KEMESS in British Columbia, where AuRico Metals could carve out a royalty (photo: AuRico)

KEMESS in British Columbia, where AuRico Metals could carve out a royalty (photo: AuRico)

 
 

AuRico Ponders Strategy, Deals, Split, as Royalty Portfolio Grows

Issue 176, January 2017

AuRico Metals, one of the newest players in the mining royalty space, is looking at deals for both sides of its business, chief executive Chris Richter tells Global Mining Observer in an interview in London.

AuRico was spun-out of a $1.5bn merger in 2015. It owns the Kemess gold-copper project in British Columbia and a portfolio of gold royalties over mines in Canada and Australia that generated around $8m last year. “A very strong argument can be made, and we've been saying it pretty much from the get-go, these assets will ultimately be separated,” Richter says, “so Kemess does need to sink or swim in its own right. And the royalties, the same naturally goes for them.”

Kemess entered the final stage of an environmental assessment process last week, with a decision expected by the end of this quarter. The company also announced a resource upgrade at the project on Friday. “I think it's going to be an exciting 2017 for us,” Richter says. “The company's going to look quite different down the road.”

AuRico's options include selling Kemess into a joint-venture, selling Kemess outright and retaining a royalty, or shunting the company's royalty portfolio onto an acquirer, according to a presentation released by AuRico in November. Royalty and streaming group Sandstorm has previously traded in and out of AuRico's stock, whilst AuRico co-founder Scott Perry, the CEO of Centerra Gold, recently bought gold-copper assets in British Columbia.

Kemess is a former open-pit mine that was idled in 2011. AuRico spent $4.5m last year to maintain the mine's equipment, with C$1bn of capital already sunk at the site. “Kemess is two-thirds built,” Richter says. “That gives us a huge head start.”

AuRico has added to its royalty portfolio in the last two years, buying new claims over the Hemlo and Eagle River gold mines in Canada. It also announced the acquisition of a 0.5 per cent royalty over Kirkland Lake's East Timmins property in Ontario last month, via a $C$9.6m ($7.1m) deal with Vancouver-based Kiska Metals, lifting its royalty portfolio to 16.

There are “plenty of those types of deals out there,” Richter says, having recently paired-up with mining boss Ian Ball to buy a 1 per cent royalty on land near Goldcorp's Red Lake mine in Ontario. Out of the royalty groups that are bigger, they are “so much bigger that they're looking at different types of deals.”

AuRico has a “good dialogue” he says with other royalty and streaming groups. “Ultimately, it's quite possible that AuRico Metals' royalties are held by a larger company. That's why we are the largest of the smaller royalty companies, because others have all been scooped-up.”

Richter, 37, an M&A anorak who started his career in Barrick Gold's corporate finance department, says mining deals are just “really fun to watch”. But he only entered mining by accident. Richter was studying politics and economics at the University of Waterloo, outside Toronto, when he was offered an internship at the head office of Barrick, the world's largest gold producer, then in its heyday under founder Peter Munk.

“It was an exciting time,” says Richter. “We had a Russia strategy going at the time, we had a Russia office. The company was looking at numerous projects with billions in capital all over the world, all at the same time. Of course, that didn't turn out so well when the market turned, but it was a great place to learn.”

“We’ve been saying it pretty much from the get-go, these assets will ultimately be separated”

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