Metalla Royalty and Streaming (CNSX:MTA, FRA:X9CP, OTCMKTS:EXCFF) – Undervalued & Top Acquisition Target

Palisade Research May 19, 2017
Category: Research

Metalla Royalty and Streaming (CNSX:MTA, FRA:X9CP, OTCMKTS:EXCFF)

Metalla Royalty and Streaming is by far the most undervalued junior streamer, and not surprisingly, also the newest, being formed earlier this year. Nonetheless, it is already on the radar of the majors.

President, Brett Heath, has been methodical in structuring this company. With a good vehicle and even better relationships, he has already secured an enviable royalty portfolio that would have taken others many years of dilutive financings to achieve.

Current Price: C$0.48
Shares Outstanding: 54.9 million
Market Capitalization: C$26.4 million
52-Week Range: C$0.105-C$0.88
Cash: ~C$1.6 million

The company’s flagship royalty is the 2% NSR on Goldcorp’s Hoyle Pond Extension, in Timmins, Ontario. Hoyle Pond has been in operation since 1985 and has been producing over 160,000 oz of gold annually. The Extension has been subject to major investment by Goldcorp, including a shaft and 80,000m of drilling. Metalla expects cash flow in 2020-2021, and according to our analysis, the Hoyle Pond Extension yields an NAV of C$54.0M.

Metalla’s 1.5% NSR on the West Timmins Extension is also of value. West Timmins is operated by Tahoe Resources, and currently produces 50,000 oz. per year. Cash flow should kick in sometime 2018-2020, from 500-600 net ounces over 10 years. The NSR is subject to a buyback of 0.75% for C$750,000, which Tahoe will certainly exercise come time. While not as blistering as Hoyle Pond, the West Timmins Extension still bolsters value with an NAV of C$5.3M.

Metalla’s most recent deal is also very accretive. The company recently closed a stream with Silverback, a PE firm based in London, to acquire 15.1% of a silver stream for US$2M, plus the option to acquire 16.7% of a gold stream also for US$2M. The silver stream covers 100% of the silver produced from the operation, and is purchased at 10% of spot through to 2026. In 2015, the mine produced 121,682 oz. of silver and 81,873 oz. of gold.

This transaction is definitely a milestone, being the first cash-flowing asset in Metalla’s portfolio. On the silver portion of the deal, we calculate a conservative NAV of C$3.0M, or an IRR of 12%, versus the industry transaction average of 3-7%.

Its important to note, that Doug Casey is a significant investor, and in this deal, and a strong proponent to the royalty and streaming model. In fact, he was a founding investor in Silver Wheaton, and believes streamers are the safest, and most conservative way of investing in mining. Doug has derived a similar conclusion to us, and believes Metalla is the cheapest stock in the space.

The company has strong representation from the Casey Group, with EB Tucker, currently serving as an Independent Director. EB writes The Casey Report, which was founded by Doug Casey and is also heavily invested in the company.

Metalla currently has a market cap of C$26.4 million. The value proposition is very simple, Metalla is the only royalty and streaming company that is trading under its NAV. Utilizing peer comps, Metalla’s intrinsic value should be C$1.50, or a gain of 213% from its current share price.

Doug recalls making a 600% gain on Silver Wheaton by investing early before selling too early. We believe the next year will see further high-calibre acquisitions and the continued growth of Metalla’s royalty and streaming portfolio.

Palisade Global Investments Limited holds shares of Metalla Royalty and Streaming. We receive either monetary or securities compensation for our services. We stand to benefit from any volume this write-up may generate. The information contained in such write-ups is not intended as individual investment advice and is not designed to meet your personal financial situation. Information contained in this report is obtained from sources we believe to be reliable, but its accuracy cannot be guaranteed. The opinions expressed in this report are those of Palisade Global Investments and are subject to change without notice. The information in this report may become outdated and there is no obligation to update any such information. Do your own due diligence.

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