AuRico Metals Inc. (TSX:AMI) provided an updated on its cash flowing royalties, the creation of a new royalty project acquired in the acquisition of
Kiska and the addition of two additional non-producing royalties. We view the update positively, as it not only highlights the value of the company’s
existing portfolio but reminds us of its ongoing focus to continue expanding its royalty portfolio. Three of the company’s existing royalties, Fosterville
(2% NSR), Eagle River (0.5% NSR) and Hemlo (0.25% NSR on Williams Mine and 1.5% NSR on David Bell Property) all saw material reserve increases, 66%,
15% and 73% , respectively. As well, the company has optioned the Kliyul property, acquired via the acquisition of Kiska, and created 0.5% NSR on it
through the option agreement with First Quantum (TSX:FM). Finally, the company acquired 1% NSR on exploration properties close to Goldcorp’s (TSX:G)
Red Lake mine and a 0.75% NSR on exploration properties in the Rainy River district.
Despite recent outperformance, market does not yet fully reflect the value of Kemess.
AuRico’s current EV of ~C$176.8 million implies
an EV/EBITDA for royalties (based on 2017 guidance) of ~24.5-26.5x, which is higher than royalty peers that trade at 17.2x (2017e EV/EBITDA). This
suggests the market currently allocates a value of ~C$50-60 million to Kemess. However, similar development stage peers trade at 0.60 x NAV or C$49/oz,
which suggests that Kemess, on its own could be, ascribed a value of ~C$115 million. Following the completion of the Environmental Assessment, the
market has started to reflect the value of Kemess and AuRico has outperformed, up 16.5%, versus the GDXJ (Junior Gold Miner Index) up 6.34%. We expect
that as the company continues to expand the value of the royalty portfolio and advance Kemess, it is likely to continue to outperform.
Derek Macpherson | VP Mining Analysis
Victoria Ellis Hayes | Associate
Red Cloud Klondike Strike Inc.
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All values in USD unless otherwise noted.
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Company Specific Disclosure Details
AuRico Metals Inc. - TSX:AMI - 1,2
Goldcorp Inc. - TSX:G - None
First Quantum Minerals Ltd. - TSX:FM - None
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