Brigus Gold Corp. (“Brigus” or the “Company”) produced 19,526 gold ounces in the third quarter of 2012 – an increase of 7 percent over second quarter production of 18,254 ounces.
The Company is also pleased to announce that it has secured $30 million in debt financing. $26.4 million of the debt proceeds will be used to repurchase 4 percent of the existing 12 percent goldstream with Sandstorm Gold Ltd. (“Sandstorm”).
Under the agreement with Sandstorm, the Company may repurchase up to 6 percent of the goldstream until January 1, 2013. Brigus will make a decision on the remaining 2 percent prior to the end of the year.
In late September Cramer apparently started touting Sandstorm Gold as the next best thing and then did a high profile interview with CEO Nolan Watson this past Friday. That shine looks to be wearing off a bit and news like this can’t be helping:
Not that anyone was trying to hide the optionality of the agreement with Brigus Gold (it’s right there on Sandstorm’s beautiful website), but when you pay $56.3 million for a 12% royalty on a modest operation and the seller gets to buy half back for $36.6 million there’s clearly limited accretive value. Nevertheless this was Sandstorm’s #3 royalty helping support a $900 million market cap. But it isn’t just Sandstorm benefiting from this royalty craze, Franco-Nevada and Royal Gold are also sporting hefty valuations. Rather than swim against the tide we still think one of the better ways to play this is through the previously discussed pairs trade, long the more reasonably valued Silver Wheaton and short Royal Gold, since both are heavily exposed to a couple of the same projects. In our view the major risk to such a trade is the potential for the shared Pascua-Lama project to be delayed while unshared Mt. Milligan (Royal Gold’s most substantial royalty by far) moves full steam ahead without a glitch. However, even if we assume Pascua-Lama is worthless Silver Wheaton is actually still the better value compared to Royal Gold based on a discounted cash flow valuation of their respective royalty streams.
8 months ago
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