Exclusive Interview With founding CEO of Metalla Royalty & Streaming, LLC
Tuesday, I sat down with Brett Heath, the founding President/Director of Metalla Royalty & Streaming, LLC (OTCMKT:EXCFF) to discuss the importance and benefits of his new enterprise to the industry, community and stakeholders in the world of precious metals mining, funding and production, what happens and how.
Metalla Royalty and Streaming Ltd. is a new precious metals royalty and streaming company engaged in the acquisition and management of precious metal royalties, streams and similar production based interests. The main projects include a 1% NSR on Goldcorp’s Hoyle Pond Extension properties, a 1.5% NSR on the West Timmins extension properties, owned by Tahoe Resources, a 1.5% NSR on the DeSantis properties, owned by Osisko Mining, and royalties on the Mirado Gold Project owned by Orefinders.
Paul Ebeling, with Brett Heath
Q: Brett, please tell us about your company, what it does, how the business works?
A: Of course, and thanks for having me on Live Trading News. We’re a new streaming and royalty company that was formed in September of 2016. The streaming and royalty model allows us to participate in rising gold and silver prices without having to operate big trucks, huge mills, expensive drill rigs, having to incur exploration and development costs. The best part is we get all that upside. We do this by acquiring interests via streams or royalties that give us a percentage of production (royalty) or the right to buy a percentage of production at a discount (stream) to spot gold and silver prices, typically for the life of the mine.
If a mining company makes a new discovery on our royalty property, we get that upside. If the mining company extends the life of operation by extensive development drilling on an asset we have a stream on, we get that upside as well. The best example of this is Franco Nevada (FNV) paying only $2 million for royalties on a property in Nevada. Those royalties ended up being on what was the Goldstrike mine. That $2 million investment has returned over $1 billion in cash to FNV. There is an amazing amount of optionality for these types of companies.
Q: Please elaborate on how the process works for us Brett?
A: Yes. Royalty and streams are basically the same. There are two major differences between royalties and streams. When you own a royalty, you own an interest in that mine. If I own a 1% royalty on XYZ Mining’s producing operation, then I get 1% of whatever they produce. If they’re a gold producer, We get 1% of the gold.
Streams can give you exposure to the byproduct, so in regards to a base metal company with a precious metals byproduct, it allows the company to directly, and also tax-efficiently, extract that metal for the shareholders. The overall big picture for what we’re trying to accomplish is we want to own a lot of these interests in a diversified group of very strong counterparty producers that will provide leverage and diversification for shareholders.
Q: Brett, tell how Metalla compares to other royalty and streaming companies?
A: Yeah, of course. Right now there are about nine precious metal-focused royalty and streaming companies. There are three majors, multi-billion dollar companies, Franco-Nevada (FNV), Silver Wheaton (SLW), and Royal Gold (RGLD). There are two mid-tiers, Osisko Gold Royalties (OR) and Sandstorm Gold (SAND), which are around a billion market cap. Our peer group, the new, smaller royalty and streaming companies include Maverix Metals (MMX), AuRico Metals (AMI), Abitibi Royalties (RZZ), and our company Metalla Royalty (MTA).
The difference is that Maverix, AuRico, and Abitibi were all a function of a spinout or an M&A transaction. Investors never really had the opportunity to buy these companies at valuations where they got started, usually it is restricted to insiders. Currently, they are valued between 100-300 million dollars in market cap. We are, at today’s price of .50 cents, about a CAD 22-million-dollar market cap. This will allow aggressive early-on investors, the opportunity to own a streaming and royalty company at a ground floor valuation.
We’re focusing on a part of the market that is underserved. The underserved part of the market are transactions, $2 – $10 million in deal size. Because of the success of the larger companies, they have continued to increase the size of their investments in order to make an impact on their cash flow profile. This has really opened up a lot of opportunity with much higher internal rates of return for us at the smaller level.
Q: Tell us about some of the projects you’re involved in?
A: Yes, we just recently closed a Key transaction. This transaction was to acquire a portfolio of royalties in Timmins. We acquired these royalties from a private company that has actually been up there for more than 50 years, and two of these royalties that we acquired out of the package are on mines that are operated by Goldcorp (GG) and Tahoe Resources (TAHO). Both of these royalties are similar in nature, where we acquired a royalty on the extension of the current operating mine, the deposit that extends onto the property next door, ahead of time, and we were able to do that at a very attractive price.
The Hoyle Pond, for example, currently produces 160,000 ounces of gold a year, and on the extension, we are going to have a 1% royalty on that. As of the 2015 Goldcorp annual report, the Hoyle Pond average grade is a little over 14 grams per ton, so one of Goldcorp’s higher margin, higher grade assets. It has been in production since 1985, and Goldcorp spent 194 million on the Deep Hole project that they completed last spring to access these levels on the extension, along with extensive development drilling on this extension. They’ve invested quite a bit of money into this mine, and we will get paid 1% once they start mining. There is a 500,000 ounce exemption, so we’re expecting this to cash flow some time in 2020, 2021.
The second high profile royalty that we just acquired, as well. That was on the Timmins West deposit, also up in Timmins, Ontario. That mine is owned and operated by Tahoe Resources, which was previously Lakeshore Gold. We also, on this mine, acquired a royalty on the extension property. Once they start mining on the extension, which is just an extension of the initial deposit at depth, we will get paid on that as well. That one, has no exemption, and will cash flow sooner.
Q: That is solid, pragmatic business Brett, give us some insight into you and The Metalla Team please.
A: Happily Paul, I have been involved in streaming and royalty companies for the last 4 years. I’ve done it publicly. I’ve done it privately. I’ve worked with other public companies. I’ve also done deals with private equity firms. Prior to that, I ran a hedge fund that was focused on development and junior producing companies, and I was able to build relationships with a lot of management teams in the mining sector, this space that we’re focused on specifically in regards to future deal flow. That has been Key in building out our current pipeline and the transactions that we’ve been working on in the past and currently.
Charles Beaudry, has 30 years experience as our technical geologist.
Tim Gallagher, who’s the chairman of the company, has about 20+ years of capital markets experience and extensive relationships in the sector. We’re going to be adding strategic board members to make us stronger, also to the management team.
The best part about Royalty & Streaming companies is they are incredibly scalable. You don’t need a 100 employees to create a big company. These companies have the highest revenue per employee ratios out of any other businesses. Silver Wheaton (NYSE:SLW) for instance, does $24-M in revenue per employee, Franco Nevada does $20-M in revenue per employee. So a small team can generate a lot of value for shareholders.
Q: Brett, what your goals?
A: Our overall goal is to create the best vehicle to invest in for precious metals exposure for this next bull cycle. We’re going to do this by acquiring a portfolio of royalties and streams. The reason you want to own streaming and royalty companies at the beginning of a cycle is because you get what I call 3X leverage.
The first part of the leverage is the internal company growth. That means every time we execute a transaction and create free cash flow from these royalties and streams, we’re going to get revalued in the market comparable to these other companies. The second part of the leverage is an appreciating gold and silver price. When we do these deals, we model them at today’s prices. When you have rising gold and silver prices, these cash flows can sometimes double and even triple with just a modest rise.
The third bit of leverage that goes with that is the expansion of the multiples. The royalty and streaming companies trade based on multiples of cash flow, with the bigger companies, Royal Gold, Franco, and Silver Wheaton trade between 20 and sometimes up to 40X cash flow in bull markets. When we can create a company that has internal growth by additional transactions, a rising cash flow from rising metal prices, and rising multiples on how they are valued, this is what makes huge winners. That’s the reason these companies have been so successful in the past.
Q: Could you elaborate on your share and capital structure and where your firm is listed?
A: Metalla are listed currently on the CSE, which is the Canadian Stock Exchange, under the symbol MTA, and we’re also listed on the OTCQB, which is the OTC quality bulletin board, under the symbol EXCFF. Currently, we have approximately 43.2-M/shares outstanding.
Q: What are the Key reasons our readers and potential investors should consider investing in your company?
A: The primary reason this is such an incredible opportunity is because you have the option, at today’s valuations, to invest in a new royalty and streaming company where typically only the insiders had the opportunity in the past, with the other royalty and streaming companies that are available.
The second reason is because it’s by far the best way to own precious metals or exposure to precious metals. The reason is because you own the metals in the ground, you get the exploration upside, you get the expansion opportunities, and you also get potential M and A opportunities, so there are a number of benefits to owning the diversified interests in many different mining operations in this type of company.
That, from a risk-adjusted profile, is much, much more attractive than looking at exploration companies and producers that have a tough time making money at these prices. It’s owning a micro-cap company with the risk profile of a much, much more established company. Our counterparts are operating these mines, like Goldcorp and Tahoe Resources.
We also just signed and LOI to acquire two more streams, so 2017 is looking to be a very exciting year for our shareholders.
Q: Sounds like very good reasons our readers and investors should look at your company closely for investment. Is there anything you’d like to add, Brett?
A: If any of your readers would like more details on the company, our website www.metallaroyalty.com shows quite a bit of information, and has an updated presentation.
8 King St E Suite 1010
TORONTO, ON M5C 1B5
Phone: (416) 925-0090
Email: [email protected]
Paul Ebeling with Brett Heath