Metalla Royalty & Streaming Ltd (OTCQX:MTAFF) Closing on Gold Royalty Acquisition
- HeffX-LTN views Metalla, a new entry, in this coming commodities cycle as a good risk-off bet.
Metalla Royalty & Streaming Ltd’s (OTCQX:MTAFF) CEO Brett Heath announced Monday, that the company is proceeding to close its acquisition of the 2% net smelter return royalty on the Santa Gertrudis gold property located north of Hermosillo in Sonora, Mexico from GoGold Resources Inc. (OTCMKT:GLGDF) as announced on 5 September 2018.
The closing of the transaction is subject to customary conditions for similar transactions, including notice of the Transaction to the TSX Venture Exchange and entry by Metalla and GoGold into an assignment and assumption agreement pursuant to which the Royalty will be transferred from GoGold to Metalla.
Metalla see the transaction as having strong resource expansion potential. The property produced over 550,000 oz of gold in the 1990’s at an average head grade of 2.13 g/t gold.
The property is located in northern Sonora Mexico has 3 northwest-trending mineralization corridors, which each have distinctive regional geological features.
Santa Gertrudis covers a potential strike length of 25 km of the favorable Cretaceous-age Intra-caldera sedimentary belt. The mineralized deposits form trends that are hosted mainly by the sedimentary Mural Formation but are not restricted to this unit. There is a distance of 18 km between the northernmost and southernmost mineralized deposits with the balance remaining to be explored.
The mineral resources in the estimate relied on were calculated in accordance with the Canadian Institute of Mining, Metallurgy and Petroleum (CIM), CIM Standards on Mineral Resources and Reserves, Definitions and Guidelines as prepared by the CIM Standing Committee on Reserve Definitions, as well as the requirements of National Instrument 43-101.
About Metalla: the company was created to provide shareholders with leveraged precious metal exposure by acquiring royalties and streams. Our goal is to increase share value by accumulating a diversified portfolio of royalties and streams with attractive returns. Our strong foundation of current and future cash-generating asset base, combined with an experienced team gives Metalla a path to become 1 of the leading gold and silver companies for the next commodities cycle.
Commentary: When equity markets correct like they did in 2008, 2000, and 1992, physical goods increase in price because consumers USDs do not have the same purchasing power. Gasoline, food, and travel become more expensive. Commodities such as Gold and Silver also increase in value. That is why most financial experts will tell investors to include Gold and Silver in their portfolio.
For most people investing in precious metals is most often associated with directly owning physical gold, or investing in mining companies, but both strategies have notable drawbacks.
Streaming and royalty companies, like Metalla, Royal Gold, Inc., Franco-Nevada Corporation, and Wheaton Precious Metals Corp., change the equation, effectively avoiding many of the negatives associated with such investments, allowing them to provide more consistent returns to investors over time.
Below the Key benefit about gold streaming, as follows:
The precious metals mining business is simple. Find a location that contains gold or silver, mine it up, and sell it. That’s obviously an oversimplification of a very complex, dangerous, and expensive business model, but you get the idea. A streaming and royalty company does not do that, but instead provides an important part of the process: Cash.
Streaming provides cash up front to miners in exchange for the right to buy gold, silver, or other metals at reduced rates in the future.
The miners benefit from having access to an additional source of capital over and above what they can get from banks and capital markets, which at times can be costly sources of capital.
Streaming companies benefit from contractually locking in low costs for gold and silver.
Many companies that operate in the streaming niche also have royalty deals in their portfolio.
Royalty deals are similar to streaming deals in that cash is provided up front to miners. In exchange the miner pays a percentage of the sales from a mine to the streaming and royalty company. The up-front payment is usually larger, since the streaming and royalty company is not expected to buy any of the gold that is produced from the mine.
Since streaming and royalty companies are only providing cash to miners, they are looked at as specialty finance companies.
The Key benefits to investors include:
- Consistent results. Although each streaming and royalty deal is different, the trailing EBITDA margins of streaming companies Royal Gold, Franco-Nevada, and Wheaton Precious Metals have been solidly positive over the past 10 years. Positive, and wide, EBITDA margins are a sign these companies are running their businesses profitably. The contractually guaranteed low prices these companies pay are the bedrock on which those consistently wide margins are built.
- Diversification means less risk. Streaming companies generally spread their risk across a larger number of assets. Focusing on providing cash to the miners who take on the task of running mines makes diversification easier for them to achieve. Franco-Nevada, for example, provides exposure to nearly 300 mine investments, 50 of which are producing assets, while the rest are in some stage of development. That diversification materially reduces the risk that trouble at any 1 mine will derail performance. Since gold and silver prices are prone to fast and large price swings, with their prices driven by supply and demand and emotional investors, diversifying mine risk is a good benefit.
- Dividends. Dividend income is provided by the larger gold royalty and streaming companies. Although miners often pay dividends, too, those can wind up being cut when commodity prices fall. Royal Gold and Franco-Nevada, on the other hand, have each increased their dividend for at least 10 years. And while Wheaton’s dividend is variable, it is linked to the company’s performance, so investors know beforehand that the dividend is a moving target, but they know the math involved behind the payout. Metalla pay a dividend. Locked-in low prices, wide margins, and diversification are what allow streaming companies to be generous with dividends. Dividends can provide investors something to watch, instead of stock prices, when gold and silver prices are weak. That, in turn, can help investors stick around through the entire commodity cycle to benefit from the diversification that gold and silver provide to an investment portfolio.
Better than physical gold. Investing in streaming companies also has a leg up on direct ownership of gold and silver. If you buy gold bullion, the only upside you have is a potential increase in the price of gold. An ounce of gold today will still be an ounce of gold tomorrow, Yes?. Since streaming companies invest in both developed and developing mines, they benefit, like miners, from the opportunity for increased production over time. That is a Key reason that it is important to view streaming companies as having a portfolio, managing a collection of streaming investments over time. They balance investing in current production with investments that can maintain and enhance production in the future as they are developed.
Gold and silver streaming is a niche in the precious metals market, the largest competitors have been in the business since the 1980’s, while new entrants are showing up as well. including hedge funds, private equity, and pension funds.
HeffX-LTN views Metalla, a new entry, in this coming commodities cycle as a good risk-off bet.
|OTCQX:MTAFF||0.5974||22 October 2018||0.02||0.5818||0.6||0.578||85,300|
|HeffX-LTN Analysis for MTAFF:||Overall||Short||Intermediate||Long|
|Bullish (0.37)||Bullish (0.39)||Bullish (0.44)||Bullish (0.28)|
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