Source: Adrian Day for Streetwise Reports 06/16/2020
Fund manager Adrian Day discusses why he likes the proposed merger of Evrim Resources with Renaissance Gold, plus he names some companies on his buy list.
Evrim Resources Corp. (EVM:TSX.V, 0.35) is merging with fellow junior prospect generator Renaissance Gold Inc. (REN:TSX), doubling the size of the company, to create Orogen Royalties, a self-defined “organic royalty generator.” The merger brings together Evrim’s near-term royalty on the Ermitano project and multiple projects and joint-ventures in British Columbia and Mexico with Renaissance’s further-out but potentially much larger royalty on the Silicon project with multiple exploration projects in Nevada. The business model with be to build a portfolio of royalties largely through prospect generation, as well as M&A and exploration.
Strong assets to build on
The combined company will have a market cap of about C$60 million with C$13.5 million in cash. The two cornerstone assets are:
- Ermitano: a gold/silver property sold for a 2% royalty to First Majestic, which operates the adjacent Santa Elena mine. First Majestic has been aggressively developing the project with production slated for the first half of 2021.
- Silicon, a gold property Renaissance discovered and sold to AngloGold for a 1% royalty. Though Anglo has put out little information, Renaissance believes from indications it could be a multi-million ounce deposit, likely 5–7 years away from production. Anglo just made the final payment of $2.4 million.
In addition, Evrim brings a royalty of another property, Cumobabi, adjacent to Ermitano, which would follow it into production at a future date, and Renaissance royalties on four early stage projects in Argentina. The project pipeline and joint ventures of both companies in western North America is deep, gold dominant, though there are several copper (or gold-copper) projects in the portfolio as well.
Potential partner in Nevada
Of particular interest is an agreement Evrim has with Yamana regarding its extensive western United States database. Evrim must show properties it finds (whether from Yamana’s database or independently) to Yamana, which has the option to enter into a joint venture on pre-determined and quite attractive terms. Evrim can dilute itself from an equity interest to a royalty. If Yamana declines, then the property reverts to Evrim; the entire alliance ends in 18 months, at which time Evrim maintains a copy of the database
Many of these properties are in Nevada, and Renaissance’s exploration team has deep experience in that state, so the potential for a series of exploration properties, joint ventures and eventual royalties is real.
People, cash, and a plan
Both companies have strong, well-respected personnel. Paddy Nichol will remain CEO of the combined company, and Paul van Eeden the chairman, while Renaissance’s Bob Felder will be senior vice president. The balance sheet is strong, and once the Ermitano royalty kicks in, revenue will cover most of the company’s expenses. The companies expect that by combining they can save around $800,000 in G&A, which is significant for two companies that each have a little over $1 million in G&A. The transaction, requiring votes of both groups of shareholders, is expected to close in late August or September.
If that was the end of the story, it would be strong enough, with two complementary companies, each bringing what the other lacks. But there is much more to this merger: it is intended to lay the foundation for future growth which will include acquiring other projects or companies to build a new royalty generation powerhouse. The larger company will reduce the cost of capital and also enable it to compete in acquisitions.
As CEO Paddy Nichol put it, “We don’t want to be here two years from now with the same assets.” We have high regard and confidence in the skills, integrity and ambition of the management team and with the strong balance sheet, we look forward to the realization of the goal. I suspect we will be holding Evrim/Orogen for a very long time. Evrim is a buy.
Property attractive for acquisition
Cartier Resources Inc. (ECR:TSX.V, 0.195) is advancing its Chimo property in Quebec, with a few to completing a third resource estimate by the end of summer. Currently showing almost 600,000 ounces (indicated), this could increase to close to 2 million ounces, with the planned in-fill drilling intended to upgrade the inferred category into reserves. At that size, given the low capex that would be required—because of facilities in the region, no mill, no leach pad, no shaft to sink—the project could be of great appeal to one of the many companies operating in the region, or even a new entrant. Cartier’s plan is to sell the project once the updated resource estimate is completed. Its $5 million in the bank is more than sufficient to reach that stage. Cartier is a buy for aggressive investors.
TOP BUYS In addition to above, with the pullback we have experienced in many gold stocks, while not at bargain levels, there are some buys this week. Don’t go overboard; we may see further declines. Buys include Osisko Gold Royalties Ltd. (OR:TSX; OR:NYSE, CA$8.95); Wheaton Precious Metals Corp. (WPM:TSX; WPM:NYSE, US$38.12); Midland Exploration Inc. (MD:TSX.V, 0.83); Lara Exploration Ltd. (LRA:TSX.V, 0.72); and Kingsmen Creatives Ltd. (KMEN:SI, 0.22).
Originally posted on June 14, 2020.
Adrian Day, London-born and a graduate of the London School of Economics, heads the money management firm Adrian Day Asset Management, where he manages discretionary accounts in both global and resource areas. Day is also sub-adviser to the EuroPacific Gold Fund (EPGFX). His latest book is “Investing in Resources: How to Profit from the Outsized Potential and Avoid the Risks.”
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1) Adrian Day: I, or members of my immediate household or family, own securities of the following companies mentioned in this article: Evrim Resources, Midland Exploration, Lara Exploration. I personally am, or members of my immediate household or family are, paid by the following companies mentioned in this article: None. My company has a financial relationship with the following companies mentioned in this article: None. Funds controlled by Adrian Day Asset Management hold shares of the following companies mentioned in this article: All. I determined which companies would be included in this article based on my research and understanding of the sector.
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( Companies Mentioned: ECR:TSX.V,