DYNASTY MINING's Zaruma gold mine in Ecuador. Coeur Mining's new royalty unit, Coeur Capital, holds a 1.5 per cent royalty over the deposit. Photo: Dynasty Mining

DYNASTY MINING's Zaruma gold mine in Ecuador. Coeur Mining's new royalty unit, Coeur Capital, holds a 1.5 per cent royalty over the deposit. Photo: Dynasty Mining

Coeur Mining Eyes $30m
Royalty Deals

Issue 70, January 2014

Coeur Mining, the US’s largest silver miner by output, is planning a flurry of royalty deals after buying Global Royalty Corp. late last year for $24m.

“A depressed mining environment is the best environment to grow a streaming and royalty company, so the opportunities are literally manifold,” says Mark Kucher, Global Royalty’s founder, who has joined Coeur as managing director of its new royalty unit, Coeur Capital. “We can easily see a doubling [of revenue] in the environment we’re in right now.”

Coeur has injected cash, its equity holdings and existing royalty assets into the division, which currently generates $15m per annum and is aiming to strike deals “in the $3m to $30m range,” Kucher says. “Because it’s a cash flowing business,” adds chief financial officer Peter Mitchell, “we’re creating our own wind, so it very quickly becomes its own self-financing entity.”

Coeur’s move into royalties marks a new type of relationship between producers and industry upstarts. Whilst many big-caps shun contact with the junior sector, waiting until a discovery is fully defined before paying a hefty takeover premium, Coeur pursues a portfolio approach, buying minority equity stakes at an earlier stage.

Royalties likewise grant Coeur a foothold in future mines, but also give the company a direct and cash generative claim over any future production. The variation effectively makes Coeur’s business development division self-funding and on a group basis, is highly earnings accretive. Coeur reported a net loss in its last quarter of $46m.

“This business is as much about intellectual capital as it is about operating capital,” Kucher explains; wrapping the due diligence expertise of an operator around a royalty business therefore makes perfect sense, he says. In Mexico and Bolivia, Coeur owns 2 of the world’s 12 largest silver mines.

A former investment banker, Kucher is as deft at trading companies as royalties themselves, spinning a royalty portfolio out of IAMGOLD for $22m in 2005, sold to Royal Gold in 2007 for $50m including debt. “If there’s a district opportunity, say a neighbour of an existing mine that looks like it’s going to hit production and may make sense to one day be part of Coeur, those are the areas we’re going to look at first.”

“The opportunities are literally manifold.”

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