio of three existing royalties over the Pukaqaqa Copper Project in Peru for a total consideration of approximately US$3.0mln worth of new Trident ordinary shares.
The company said the acquisition is being made directly of two of the royalties and the via the purchase of Tiomin Peru S.A.C, a Peruvian company which owns the third. Pukaqaqa is majority-owned and operated by NYSE and TSX-listed Nexa Resources, an established South American mid-tier miner.
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Nexa Resources, which has a C$1.35bn market cap, has five operating base metals mines, plus an additional mine currently under construction, and three operating smelters in Peru and Brazil.
Pukaqaqa is a cornerstone project within Nexa´s growth pipeline and comprises 34 concessions covering 11,125.87 hectares located in the Huancavelica region of Peru, an established mining district.
In its 2019 Annual Report, Nexa noted Pukaqaqa's project status as "ongoing pre-feasibility study" with the first stage of the pre-feasibility study completed and "a new phase of metallurgical tests" to be completed in 2020. Nexa has allocated a total of US$16mln towards advancing the project over the last three years, a significant sum relative to commensurate junior-led projects.
The Project's 2017, CIM compliant 3, Mineral Resource Estimate includes a Measured and Indicated Resource of 309 million tonnes at 0.41% copper (approximately 1.26 million tonnes of contained copper), with an additional Inferred Resource of 40.1 million tonnes at 0.34% copper for 136,340 tonnes contained copper.
The most recent technical report contemplates an open-pit mining operation to feed a 30,000 tonne-per-day processing plant to produce copper and molybdenum concentrates over a 19-year mine life, the group added.
It noted that the morphology of the deposit with a sub-horizontal, shallow dipping, blanket of near-surface mineralisation and higher grade breccia-hosted zones, offers the potential for large scale low-stripping ratio open-pit mining, with free-digging potential, subject to further technical studies.
Further, exploration upside is offered both in the wider licence holding and through possible mineralisation extensions along strike and down-dip of the current Resource, and the potential for underlying, porphyry-style mineralisation below the project has also yet to be drill tested, the group added.
Trident said the all-equity transaction adds a significant asset to its portfolio while preserving cash and establishes a shareholding in Trident by an industry-leader in mining royalties & streams. Upon completion of the transaction, Orion - a global alternative investment management firm with approximately US$6.2bn under management as of March 31, 2020 - will become a 6.1% shareholder in Trident.
The transaction includes the acquisition of three royalties covering the entirety of Pukaqaqa, with significant additional milestone payments of US$8 million payable to Trident to be made in the first two years of commercial production.
Very attractive entry valuation
Relative to recent royalty precedent transactions over similar size and stage assets, Trident said it is achieving a very attractive entry valuation which would see an excess of the transaction consideration recovered from the first milestone payment alone (US$4mln payable upon commencement of commercial production), to be followed by an additional US$4mln milestone payment in the second year of commercial production, plus uncapped life-of-mine royalty payments.
The proposed acquisition is Trident's first all-equity transaction, demonstrating an ability to continue to build the portfolio while preserving balance sheet cash.
In a statement, Adam Davidson, chief executive officer of Trident commented: "We are very pleased to announce this all-share transaction with Orion. The royalties cover a large-scale asset which is being actively advanced by an established regional operator that, once in production, will generate a significant revenue stream for nearly two decades based on the most recent technical study.
"On the current resource, at a processing rate of 30,000 tonnes-per-day we believe Pukaqaqa has the potential to produce around 35,000 tonnes of copper per year, along with potential molybdenum, gold, and silver credits."
He added: "Whilst not losing sight of our priority to acquire cash generative royalties, as we plan for Trident's long-term growth, acquiring attractive development stage royalties over significant assets such as this has the potential to catapult a royalty company from junior status to that of mid-tier/major.
"I would also add that it was a pleasure transacting with Orion, and we look forward to further engagement in the future. It is worth noting that Trident's transaction pace since our June 2020 listing continues to exceed my expectations and demonstrates the robustness of our pipeline. I look forward to reporting further on our progress."