Metalla Royalty & Streaming Ltd. (CSE:MTA) announced it has signed a definitive agreement to acquire a 15% interest in Silverback LTD for US$1.86
million. The company announced it had signed a letter of intent (LOI) to acquire this royalty in January 2017. Silverback LTD owns 100% of the New
Luika Gold Mine (NLGM) silver stream. The NLGM produced ~126,572 oz Ag in 2016 and 28,750 oz Ag in Q1 2017. We estimate that Metalla has the potential
to generate annual cash flow of US$260-280k from this stream based on previous production and current spot silver price. The agreement also includes
an option for the company to invest in an additional streaming transaction. We view the investment positively, as the company continues to add value
to its portfolio. The transaction is expected to close on or around May 11th, 2017.
New Luika Gold Mine expected to operate through 2023. The NLGM, located in south-west Tanzania, is operated by Shanta Gold Ltd. (AIM:SHG)
a gold producer, developer, and explorer focused in East Africa. Silverback LTD is a private investment company which owns 100% of the NLGM silver
stream. In 2013, this primary gold mine achieved commercial production. It produced 28,750 oz Ag in Q1 2017, and 126,572 oz Ag in 2016. In addition,
the mine produced 20,416 oz Au in Q1 2017 and 87,713 oz Au in 2016. In March of this year, Shanta announced a revised mine plan that should see production
continue through 2023, with similar production levels from 2016 expected to continue through 2020. We note that Shanta provides limited detail on the
amount of silver at NLGM; consequently, we are using a historic production ratio of gold to silver for our estimates (1 to 1.43 over the last 5 quarters).
Metalla adds value with new royalty. For US$1.86 million Metalla SEZC will acquire 15% interest in Silverback LTD. The initial price of
US$2 million was reduced to account for the company’s first delivery of 8,008 oz Ag at a price of US$17.25/oz, comprised of production from October
2016 to March 2017. The agreement also provides Metalla the option to invest in a second stream. As per the Silver Streaming Agreement (SSA), Silverback
will receive a minimum of 608,970 oz Ag over 6.75 years, covering 100% of monthly silver production up to 11,250 oz and 80% of the balance. Based on
Metalla’s 15% interest in Silverback and the historic gold:silver ratio, we estimate Metalla is likely to receive 17-18k oz of Ag per year and generate
between US$260-280k from this stream.
Valuation reflects growth potential.
The agreement to acquire a 15% interest in Silverback, represents the companies first cash flowing
stream. Based on just this stream, Metalla trades, 55-59x on EV/CF basis, peers 31.3x; however, this does not reflect Metalla’s ability to rapidly
grow its portfolio with similar small streams or its existing royalties that have the potential to generate cash over the medium to long-term. As well,
the company is continuing to work towards a TSX or TSXV listing which should improve liquidity while making it easier for new investors to participate.
Derek Macpherson | VP Mining Analysis
Victoria Ellis Hayes | Associate
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