Terraco Gold (TEN.V) made headlines with their Spring Valley royalties transaction in May 2016. Spring Valley is a multi –million ounce gold project in Nevada owned by Waterton Global, advanced by Barrick to a PFS level by spending over US$70M before Waterton bought it for appr US$83M. Unfortunately for Terraco, but typical of private equity firms, the Spring Valley news flow slowed down after this (though industry sources believe they are improving the Spring Valley project behind the scenes as they did in the below example). This scenario is not new to Waterton, and by way of example they have made a very decent return by buying assets on the cheap (in bankruptcy at times) and quietly improving them before selling to a major mining company.
A good example of this was Waterton’s purchase purchase of the Hollister Mine (May 2013 -out of bankruptcy) for under US$15M, then completing additional value added work over several years including major permitting milestones and an environmental impact study (May 2014) and then selling the Hollister Mine to Klondex (July 2016) in a deal worth over US$92.3M (includes cash and stock but does not include warrants that would increase the value even further) - an estimated impressive 4+ times total return on investments. Spring Valley is a high quality asset for Waterton, and thus will likely fetch a good sales price as well. Similar to the Hollister example, there is a strong chance to see Waterton sell Spring Valley to a major gold producer for significant returns, and this will undoubtedly help to re-adjust Terraco’s valuation. In the meantime Terraco has been doing due diligence on and evaluating royalty projects.
Terraco hired Paul Zink as a consultant and advisor, and this is certainly worth mentioning. Paul Zink isn't just any name in the royalty space, and I think Terraco is lucky to have a royalty veteran like Paul helping them out from now on.
According to the news release Mr. Zink has an impressive resume regarding royalties:
"Mr. Zink is a mining industry professional with more than 35 years of experience in finance and the extractive industries. He has particular expertise in mineral royalties, project financing, financial analysis, business development and strategic planning. Within his career, Mr. Zink has held several senior positions specific to the royalty sector including President of International Royalty Corporation (“IRC”) until the successful sale of IRC to Royal Gold, Inc. in February 2010. As a member of the IRC team, Mr. Zink focused on strategic company development, financial engineering and market communication/investor road shows.
Mr. Zink was also President of Eurasian Capital (2010 to 2013), the royalty and merchant banking division of Eurasian Minerals Inc. where his focus was on building a portfolio of revenue-generating royalties. Mr. Zink has also held other senior positions or directorships at Rare Elements Resources Ltd., Atna Resources Ltd. and Americas Bullion Royalty Corp. He began his career following the mining and metals industries during a 17-year tenure on Wall Street with J.P. Morgan & Co., Incorporated, where he performed industry research and merger and acquisition analysis on mineral companies, banking and project finance advisory work for European mining companies, and sell-side equity research on U.S. mining stocks."
I looked into the IRC takeover, and this was no less than a $700M deal in 2010, before the big peak in gold, one of the biggest royalty company deals of the decade. According to Terraco Gold CEO Todd Hilditch, which I contacted right after the news came out, Zink built IRC together with two partners (including the founder Doug Silver, now at Orion Mine Finance), so this means he is a real royalty specialist, but also a company builder and rainmaker in my view. Right now, he is looking to return to the royalty sector, after a relatively quiet period for the last three years. As a consultant and advisor, Paul will advise and help Terraco management review/evaluate assets, and bring in royalties for evaluation that could be a good fit.
But this might not be the only thing Paul could do. With his vast network in the royalty- and mining space, and the successful IRC story as an indication of the kind of playing field he likes, I'm pretty sure his ambitions reach outside the usual realm of small companies like Terraco Gold. People like him could raise cash fairly quickly and easy, and also attract the best people available if necessary. Besides this, the best available projects will find guys like Paul, not the other way around as is usual with less familiar names. This is why I do think this hire could be a game changer for Terraco Gold, and I'm looking forward to what Paul could achieve here. He came at the right time, as the stock drifted down on lower gold and tax loss selling to C$0.12-0.13 levels lately:
Share price; 1 year time frame
Tax loss selling is over now, and it seems like gold is bottoming as well, although there are still negative outlooks for the yellow metal (to the tune of $1050/oz). Those analysts may be wrong, as several hedge funds and for example European investors are turning towards gold and gold equities at the moment, and rotate out of other equities. This could be an interesting opportunity to bottom fish, as gold might have bottomed and Paul Zink could for example kickstart an aggressive acquisition spree for Terraco, if I'm right of course. At least Paul got a nice little incentive for starters, when approved of course:
"The Company has granted 250,000 incentive stock options to Mr. Zink pursuant to its Stock Option Plan with certain vesting provisions. These options will be exercisable at a price of CAN$0.13 per share and will expire on December 29, 2021. The grant of the incentive stock options is subject to regulatory approval."
I must say price and expiration period are a bit generous in my view, but on the other hand the amount was quite limited so I don't see too much harm done here to shareholders. Things are looking brighter now for Terraco Gold in my view, and I totally understand why Hilditch is very happy with his new hire, as Paul brings a new level of doing business in the royalty space to the table. I'm looking forward to his first moves.
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The author is not a registered investment advisor, and currently has a long position in this stock... Terraco Gold is a sponsoring company. All facts are to be checked by the reader. For more information go to www.terracogold.com and read the company’s profile and official documents on www.sedar.com, also for important risk disclosures. This article is provided for information purposes only, and is not intended to be investment advice of any kind, and all readers are encouraged to do their own due diligence, and talk to their own licensed investment advisors prior to making any investment decisions.