Hemlo in Ontario, operated by Barrick Gold. Photo: Barrick Gold

Hemlo in Ontario, operated by Barrick Gold. Photo: Barrick Gold

AuRico Adds Hemlo to Gold Royalty Portfolio

Issue 139, September 2015

AuRico Metals has upped the ante in its bid to establish itself as a new player in the royalty world, paying C$6.9m ($5.2m) for three gold royalties in Ontario on Tuesday.

The royalties cover Wesdome's Eagle River mine and the Williams operation, which is part of Barrick Gold's massive Hemlo complex. Net of cash, AuRico paid C$5.9m, which Scotiabank described as “mildly accretive”, estimating total royalty revenue of $0.8m per annum.

It is a small transaction for the royalty sector, but sends a clear signal that AuRico is a new contender in the business, upping the stakes for acquirers, thought to be eyeing AuRico's own royalty portfolio.

“It's competitive and I expect there will be competition,” AuRico's chief executive Chris Richter told Global Mining Observer, “but I'm seeing a good amount of dealflow. It was one of a good number of opportunities that's been coming across our desk and there's a decent number we think could be transacted on, without deteriorating the quality of our portfolio.”

“It looks positive,” one London-based buy-side analyst says. “They don't seem to have overpaid. I'm just surprised that nobody else picked it up.” The royalties were previously owned by a private company, Minerals Streams Inc., led by Canadian executive Gordon McKinnon, whose father, Don McKinnon, co-discovered Hemlo in the early 1980s.

As a boy, Gordon is said to have waited in his father's truck whilst Don staked ground over Hemlo, one of the world's greatest ever gold discoveries. Minerals Streams acquired the royalties last year, reporting quarterly revenue of $252,000 at the time.

AuRico only listed in July this year, after a spin-off by Alamos Gold, but the company is now sitting on five cash-flowing royalties, building an impressive roster of counter-parties, including Barrick, Wesdome, Alamos and Newmarket Gold. The portfolio is already being coveted by streaming group Sandstorm, which disclosed a 12 per cent stake in AuRico last month.

AuRico subsequently introduced a shareholder rights plan and announced a C$5.6m private placement, issuing 8m shares to Alamos, but via National Bank in Vancouver, Sandstorm has since returned to the market to top-up its holding.

Refusing to rule-out a royalty sale, Richter says AuRico, which also owns the Kemess copper-gold property in British Columbia, is focused on “creating and surfacing” value. “That might involve spinning-off the royalty portfolio, it might involve spinning-off the Kemess asset, it could involve selling one or the other, or partnering on Kemess.”

“I think right at this moment, the current combination makes a lot of sense, but over the long-term, this company could look pretty different.”

“Over the long-term, this company could look pretty different.”

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