(Kitco News) - BHP’s failure to acquire Anglo American with its US$49.2B bid is good for both companies, Christopher Ecclestone, Principal and mining strategist at Hallgarten + Company told Kitco Mining’s Digging Deep.
With Anglo now spinning out its diamond and platinum businesses to focus on copper and iron ore, Ecclestone expects a lot of value to be surfaced. “I love demergers because I always find that the assets, when they're set free, are collectively worth more than they were within the original structure,” he said.
Ecclestone, however, said he is not a fan of single asset companies creating royalties and then spinning them out into newcos, like Vizsla Silver announced plans to do this week by putting a 2% net smelter returns royalty on its Panuco silver asset in Mexico to create Vizsla Royalties. “Spinning out one asset royalty companies has no value added whatsoever. If there's a royalty, why doesn't it stay within the mining company? And then the mining company has more earnings to distribute as a dividend. It’s just an excuse for the miner to say, we don't need to pay a dividend because we spun out a dividend royalty company and that will pay you a dividend. … This is a bad trend,” he said.
He said the royalty space needs to undergo another wave of consolidation, and applauded B2Gold’s agreement to sell a portfolio of 10 precious and base metals royalties to Sandbox Royalties, which will be renamed Versamet Royalties, for C$90 million in stock to take a 33% stake in Versamet. Versamet’s main shareholders include Sandstorm Gold Royalties at 26% and Equinox Gold at 12%.
Ecclestone said he thought the convertible senior note due 2029 financing Fortuna Silver Mines announced this week to raise from US$150 million up to $172 million was a good move as it moves debt out into the future, lowers the interest rate and the convertible price. The new note will bear interest at 3.75% and by convertible at $6.59 per share. The existing debt bears interest at 4.65% and is convertible at $5 per share. “Fortuna has become a quasi major out of 10 years of hard slog when not many people can do that. They've been really bean showing that they can bring home the bacon,” he said.
Ecclestone also applauded Canadian venture capital firm ThreeD Capital and 1313366 Ontario which obtained a settlement from Palisades Goldcorp, Collin Kettell and New Found Gold of 3.75 million New Found Gold shares, worth US$12.9 million. 3D initiated a lawsuit after it sold 13.5 million shares in New Found Gold to Palisades in November 2019 at 8c per share, alleging Palisades was in possession of information material to the transaction that was not disclosed. Shares in New Found Gold ran up to a high of $9.40 in January 2021 on the back of high-grade drilling results at its Queensway gold project in Newfoundland and Labrador, Canada. The settlement includes no admission of wrongdoing. “It's good to see that they went after them, although we shouldn't have to be private companies doing the lawsuit, but the regulators,” he said.
Having brught the Greenstone gold mine in Ontario into production in May, Equinox Gold announced its team would cycle 3,634km from Vancouver to Geraldton to raise money for the Geraldton District Hospital, with teams for Equinox’s mine sites in California, Mexico and Brazil also participating to raise money for their local charities. Ecclestone said it might be better for the company to donate money, claim a tax deduction and have its teams concentrate on running the business. Donations can be made at www.ridetogreenstone.com. “Maybe the executives would be better off sticking to their knitting, getting off the bicycle and just writing a check and giving it to the hospital,” he said.